Tax Increment FinancingTax Increment FinancingRhonda C. ThomasRhonda C. Thomas

Overview of TIF and Other Overview of TIF and Other Development IncentivesDevelopment Incentives• Form of Public Private PartnershipForm of Public Private Partnership• Uses public tax and fee revenues Uses public tax and fee revenues

generated by a development project orgenerated by a development project or• Abate taxes and fees that would Abate taxes and fees that would

otherwise be imposed by governmentotherwise be imposed by government• To provide a source of funding to To provide a source of funding to

construct the Projectconstruct the Project

Most Projects Use a Most Projects Use a Combination of IncentivesCombination of Incentives• Important points in selecting Important points in selecting

incentivesincentives• Understand the tax, fees and other Understand the tax, fees and other

revenues to be generated by Projectrevenues to be generated by Project• Understand the other public benefits of Understand the other public benefits of

the Project – new jobs, public the Project – new jobs, public infrastructure, trigger for infrastructure, trigger for redevelopmentredevelopment

Selecting a Development Selecting a Development IncentiveIncentive• Statutes restrict availability of Statutes restrict availability of

incentivesincentives• Public Entity must approvePublic Entity must approve• Political environment and local Political environment and local

practicepractice• Needs of Project and Attributes of Needs of Project and Attributes of

Various IncentivesVarious Incentives

Attributes of Incentive ProgramsAttributes of Incentive Programs

• Revenue Stream that provides incentiveRevenue Stream that provides incentive– Existing and new property taxesExisting and new property taxes– Existing and new sales taxes - hotel, food Existing and new sales taxes - hotel, food

and beverage, entertainmentand beverage, entertainment– Employment based taxes and fees – head Employment based taxes and fees – head

tax, etc.tax, etc.– Special Assessments / special property tax Special Assessments / special property tax

on property benefited by improvementson property benefited by improvements

Is it OPMIs it OPM

• Other People’s MoneyOther People’s Money– Rebate of Existing TaxesRebate of Existing Taxes– New Taxes paid by someone other than New Taxes paid by someone other than

the Developerthe Developer– Public entity guaranteePublic entity guarantee

Typical Attributes of Incentive Typical Attributes of Incentive ProgramsPrograms• Bond financing capacityBond financing capacity

– Pay as you go from Incentive RevenuesPay as you go from Incentive Revenues– Issue bonds to provide upfront funding Issue bonds to provide upfront funding

• Tax exempt interest -- lower borrowing costsTax exempt interest -- lower borrowing costs

• Guarantee of bonds by public entityGuarantee of bonds by public entity

• Power of Eminent Domain to assemble propertyPower of Eminent Domain to assemble property

• Project Costs that can be fundedProject Costs that can be funded

Public PurposePublic Purpose

• All incentive programs require a All incentive programs require a finding of public purpose – can’t use finding of public purpose – can’t use public money for private purposepublic money for private purpose– Each statute specifies the public purpose Each statute specifies the public purpose

findings that must be madefindings that must be made– Vary among incentive programs and from Vary among incentive programs and from

state to statestate to state

Tax Increment Financing – Tax Increment Financing – Public Purpose RequirementsPublic Purpose Requirements• Site Conditions – Is the area “Blighted”Site Conditions – Is the area “Blighted”• “ “ But-For Test” – would the Project occur But-For Test” – would the Project occur

without the incentiveswithout the incentives• Gap Funding - $ amount of incentive Gap Funding - $ amount of incentive

required to provide Developer a market required to provide Developer a market returnreturn

• Extraordinary development costsExtraordinary development costs• Relocation of existing businesses Relocation of existing businesses

Project Costs Project Costs

• Some incentive programs limited to Some incentive programs limited to public improvementspublic improvements

• TIF typically can fund certain private TIF typically can fund certain private project costsproject costs

• Some incentives do not require a Some incentives do not require a tracing of incentive $ to actual project tracing of incentive $ to actual project costscosts

Costs of Studies, Surveys, Development of Costs of Studies, Surveys, Development of Plans, and Specifications, Implementation Plans, and Specifications, Implementation and Administration of the Redevelopment and Administration of the Redevelopment PlanPlan

• Architectural, engineering, legal, financial, Architectural, engineering, legal, financial, planning servicesplanning services

• No contracts based on percentage of TIF No contracts based on percentage of TIF collected or longer than 3 yearscollected or longer than 3 years

• No lobbying expensesNo lobbying expenses• Public Entities annual out of pocket Public Entities annual out of pocket

administrative costs of the TIF administrative costs of the TIF • Costs of Public Entity marketing sites within Costs of Public Entity marketing sites within

the Redevelopment Project Areathe Redevelopment Project Area

Property Assembly CostsProperty Assembly Costs– Acquisition of land and other property, Acquisition of land and other property,

real or personal, or rights or interests real or personal, or rights or interests thereintherein

– Demolition of buildingsDemolition of buildings– Site preparationSite preparation– Clearing and grading of landClearing and grading of land– Environmental Clean-upEnvironmental Clean-up– Relocation AssistanceRelocation Assistance

