Tax Increment Financing Increment... 3 Eligibility for Incentive District TIFs ¢â‚¬¢ A TIF may be comprised

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    Tax Increment Financing and Residential Incentive Districts

    Squire, Sanders & Dempsey L.L.P. © 2010

    Gregory R. Daniels, Esq. Squire, Sanders & Dempsey L.L.P.

    41 South High Street, Suite 2000 Columbus, Ohio 43215

    Email: GDaniels@ssd.com Tel: 614-365-2789

    www.ssd.com

    Margaret W. Comey, Esq. Squire, Sanders & Dempsey L.L.P.

    221 E. Fourth St., Suite 2900 Cincinnati, Ohio 45202

    Email: MComey@ssd.com Tel: 513-361-1208

    www.ssd.com

    TIF Overview • At least 6 different types of TIFs – all are

    implemented by ordinance or resolution

    • Focus today will be on 3 most commonly used TIF types (Revised Code Sections 5709.40, 5709.73 and 5709.78)

    • TIF is one of many economic development tools available in Ohio and is often used in conjunction with other tools

    • The point of a TIF is to generate payments in lieu of taxes (“PILOTs”) to pay for public infrastructure improvements

    Squire, Sanders & Dempsey L.L.P. © 2010

    Increment Generates PILOTs

    Squire, Sanders & Dempsey L.L.P. © 2010

    $10,000,000

    $1,000,000

    $100,000

    0

    County Municipality

    School District Township

    ImprovedUnimproved

    I N C R E M E N T

    TIF PILOTs generated from the incremental assessed value

    are used to finance the public

    infrastructure costs.

    I N C R E M E N T

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    Tax Increment Generates PILOTs

    • Existing taxes are unaffected

    • County treasurer collects PILOTs along with real estate taxes

    • Tax lien exists to secure PILOTs

    • PILOTs are in the same amount as the otherwise applicable taxes

    • Potential issues with diverting too much real property taxes to PILOTs

    Squire, Sanders & Dempsey L.L.P. © 2010

    Public Infrastructure Improvements

    • Traditional government projects (i.e. roads, water & sewer lines, stormwater, etc.)

    • Redevelopment projects (i.e. land acquisition, environmental remediation and demolition)

    • New development (i.e. gas, electric, and communications service facilities)

    • Projects can, in some cases, be located outside of TIFing jurisdiction

    • Projects can, in some cases, be located on private property

    • Projects must generally benefit TIF property Squire, Sanders & Dempsey L.L.P. © 2010

    General TIF Considerations

    • School vs. Non-School TIF – No School District approval for Non-School Municipal

    TIFs or TIFs that do not exceed 10 years, 75% – School District approval required for all other TIFs over

    10 years, 75% – Compensation Agreements with School District –

    potential issues – Income tax sharing applies for School TIFs

    • Notice Periods – 14 days for JVSD notices and for TIFs where School

    approval is not required – 45 business days for all other TIFs

    • Prevailing Wage Requirements

    Squire, Sanders & Dempsey L.L.P. © 2010

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    Eligibility for Incentive District TIFs

    • A TIF may be comprised of specific private parcels (a “parcel” TIF) or a political body may create an “incentive district” TIF

    • Political body’s ability to TIF residential property is very limited in a parcel TIF

    • Incentive districts may include both residential and commercial improvements

    • Basic requirements for an incentive district: – No larger than 300 contiguous acres

    – Exhibits one or more characteristics of economic distress

    Squire, Sanders & Dempsey L.L.P. © 2010

    Eligibility for Incentive District TIF (Cont.)

