Tax Increment Financing (TIF):

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Tax Increment Financing (TIF):. “The only game in town” Chicago Mayor, Richard M. Daley. Andrea Clinkscales Brian Henry. A specific geographic area for TIF district is defined. Tax assessment values for properties this area are “frozen”. - PowerPoint PPT Presentation

Text of Tax Increment Financing (TIF):

  • Tax Increment Financing (TIF):Andrea ClinkscalesBrian Henry

    The only game in town

    Chicago Mayor, Richard M. Daley

  • Function of TIF A specific geographic area for TIF district is defined.

    Tax assessment values for properties this area are frozen.

    Taxing jurisdictions may only collect taxes from these properties at the frozen or base value for a specific period (usually measured in decades).

    As real assessment values rise, property owners continue to pay higher taxes.

    The difference between the taxes collected at the base value and the real value is diverted to a special TIF fund.

    This fund is used to finance investments within the TIF district.

  • TimeTIF base yearFrozen tax baseTax incrementIncreasing assessed value with redevelopmentTIF Conceptual ScenarioAssessed Value

  • History: 1950s 1990sIntroduced in 1950s as last resort to finance slum or blighted areas

    Federal development money in grants, tax breaks, and bonds decreased in 1970s

    Used sparingly until 1980s when many states passed TIF-enabling laws or amended old laws to expand TIFRedefined blight more broadlyAdded economic development as essential public purposeIncluded industrial areas with labor surplus or decommissioned military bases

    More amendments to TIF-authorizing lawsAllowing construction of low to moderate-income housing or workforce development

  • TIF Theory & Central Conflict* BUT: There are conflicting academic studies which disagree on this central point. TIF spurs economic development that otherwise would not occur An area is blighted or stagnant, it needs helpWithout help there will be no change

    Investments are made which make the area more attractive New investment in the area starts a positive cycle for further private improvements

  • Other Pros & Cons

    Not a new or direct taxSelf-financingLess effected by debt limits and other checksFlexible and specific to problems

    Takes money from other jurisdictions (like schools)Can be seen as developer subsidyCan cause an increase in tax rates (just a backdoor tax increase)Administrative costs, higher interest rates

  • Industry Opinion As I see it, TIF is another tool in the community toolbox; works best in portions of community where new development is anticipated; and should be focused at a rather limited set of specific improvements. It does not take the place of regular capital improvements; is really only a bookkeeping concept, but wow . . . it has accomplished so much. Peter Ryner Director of Community Development Peterborough, NH

  • TIF Today Legal in 49 states and Washington D.C. Prohibited in Arizona

    APAs Planning magazine (March 2007): development credit card for the city: Buy a project now and pay it off in the future

    Often first municipal government revenue development tool considered by local governments

    Once used to restore blighted areas now used to restore blighted municipal budgetsFunding all kinds major building projects

  • Does it really work?Most cities report increases in property values as a result of TIFFew cities report declinesSuccess depends on location, markets, local wealthBest results in metropolitan communities and rapidly growing suburbs

    Two examples to illustrateSuccessful TIFHeavily criticized TIFs

  • Success: Portland Development Commission (PDC)Citizens of Portland, Oregon voted to create PDC in 1958 to improve neighborhood livability

    PDC is the agency in Portland that administers TIF

  • CharacteristicsControlled by a 5-member board of commissionersLocal citizens appointed by the Mayor and approved by City CouncilQuasi-governmental in nature Because executive reports to the board of commissioners rather than directly to the Mayor or other CityCommissioners Unique organization: high degree of coordination in urban renewal, housing, economic development, and redevelopment

  • The River District PDC controls 11 urban renewal areasOne of the most successful is the River DistrictRiver District plan calls for a highdensity urban residential neighborhood

  • The Pearl DistrictThe Pearl District neighborhood is located within a sub-area of the River District

    Many achievements here can be credited to Hoyt Street Properties, a major Pearl District landowner and developer

    In 1994 Hoyt Street purchased the old Burlington Northern rail yard34-acre Brownfield site

  • River District Map

  • 1980s 1980s initiated strong potential for improvementAvailability of low cost warehouse-to-loft conversions attracted a number of artists to the area

