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Tax Increment Financing, or TIF, has been a self-help development tool for municipalities to fight urban blight. It is used by municipalities to develop unproductive areas with declining or stagnant property values that would not otherwise be redeveloped. When properly applied, TIF enables many municipalities to generate increased tax value for the whole community. TIF's give municipalities extraordinary powers, including the power to tax revenues. For a proposed TIF area to qualify for the program, it must meet statutory qualifications as a "blighted" or "conservation" area (see pg.2). When TIF is created, the equalized assessed valuations (EAVs) on which property taxes are based are considered "frozen" at a "base EAV level." Generally, the city borrows money by issuing bonds. The money is then used to make the land designated as a TIF more attractive through improvements in infrastructure and public utilities, and to provide services such as land clearance. These improvements are supposed to be used to attract developers who otherwise would not have been interested in or capable of developing the TIF land. As the TIF develops and the land is improved, the equalized assessed value is supposed to increase to reflect these improvements, and this increase in equalized assessed value over the base level at the time of the creation of TIF is called the increment. The base EAV revenues continue to go to the taxing bodies serving the TIF area, but any rise in revenues goes into a municipal fund to pay off the municipality's debt and expenses incurred for development. Property tax revenues to local taxing bodies, such as school districts, remain at the base level for the entire length of the TIF, which may continue up to 23 years. Ideally, after the TIF project is complete, the developed land increases the tax base for all of the taxing bodies within the area. Once the debt and expenses are retired, the incremental EAV becomes available to all of the taxing bodies. If an area is truly blighted and no development would occur without the TIF, all the taxing districts stand to gain from a TIF because their tax base will eventually experience improvements that would not have otherwise occurred. If, however, the EAV is rising naturally, or the property would have been improved without a TIF, then the taxing bodies within the area are losing the EAV that would have otherwise been theirs. To prevent this from happening, the Illinois statute requires two specific tests be met before a TIF district is legally implemented. (65 Illinois Compiled Statutes [ILCS] 5/11-74.4 et seq.). Illinois legislation requires that proposed TIF areas:
The Illinois TIF statute defines "blighted area" as: [A]ny improved or vacant area within the boundaries of a redevelopment project area located within territorial limits of the municipality where, if improved, industrial, commercial and residential buildings or improvements are detrimental to the public safety, health, or welfare because of a combination of 5 or more of the following factors, (see below), each of which is present within the intent of the Act and reasonably distributed throughout the improved part of the redevelopment project area:
In order for land to be considered a conservation area, a combination of 3 or more of the same factors must be present. Likewise, new legislation has defined vacant land. Vacant land must encompass 2 or more of these conditions.
Recent legislation has also defined physical characteristics of vacant land and requires the land to exhibit only one of these factors. Vacant land may encompass unused quarries, mines or strip mine ponds. Unused railyards, rail tracks, or railroads and areas subject to chronic flooding may also be considered vacant land for the purpose of redevelopment. A potential vacant TIF area can not be less than 50 acres but no more than 100 and the land must be 75% vacant. The second threshold condition for TIF definitions is known as the "but for" precondition: "but for the TIF, no development would occur." If an area has the potential to develop without the expenditure of public funds, then TIF cannot be used. The Department of Revenue explains the two reasons for this condition: first, the prerequisite demonstrates that TIF is an economic tool of last resort, to be used after everything else to promote redevelopment has failed. Second, the "but for" provision is supposed to protect other taxing districts from being denied revenues that would other wise be generated without the TIF. POTENTIAL ADVERSE EFFECTS OF A TIF Although there are winners and losers even in a "good" TIF, when TIF is applied to land that could be developed without public intervention, certain groups suffer: · Increasing the tax burden to taxpayers: If the taxing bodies in the TIF district are not already taxing at the maximum amount permitted, they can increase the property tax rate when faced with increased expenses. The taxing body may have to burden all taxpayers in the taxing district to compensate for being frozen out of what would have been the natural increment in the TIF district. · Hidden tax that evades any referendum requirements: If the projected sales tax to pay off the debt incurred for the TIF does not materialize, the cost of the project may be ultimately borne by the taxpayer who will pay through other municipal funds or tax increases. · Developers given unnecessary subsidies: When developers receive subsidies to redevelop in areas where