OVERVIEW OF URBAN RENEWAL AND ECONOMIC DEVELOPMENT

IOWA MUNICIPAL PROFESSIONALS INSTITUTE

July 23, 2013Patricia J. Martin & Kristin Cooper

Ahlers & Cooney, P.C.100 Court Avenue, Suite 600Des Moines, IA 50309-2231

pmartin@ahlerslaw.com; kcooper@ahlerslaw.com Telephone: 515-246-0350 Pat 515-246-0330 Kristin

FAX: 515-243-2149

CAVEAT

This Guide is intended for general informational purposes only. Answers to legal questions about Iowa urban renewal law can vary greatly depending upon the specific facts in a given situation. Please consult an attorney.

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WHAT IS TIF?

• Tax Increment Financing• Concept is to capture the incremental

(increased) taxes generated from the construction of buildings/expansionsFrozen base (everyone shares in the base)Tax Increments generated (new value less base)Everyone benefits -- eventually

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HOW TO COMPUTE TIF?

• New Value After Improvements $2,000,000• Frozen Base Value $1,500,000• Difference in Assessed Value $ 500,000

Combined Tax Levy = $32/$1,000Debt Service Levy and School’s PPEL & ISPL = $ 4/$1,000Net TIF Levy $28/$1,000

Net TIF Levy times Difference in Assessed Value = Tax Increment

$28/$1,000 x $500,000 = $14,000 Tax Increment per year

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WHAT HAPPENS WITH VARIOUS TAXES?

INCREMENTAL TAXES Potential TIF $$PPEL Will be IncreasedISPL Will be IncreasedDEBT SERVICE LEVIES Will be IncreasedJOINT CITY-COUNTY BLDG

Will be Increased

TAXES ON BASE VALUE No Change

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WHEN IS TIF?

FROM PROJECT COMPLETION TO TAX COLLECTIONHOW THE SYSTEM WORKS

2013 Project Completes Summer 2013_2014 Assessed 01-01-142015/2016 Taxes Based on 01-01-14 Valuation Will Not Be Paid Until Fiscal Year 15-16CAUTION Until And Unless Incremental Taxes Are

Collected (Which Could be Even Later Than Fiscal Year 15-16) There Are No TIF Reimbursement Dollars to Spend

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WHY IS TIF?

• Iowa Code Chapter 403 and 15A combine to give City authority for grants, loans, tax rebates to private entities

• Iowa Code Chapter 403 gives City authority to use Tax Increment for public infrastructure that promotes Economic Development

• 6 types or designations are available for UR Areas• The types are described in an UR Plan: slum; blight;

economic development(C&I), ED(LMI housing), and ED (non-LMI housing); mixed.

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WHERE IS TIF?

• TIF can be used for Urban Renewal projects that are authorized within the UR Area that has been designated by the UR Plan within the time allowed under law.

• Therefore the first question is: Is the property on which the Urban Renewal project will occur (roads built or building constructed) within a current UR area?

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HOW IS TIF?

In order to receive the right to use TIF or Tax Increment, the City goes through a plan or amendment adoption process in order to receive the legal authority to use tax revenues from affected taxing entities (school and county).

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ASAP

(new

pla

n on

ly)

•Obtain written permission of all Ag owners and city/county joint agreement (if applicable). •Draft UR Plan is approved by Staff and Counsel

ASAP

•Resolution to set hearing•Refer to P&Z (not required for amendments)•Hold consultation

AT

LEAS

T 5 DAY

S

•Send copy of resolution, •plan, •and notice of consultation to affected taxing entities.

7 DAYS OR LESS

Hold Consultation

•Written comments about plan.

NOTMORE THAN 30 DAYS•Receipt by P&Z (new plan only)

•P&Z report to council/board (new plan only)

COUNCIL/BOARD

CLERK/ AUDITOR OR DESIGNATED

STAFF

AFFECTED TAXING ENTITIES

P&Z (not required for amendments)

•Publish Ordinance•Record Plan

AT LE

AST 7

DAYS

•Written response to consultation parties•Report to Council/Board

•Receive reports on consultation•Receive report from P&Z (not required for amendments)•Hold Hearing•Pass Ordinance

WHEN IS TIF?