    Adventurous investors began to buy property

    Met all conditions for TIF success:BlightedPotential for redevelopment Central location near downtownStrong private-public partnership

  • Hoyt Street PropertiesInitially, site was hampered by the Lovejoy Street off-ramp from the Broadway BridgeDivided the property in half PDC removed the ramp; Hoyt Street promised to build a world-class, mixed-use, urban community

    The Pearl District is now one of Portlands most distinctive, thriving, up-scale neighborhoodsPre-TIFPost-TIF

  • CritiquesFew exist to-datePioneering tenants priced out of the market Average five-year appreciation rate of 50% made property taxes and rent unaffordable Not strong critique because very few people actually lived there pre-TIFLikely the City wont letthe profitable 20-year River District TIF expireThreatens public schools already in danger

  • Rebuttals / Added ProtectionsThe Pearl was blighted to begin with and wasnt generating significant property tax With TIF, the PDC has been able to fund numerous affordable housing projectsPrivate developers wouldnt initiate without TIF incentivesIf Hoyt Street defaults on development agreement, the City can recover damages in courtIf tax increment revenues surpass what is needed to meet PDC debt obligations, additional money goes to the general fund

  • Heavily Criticized: The MidwestOver-use and abuse

    Leads the nation in the number of TIF districts per stateTop 3 in the U.S.Minnesota: 1,782 TIF districtsWisconsin: 871 TIF districtsIllinois: 458 TIF districts

  • ChicagoTIF is the dominant economic development tool used by Mayor Daleys administration

    140 TIF districts that cover nearly 30% of the land area, generating nearly $400 million in TIF funds

  • Establishing a TIF in ChicagoPolitician, developer, and/or CDC enters discussions with the City planning deptEligibility study is conducted and a redevelopment plan is createdSpecial public hearing is held if existing housing will be impactedGeneral public hearing is ordered Joint Review board reviewsPublic hearing is held; City does not have to respond to or act on public inputCommunity Development Commission meets and almost always approves the TIFPlan Commission holds another public hearing; again it isnt required to respond to or act on public inputProposal goes to City Council for designation

  • The only game in town67% of Chicago TIFs were created after 1996Indicating recent momentum

    25% of taxable real estate is subject to TIF diversionIndicating breadth

    A study of 36 TIF districts showed Chicago Public Schools will lose a hundreds of millions in property tax revenue TIF were administered in areas where property value was growing at a healthy rate i.e. not blightedChicago Theatre District

  • Lack of Checks and BalancesUnlike PortlandChicago TIF revenues aren't itemized on property tax billsNo annual TIF budget or independent oversight

    Can You Spot the Blight?Central Loop TIF (Dearborn at Randolph)

  • Other issuesCauses gentrificationLong-time stakeholders are forced into less desirable neighborhoods Uses eminent domain2007 property taxes in the hot condo markets are projected to increase by 100% Due to TIF, property taxes are increasing faster than peoples incomes

  • Reform in Chicago

    TIF excesses lead to push for accountability and transparency

    This summer, Cook County Commissioner, Mike Quigley, introduced three TIF-reform proposals

    Increasing negative publicity is affecting perception of TIF and raising awareness

  • TIF in WashingtonFirst passed in 1982 as Community Development Refinancing Act

    Ruled unconstitutional by WA Supreme Court in 1995

    Resurrected by 2001 TIF Act

  • TIF in Washington 2001 TIF Act: incredibly weak statute

    School districts exempt

    Fire districts can veto

    Only 75% of increment captured

    Expires in 2010

    Not tested in court

  • Questions?

  • Wal-Mart90% of Wal-Mart stores are subsidizedEquals more than $1 billion in tax payer moniesOften from TIF Most Texas (30 deals worth $108 million)Then Illinois (29 deals worth $102 million)In 2002, Wal-Mart sought an $18 million subsidy for a project to be located on the Near South Side of Chicago. Project was abandoned due to controversyIn Niles, adjacent to Chicagos south-side, a TIF was granted to a Wal-Mart developer for redeveloping an old manufacturingWisconsin designated a cornfield and apple orchard as blighted so Wal-Mart could qualify for TIF to build a superstore

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