    • Additional provisions/restrictions to create an incentive district: – Need to identify specific projects generating

    infrastructure demands

    – If PILOTs generated from private improvements in the district are being used to fund housing renovations, legislation must identify a project within the district that places real property in use for commercial or industrial purposes

    – PILOTs cannot be used for police or fire equipment

    – Subdivisions with a population over 25,000 may not create an incentive district if it would result in more than 25% of the taxable value of all real property within its boundaries for the preceding tax year being included in incentive district TIFs

    Squire, Sanders & Dempsey L.L.P. © 2010

    Incentive District TIFs May Require Additional Notice

    • For incentive district TIFs that are longer than 10 years or provide more than a 75% exemption, notice must be given to the board of county commissioners or board of township trustees (45 business days)

    • If the political subdivision intends to file exemption applications on behalf of property owners, it must hold a public hearing on the proposed TIF at least 30 days prior to passage of the authorizing TIF legislation and give 30-day notice of that hearing to all owners of property within the incentive district by first class mail

    Squire, Sanders & Dempsey L.L.P. © 2010

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    Sharing of PILOTS for Incentive District TIFs

    • Where the TIF’ing subdivision files the exemption application, half of PILOTS from the inside millage for a county or township on reappraisal/update increases to base value are shared with counties or townships

    • Where notice to county or township is required, if no compensation agreement is reached, an amount equal to either 50% of the taxes otherwise payable to the county or township in years 11-30 or 50% of the taxes otherwise payable to the county or township if the exemption did not exceed 75%

    Squire, Sanders & Dempsey L.L.P. © 2010

    Protected Levies for Incentive District TIFs

    • PILOTs attributable to certain tax levies are not captured by the TIF and are to be paid to the benefiting agency

    • Amount of PILOTs paid to the benefiting agency is equal to the entire amount generated from any newly approved additional levies, plus the increased amount generated from the increase in effective rate (over the January 1, 2006 rate) of any renewal or replacement levies, passed by the electors on or after January 1, 2006

    Squire, Sanders & Dempsey L.L.P. © 2010

    TIF Agreements

    • Agreements between the public body and the property owner are recommended for most TIFs whenever feasible

    • Provides an opportunity to allocate risks

    • May include property owner’s covenants to make payments in lieu of taxes and provide for those covenants to run with the land (useful if foreclosure proceedings are not initiated)

    • May provide for the property owner’s promise to construct the proposed real property improvements

    • May include covenants requiring the property owner to prepare and file (in cooperation with the public body) the necessary tax exemption applications

    • May set forth the terms of constructing and paying for the public infrastructure improvements, including minimum service payments and issuing debt or entering into a guaranty or letter of credit arrangement

    Squire, Sanders & Dempsey L.L.P. © 2010

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    Risks Public Bodies Guard Against

    • Anticipated real property improvements are not completed or valued at anticipated level

    • Real property improvements are completed but are later destroyed as a result of natural disaster or other casualty event

    • Real property improvements are completed but the property owner encounters financial difficulty and is unable to make PILOTs

    • Decrease in level of assessed valuation and/or level of real property taxation

    • PILOTs are insufficient to pay debt service on securities issued to pay costs of the public improvements

    Squire, Sanders & Dempsey L.L.P. © 2010

    Financing Methods

    • State Loan

    • Public Body Debt

    • Cash Advance

    • Developer Reimbursement

    • Conduit Financing

    • Regardless of method, financing needs to account for time period between debt issue and beginning of PILOT collection

    Squire, Sanders & Dempsey L.L.P. © 2010

    Ongoing TIF Compliance

    • DTE 24 Filings (who prepares, who signs)

    • Property Notice Filings

    • TIF Value Check

    • Annual Reports

    • Tax Incentive Review Council (review, not revoke)

    • Expenditure Tracking/Accounting

    Squire, Sanders & Dempsey L.L.P. © 2010

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    Questions? Margaret W. Comey, Esq.

    Squire, Sanders & Dempsey L.L.P.

    221 E. Fourth St., Suite 2900

    Cincinnati, Ohio 45202

    Email: MComey@ssd.com

    Tel: 513-361-1208

    www.ssd.com

    Gregory R. Daniels, Esq.

    Squire, Sanders & Dempsey L.L.P.

    41 South High Street, Suite 2000

    Columbus, Ohio 43215

    Email: GDaniels@ssd.com

    Tel: 614-365-2789

    www.ssd.com

    Squire, Sanders & Dempsey L.L.P. © 2010

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