• How long can you collect TIF?• It depends of the designation or type of area;

and• It depends on when the property that the

project is located on was put in the Plan; and• It depends on what the Plan says

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SUNSETS• Slum and Blight —no statutory sunset, plan dictates• Econ. Dev. (Comm./Ind) (post-1/1/95 plans) (and no

part is slum/blight) 20 years from calendar year after 1st certification of debt

• Mixed Econ. Dev. and Blight--no statutory sunset, plan dictates

• Econ. Dev. (LMI housing) 20 years from calendar year after 1st certification of debt

• Econ. Dev. (NON-LMI housing) 10 fiscal years starting with 2d fiscal year after 1st certification of debt, (can extend to 15 years with consent of other taxing entities if city is under 15,000 population)

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WHAT CAN TIF REIMBURSEMENT BE USED FOR?

1. Is the Project within an Urban Renewal Area (exception: LMI Match Urban Renewal Project)?

2. Does the Project qualify under Iowa Law? Iowa Code 403.6; Iowa Code 403.12

3. Is the Project adequately described in the Urban Renewal Plan?4. Will the Project achieve approved goals?

Eliminate Slum.Eliminate Blight.Create or Retain Jobs or Income.Provide housing for LMI families.Provide Public Improvements for non-LMI housing

development.

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Best practices

TIF is a reimbursement statute

Life cycle charts (how to handle interfund loans)

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Think About TIF Authorization a Little Differently

• TIF is a REIMBURSEMENT PROCESS. The City or County certifies “loans, advances, indebtedness or bonds.”

• Tie these 3 things together:1. Authority for the UR Project in the Plan (description and

dollar amount).2. Resolution by Council/Board approving the expenditure

as an UR Project, authorizing payment, and qualifying it be included in December 1 certification to county.

3. December 1 certification to the county auditor of the expense.

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Life Cycle of TIF Advances

Fund with Available Balance (Not 403.19

Special Fund)

Incremental Taxes Available

Governing Body Finding of

Qualification for Reimbursement (if not approved along

with project)

403.19 TIF Certification

403.19 Reimbursement Paid

into Special Fund and Transferred into Fund where Advance

Originated

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Reimbursement Process forLoans, Indebtedness or Bonds

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TWO KINDS OF HOUSING AREAS

ECONOMIC DEVELOPMENT – LMI HOUSING AREA

• This is an area where the city or county wants to promote development or construct improvements to promote housing opportunities for ONLY LMI persons.

• Still get a 20 year sunset• Housing for LMI

– Documentation that income of residents meets LMI maximum– Documentation that the housing is affordable to LMI residents

• Can use Tax Increment for a variety of purposes (land purchase, rebates of increment, loans, grants, etc.)

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NON-LMI HOUSING

ECONOMIC DEVELOPMENT – INFRASTRUCTURE FOR NON-LMI HOUSING

This is an area where a city or county wants to help fund the cost of Public Improvements to serve housing that is too expensive for LMI persons. This type of area should be mixed with any of the other types only when the effect that it might have is fully understood and accepted.

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NON-LMI HOUSING• Can only use TIF for reimbursement of Public

Improvements (as defined in Iowa Code)• Have to set aside LMI funds equal to the percent of LMI

residents in the county or audit the income of residents or provide units within the UR area affordable to LMI residents

– LMI Set-Asides can be used for a variety of purposes to assist with LMI housing (lots, interest rate buy down, etc.)

