Creation of Tax Increment Financing Districts Jennifer LeGrand, - PowerPoint PPT Presentation

Creation of Tax Increment Financing Districts Jennifer LeGrand, Vinson & Elkins LLP John Stalfort, Miles & Stockbridge P.C.

Presentation Topics � Project-Specific TIFs vs. District-Wide TIFs � Public Policy Considerations � Pre-District Due Diligence by TIF Proponent(s) � Creation of TIF Districts in Maryland and Texas � “Blight” and the “But for” Test � Governance of TIF Districts � TIF Districts Encompassing Multiple Local Government’s Jurisdictions � Due Diligence and Long Lead-Time Documents for TIF Districts

Types of TIF Approaches � Project-Specific � Single project or single piece of property. � Funds typically used for public improvements necessary to support the project. � District-Wide � Large area of land or entire neighborhood is targeted for redevelopment. � Funds typically support major infrastructure projects.

Project-Specific TIFs Pros Cons Smaller scale means Greater risk when only � � fewer participants and one landowner is faster timeline. involved. Rarely involves eminent Broader long-term � � domain or similar legal visioning may not be complications. considered in plan. Useful for communities Community may perceive � � wishing to commit fewer TIF as giving an financial resources. advantage to a single developer or landowner. Effective in providing gap � financing for a particular Not suitable for � improvement. addressing larger-scale concerns, such as blight.

District-Wide TIFs Pros Cons � Large-scale community � Historical owners may commitment feel pushed to leave encourages businesses area. to commit. � More parties involved � Can serve as a catalyst and a longer timeline. to transform and � Community buy-in revitalize entire needed - efforts to neighborhoods. educate the public on � More effective at rationale behind and driving economic benefits from TIF are development. more critical.

Public Policy Considerations in Creating TIF Districts � Net increase in tax revenue for the local government. � Parcels within TIF district should receive economic benefit of project. � Setting TIF allowances and limits to encourage or discourage different types of TIF projects. � TIF for “green” projects – e.g. mass transit projects. � “Blighted” parcels that would not be revitalized “but for” TIF financing. � Consider any possible negative impact on rating of general obligation bonds.

Pre-District Due Diligence by TIF Proponent(s) � Ask if Issuer has TIF policy and practices guidelines. � Prepare presentation for potential issuing agencies. � Be prepared to show that project would not be feasible but for the TIF financing. � Illustrate how the TIF project meets Issuer’s general growth objectives and comprehensive planning needs.

Statutory Creation of TIF Districts in MD Article 41, Sections 14-201 et seq. � Issuer can be county or municipality. � The types of areas that can be supported are industrial, commercial and residential. � Costs available for TIF financing: land, site removal, relocation of businesses and residents, infrastructure, governmental use or purpose buildings, reserves and capitalized interest, and costs of issuance. � Issuer passes resolution designating “development district”. � District must be a contiguous area. � No finding of blight necessary.

Determining Assessable Base in MD Article 41, Section 14-206 � State Department of Assessments and Taxation (SDAT) determines assessable base as of January 1 of year prior to resolution. � Adjusted assessable base used for farm or agricultural property – assessable base equal to FMV without regard to agricultural use.

As Compared to Creation of TIF Districts in TX Chapter 311, Texas Tax Code Created by counties or municipalities, either on own if there is a � finding that development or redevelopment would not occur solely through private investment or via a petition signed by the owners of at least 50% of the appraised value of property. Often a local government corporation is created to manage the � TIF and issue debt, although municipality can issue bonds directly. Requirement that the area be “unproductive, underdeveloped or � blighted.” Requirement that no more than 10% of the property in the � proposed TIF be used for residential purposes. Requirement that the total appraised value in the proposed TIF � combined with existing TIFs not exceed 15% of the appraised value of real property in the municipality.

Initial Steps in Texas � Prepare a preliminary reinvestment zone financing plan and send to each taxing unit that levies taxes in the proposed TIF. � Provide a 60-day written notice of intent to designate the TIF to each taxing unit that levies taxes in the proposed TIF (may be waived by the governing body). � Provide a formal presentation to each taxing unit. � Hold a public hearing on the creation of the TIF.

Use of Sales Tax Increment in Texas and Other Jurisdictions � Used in the District of Columbia, California, Colorado, Kansas, Illinois, Louisiana, Maine, Missouri, Pennsylvania, Texas, Virginia, Wyoming and more. � Allows municipalities to dedicate all or a portion of its sales tax increment to fund TIF projects in addition to or instead of property tax increment. � Most useful in mall or largely commercial areas. � Potentially enables a municipality to complete TIF projects faster, thus enabling an earlier termination date for a TIF.

“Blight” More than half of TIF statutes and policy guidelines � require a finding of “blight.” Potential factors supporting a finding of blight: � Dilapidation Inadequate Utilities � � Obsolescence in use Environmental Remediation � � Deterioration Deleterious Land Use � � Failure to meet Code Unsanitary or Unsafe Conditions � � “Blight” is usually broadly construed, but due to � perceived abuse, expect increased scrutiny of Issuers’ findings from the public and project opponents.

“But for” Test � Ensures TIF financing is necessary for project success. � Used to determine minimum amount of TIF financing necessary to make project feasible. � Sample but for test: The redevelopment area on the whole… has not been subject to growth and development through investment by private enterprise and would not reasonably be anticipated to be developed without the adoption of the redevelopment plan. -Missouri Revised Statutes Section 99.810(1).

Public Governance of TIF Districts � Governed by a board of directors appointed by the creating entity and any other participating taxing units. � In some cases governed by a local government corporation. � Negotiate an agreement between the creating entity, the TIF board of directors, and the local government corporation detailing powers and duties of the local government corporation.

TIF Districts that Include Multiple Taxing Authorities’ Jurisdictions � Texas TIFs often have participation from taxing units other than the creating entity. � Most Texas TIFs are created by municipalities. Recent changes in law allow municipalities to participate at less than 100% . � County participation. � School district participation (only if TIF created in 1999 or before). � Other taxing unit participation. � In each case, negotiate an interlocal agreement detailing level of participation.

Critical Long Lead-Time Documents for TIF Districts � Memorandum of Understanding between the local government(s) and Developer. � Development Agreement between Issuer and Developer. � Feasibility/ Market Study and Tax Increment Projection Study.