Tax Increment Financing: Constraints and Opportunities

Abdi Aidid and Joseph Nawrocki Community & Economic Development Clinic

Yale Law School

Areas We Studied

We were asked to look at: Washington, D.C. Wisconsin Maine Iowa (not discussed in this

presentation)

Characteristics of the TIF Statute Most Suitable for Downtowns

We found that TIF statues are most effective for downtown redevelopment when: Municipality run, with minimal state involvement Centralized decision-making procedure Few or no limitations on the types of projects it can be used

for Allows creation of broad TIF Districts Uses multiple sources of revenue, including sales taxes

District of Columbia

TIF in D.C. is governed by the 1998 Tax Increment Financing Act and the Retail Incentive Act of 2004

Via 1998 Act, DC Council can issue bonds to finance development costs up to $500 million (and $300 million in designated “Central Business Districts” or CBDs)

2004 Retail Incentive Act provides for smaller TIF bonds to defray cost of tenant improvements

Advantages of Retail Incentive Act of 2004

Broad districts: larger, neighborhood-sized areas are designated TIF districts

Access to significant funds: District can get up to $25 million in funding from TIF Up to $5 million per project

Diverse Revenue Streams: Utilizes both Sales and Real Property Taxes

Designation of Retail Priority Area for Retail Incentive Act of 2004

Municipality Run, Centralized Decision Making

H Street

Columbia Heights

D.C. TIF Act of 1998

Used for large-scale projects

Ordinarily developer-initiated

Effectively subsidizes development that might not otherwise have occurred

Advantages of D.C. TIF Act of 1998

Diverse funding streams: Funding is drawn from both property and sales taxes in designated areas

Relatively high funding cap: The $500 million cap allows for large and relative sophisticated development projects

D.C. TIF Selection Processes: 1998 TIF Act

Mandarin Oriental Hotel

Gallery Place

International Spy Museum

City Market at O Street

Wisconsin

TIFs in Wisconsin are governed by the Wisconsin TIF Law of 1975 and five subsequent amendments/expansions

Legislation authorizes municipalities to create Tax Increment Districts (TIDs)

Versatility of Wisconsin TIF

Cities can create TIF District if 50% of the property is: Blighted In need of rehabilitation/conservation Zoned for industrial use; OR Suitable for mixed-use development

TIF Districts can be large TIF District can cover area beyond the actual development

Wisconsin TIF Selection Process: Centralized and Municipality Run

What WI TIF may cover

Capital costs

Financing costs

Real property assembly costs

Professional service costs

Imputed administrative costs

Relocation costs

Organizational costs

Construction or alteration of sewage treatment plants costs

Wisconsin TIF: Types of Taxes

Note that Wisconsin TIF typically only allows the use of revenues from property taxes

Courtyard Marriott Milwaukee

Currie-Pierce Office Building

Maine

Maine’s TIF statute was introduced in 1977, and empowers cities and plantations to establish TIF districts

TIF districts can be established anywhere that there is at least 25% of the proposed area in need of rehabilitation, redevelopment, conservation or is suitable for industrial and commercial use

Developers can also propose TIF districts

Advantages of Maine TIF statute

Few project limitations: TIF funds can be used to cover capital costs, financial costs, real property assembly costs, professional services, reasonable administrative expenses, relocation costs and organizational costs related to establishing the TIF district.

Municipality run

Broad Districts

Maine TIF Selection Process: Centralized

Maine TIF: Types of Taxes

Maine TIF only allows the use of revenues from property taxes

Machias Savings Bank

Bath Iron Works

TIF in Connecticut

Characteristics of the TIF Statute Most Suitable for Downtowns

We found that TIF statues are most effective for downtown redevelopment when: Municipality run, with minimal state involvement Centralized decision-making procedure Few or no limitations on the types of projects it can be used

for Allows creation of broad TIF Districts Uses multiple sources of revenue, including sales taxes

Statutory Sources

TIF-funded projects are enabled by four different statutes:

1. Section 32-23zz: I.T. and Remediation of Polluted Sites

2. Section 32-285: Significant Economic Projects 3. Section 8-125 to 8-145: Redevelopment and

Urban Renewal of Blighted Areas 4. Section 8-192: Municipal Development

32-22zz: I.T. and Remediation

32-22zz authorizes funding for information technology projects that provide “information technology intensive office or laboratory space” and will “materially contribute to the economic base of the state.”

Remediation projects eligible for funding must improve properties that can be treated as polluted real property or contaminated real property.

Why 32-22zz is not suited to downtown revitalization

Project limitations Can only be used for Technology and

polluted site Rehabilitation project

Not municipality run Bonds are issued by Connecticut Innovations

Limited to property taxes

North Haven Commons

Killingly Commons

32-285: Significant Economic Projects

32-285 authorizes funding for self-sustaining significant economic projects

Tax increments are to be generated from increases in hotel taxes, sales, cabaret, admissions and dues taxes.

The purpose of the statute is to attract such developments to Connecticut

Why 32-285 not suitable for downtown revitalization

Dodd Stadium (Norwich)

Oakdale Theatre (Wallingford)

8-124 to 8-145: Urban Redevelopment

An urban renewal project includes “undertakings and activities for the elimination and/or prevention of the development or spread of slums or substandard, blighted, deteriorated or deteriorating areas.”

Examples of urban renewal projects authorized by the statute include

1. Demolitions or removals 2. Rehabilitation of buildings 3. Reconstruction of public utilities, parks or playgrounds 4. Any approved disposition of property

Advantages of 8-124 to 8-145

Municipality run Municipality can issue TIFs without State

Centralized Municipality establishes Redevelopment Agency Redevelopment Agency reviews applications Then municipality legislative body votes

Covers larger areas

Why 8-124 to 8-145 not suited to CT downtown revitalization

Project limitations “at least twenty per cent of the buildings contain one or

more building deficiencies or environmental deficiencies” E.g. Inadequate original construction Obsolete building types Overcrowding

Limited to taxes on property

8-186 to 8-192: Municipal Development Projects

Authorizes CT municipalities to initiate use of TIF for “a project conducted by a municipality for the assembly, improvement, and disposition of land or buildings or both to be used principally for industrial or business purposes and includes vacated commercial plants.” § 8-187(4) (2014).

Advantages of 8-186 to 8-192

Municipality-initiated

More centralized decision-making Though requires final approval from DECD

Can be used to create larger TIF districts

8-191 Process

8-191 Process (Continued)

Why 8-186 to 8-192 not suited to CT downtown revitalization

Project limitations “[T]he land and buildings within the project

area will be used principally for industrial and business purposes.” § 8-189(13)(A)

Limitations on revenue streams Can only utilize property taxes