private investment is already occurring, this represents "gravy". If the developer would have invested regardless of the subsidy, the subsidy is unnecessary and a waste if taxpayers' money. · Municipalities given increased powers over the use of the tax increment: Money is diverted away from the other taxing bodies and into a special TIF fund. The intended use of this money is to improve the TIF district. However, some municipalities are using the revenue for projects with little public consensus or oversight. In 1999, the General Assembly passed legislation amending the provisions for TIF redevelopment projects. The revisions include changes in reporting requirements and housing relocation assistance. · Changes in Reporting Requirements In addition to an annual report that must be filed with the Comptroller, an additional report must be filed. The Comptroller must create a new format that allows the municipality to file this report electronically. Further, the report must be available to the public for viewing and copying. The new reforms require that the report include specific information regarding each redevelopment project area. The report must feature a list of the redevelopment project areas administered by the municipality and, if applicable, the date each redevelopment project area was designated or terminated by the municipality. Also, an itemized list of all expenditures, a breakdown of balances and anticipated redevelopment project costs must be included. Detailed Information must also be provided regarding contracts that the municipality's tax increment advisors or consultants have entered into with entities or persons that have received, or are receiving, payments financed by tax increment revenues produced by the same redevelopment project area. The reforms require that any reports submitted to the municipality by the joint review board must be included. Also, an analysis of public and private investment must be reported detailing the estimated amounts of these investments and a ratio of public to private investment to the date of the report and as estimated to the completion of the redevelopment project. Another change pertains to municipal restructuring of redevelopment plans. Changes that involve additional parcels of property, substantial changes in general land use, nature and extent of land use or increases in the number of displaced low and very low income homes now requires notice to the community, convening of the Joint Review Board, and a public hearing. However, if the changes in the plan do not involve any of these factors, the municipality can enact an ordinance to amend the redevelopment plan and avoid the procedure. · Notice Notice must be given to taxing bodies and registered organizations. Community members and organizations may register with the municipality through the interested persons registry so that they may receive information on the proposed project. Notice must be a good faith effort and given through regular mail. Registered organizations will receive notice via certified mail. · Joint Review Board The amendments mandate that the Joint Review Board include a community member from the project area. Also, the Board must include representatives from the township and the fire protection district. · Public Hearings The public hearing must occur 21 days prior to the adoption of the municipal ordinance. Notice by mail shall be not less than 15 days before the date of the meeting. The purpose of the hearing is to advise the public about the project and to receive public comment. Any interested person or representative of an affected taxing district may be heard orally and may file, with the person conducting the meeting, statements that pertain to the subject matter of the meeting. · Changes in Housing Displacement Residential displacement now requires a feasibility and housing impact study prior to the execution of a redevelopment plan. If 10 or more inhabited residential units are displaced or 75 or more residential units are included in the project area, then these studies are mandatory. Redevelopment plans will not be adopted if the homes of low income and very low-income persons are removed, and relocation assistance and replacement housing are less than what would be provided by the Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970. The amendments also propose that municipalities should pay up to 50 % of the cost of construction of new housing units using bonds issued by the city or TIF revenues. The replacement housing may be existing or newly constructed housing. Moreover, the replacement housing must be proffered in or near the redevelopment area. · Housing Impact Study Part I of the study must identify the number of single family and multiple family units as well as the number of inhabited and uninhabited units. This part of the study must also feature the racial and ethnic composition of the inhabited units from the most recent federal census. Part II of the study should include the plans for relocating displaced residents, the type, location and cost of the new housing and the extent of relocation assistance. · Feasibility Study This study must identify the boundaries of the area for proposed redevelopment. Also, the purpose (s) of the plan must be examined including a general description of tax increment allocation financing under this Act and the name, phone number and addresses of the municipal officer to contact for more information about the plan.
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