– LMI set aside fund can be used anywhere in the municipality– Sunset restriction (approx. 10 years unless municipality is less

than 15,000 in population and county and school consent to up to an additional 5 years)

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2012 Amendments to UR Law

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2012 UR AmendmentsUrban Renewal Report

• Must be completed for each UR Plan and Area in effect during the most recently ended fiscal year

• Affirmative vote of Council/Board• Submit electronically by December 1 following

the fiscal year

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Urban Renewal Report

• Very detailed – 21 paragraphs of information, including:– Area designation; submission of all ordinances and

amendments to UR Plan; maps– List of all UR Projects in process and completed– List of all expenditures from special fund and the relating UR

Project – Amount of property taxes rebated and list of those properties– Assessed value of UR Areas, portion of assessed value used to

calculate incremental taxes, and portion “released” to other taxing entities

• Now on the DOM website

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Consequence for Reporting Non-Compliance

• Urban Renewal Report & Annual Financial Report• Due by December 1 following end of fiscal year• Prior to publication and adoption of budget for

fiscal year after December deadline• Otherwise: Department of Management will

not certify city or county’s taxes back to county auditor

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Amendments to Urban Renewal Plans

• Urban Renewal Project must be included in the plan or an amendment to plan– Public improvements– Development Agreements– Conveyance or Acquisition of Property– Blight Remediation– Planning, engineering fees, attorneys fees and costs

• No Planning & Zoning review for amendments (just for new plans)

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When to Amend?

• As needed; and/or• Annually

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Relocation of Business Limited• Cannot use TIF Reimbursement for Urban Renewal Projects that

include the relocation of a business from county or contiguous county

• 2 exceptions– Written agreement between the two municipalities– Finding that relocation is “in the public interest” (out of state move)

• “Relocation”, closure or substantial reduction of existing operations

• And start up of substantially the same operation in the same county or a contiguous county

• Does not limit “expansion” as long as no closure or substantial reduction of existing operation

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TIF Audit and Certificate of Compliance

• Each city or county audit includes examination of TIF compliance under section 403.19.

• City/County must annually certify compliance.• State Auditor will provide information and

rules on this certification

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Changes to TIF Certification

• TIF Certification must also include– Interest negotiated– Amounts which qualify for payment from TIF in

the next fiscal year and any subsequent fiscal year

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Using TIF for Public Buildings

• If proposed Urban Renewal Plan or amendment includes use of TIF for a public building:– Analysis of alternative development

options and funding must be included in proposal

– Show such alternatives are “less feasible” than using TIF for the project

– Also include with annual Urban Renewal Report

• Police Station• Fire Station• Administration

Building• Swimming Pool• Hospital• Library• Recreational Building• City Hall• Other public building

exempt from taxation

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No Redetermination of Area Type

• Urban Renewal Areas can no longer be redetermined once they are designated.

• i.e. Cannot amend a pure economic development plan to include a blight area.

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Surplus Balance in Inactive Funds

• If the necessity for the TIF special fund ceases to exist and a balance remains:– Assume the special fund “ceases to exist” upon the

expiration of the ability to collect increment in the Area. If so:

• Balance cannot be transferred to another fund• Balance must be paid into the funds for the respective

taxing districts

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Use of Interest Earned on TIF

• Interest earned on amounts in special fund must be deposited into the special fund

• Net proceeds from sale of assets purchased using TIF money shall be deposited in special fund.

• No transfers are allowed from the special fund except for payment of loans, advances, etc. that qualify for payment from the special fund.

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ALTERNATIVES TO TIF

URBAN REVITALIZATION

ORDINANCE FOR INDUSTRIAL ABATEMENT

REBATE CITY ONLY TAXES

Development Agreements

• What is a Development Agreement?• Must be sure that:

– Development Property is in Urban Renewal Area– Specific project authority in Plan (given 2012

legislation)– Grants/benefits will not be cut short by sunset– Ordinance allowing for collection of increment

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Development Agreements

• Types of Development Agreements– Rebate Agreements (Lower risk)

• not 100% of taxes paid– Up Front Incentives (Higher Risk)

• Forgivable loan• Up front cash payment • Infrastructure improvements

• Key parts of Development Agreements– Timing of rebates, grants– Benefit to City (job creation/retention, building)– Nonappropriation language

QUESTIONS?

Contact Information:Patricia J. Martin (515) 246-0350

Kristin Cooper (515) 246-0330

Ahlers & Cooney, P.C.pmartin@ahlerslaw.com

kcooper@ahlerslaw.com 953271

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