Costs of Construction of Privately Costs of Construction of Privately Owned ImprovementsOwned Improvements– Costs of rehabilitation, reconstruction or Costs of rehabilitation, reconstruction or

repair or remodeling of existing repair or remodeling of existing buildings, fixtures, and leasehold buildings, fixtures, and leasehold improvementsimprovements

– No funding of costs of construction of No funding of costs of construction of new privately-owned buildingsnew privately-owned buildings

Costs of new Public BuildingsCosts of new Public Buildings– Costs of replacing an existing public building Costs of replacing an existing public building

demolished to provide site for Redevelopment demolished to provide site for Redevelopment ProjectProject

– Funding of costs of parking garages, schools and Funding of costs of parking garages, schools and other public buildings required to serve the TIF other public buildings required to serve the TIF AreaArea

– No funding of costs of constructing a new No funding of costs of constructing a new municipal public building (not a replacement) municipal public building (not a replacement) principally used to provide offices, storage principally used to provide offices, storage space, or conference facilities or vehicle storage, space, or conference facilities or vehicle storage, maintenance, or repair for administrative, public maintenance, or repair for administrative, public safety, or public works personnel safety, or public works personnel

– Exception if Public Entity finds that the new Exception if Public Entity finds that the new municipal building is required to meet an municipal building is required to meet an increase in the need for public safety triggered increase in the need for public safety triggered by the Redevelopment Projectby the Redevelopment Project

Public Infrastructure / ImprovementsPublic Infrastructure / Improvements– Roads, signalization and sidewalksRoads, signalization and sidewalks– Water and sewerWater and sewer– Stormwater detentionStormwater detention– Public utilities and certain utility Public utilities and certain utility

extensions for private utilitiesextensions for private utilities– No development of a golf course or No development of a golf course or

clubhouse clubhouse – No development of vacant land No development of vacant land

designated and used as public land for designated and used as public land for outdoor “recreational activities” (limited outdoor “recreational activities” (limited to camping and hunting) or for nature to camping and hunting) or for nature preservespreserves

Costs Attributable to an Existing Retail BusinessCosts Attributable to an Existing Retail Business– No direct financial support to a retail entity initiating No direct financial support to a retail entity initiating

operations in the TIF Area while terminating operations at operations in the TIF Area while terminating operations at another Illinois location within 10 miles of the TIF Area in another Illinois location within 10 miles of the TIF Area in another communityanother community

– Termination means a closing of a retail operation that is Termination means a closing of a retail operation that is directly related to the opening of the same operation or directly related to the opening of the same operation or like retail entity owned or operated by more than 50% of like retail entity owned or operated by more than 50% of the original ownershipthe original ownership

– Exception for closing a retail operation for reasons beyond Exception for closing a retail operation for reasons beyond the control of the retail entity – requires a finding that the the control of the retail entity – requires a finding that the current location contained inadequate space, had become current location contained inadequate space, had become economically obsolete, or was no longer a viable location economically obsolete, or was no longer a viable location for the retailer or servicemanfor the retailer or serviceman

– May only apply to relocation of a business that generates May only apply to relocation of a business that generates sales taxsales tax

Developer's Financing CostsDeveloper's Financing Costs– Reimbursement of Developer’s borrowing costs Reimbursement of Developer’s borrowing costs

from TIF Revenues may not exceed 30% (75% from TIF Revenues may not exceed 30% (75% for TIF funded low income housing Projects) of for TIF funded low income housing Projects) of the annual interest costs incurred by the the annual interest costs incurred by the Developer and of the total costs of the ProjectDeveloper and of the total costs of the Project

– In lieu of reimbursement of financing costs In lieu of reimbursement of financing costs Developer receives a TIF Note which bears Developer receives a TIF Note which bears interest at a taxable rate equal to the interest interest at a taxable rate equal to the interest costs of the Developer's loancosts of the Developer's loan

– Expenses related to the issuance of TIF Notes or Expenses related to the issuance of TIF Notes or TIF Bonds - attorneys, TIF consultants, trustees, TIF Bonds - attorneys, TIF consultants, trustees, etc.etc.

– Capitalized interest during the estimated period Capitalized interest during the estimated period of construction of the Project and for not of construction of the Project and for not exceeding 36 months thereafterexceeding 36 months thereafter

TIF Projects That Include HousingTIF Projects That Include Housing– 50% of the costs of construction of new housing units to be 50% of the costs of construction of new housing units to be

occupied by low-income households and very low-income occupied by low-income households and very low-income households as defined in the Illinois Affordable Housing Act (In households as defined in the Illinois Affordable Housing Act (In lieu of payment of Developer’s financing costs)lieu of payment of Developer’s financing costs)

– School and Library District's increased costs attributable to School and Library District's increased costs attributable to housing units located within the TIF Area - Reimbursement housing units located within the TIF Area - Reimbursement amount is determined pursuant to a complex formula based on amount is determined pursuant to a complex formula based on the School District's increase in attendance resulting from the net the School District's increase in attendance resulting from the net increase in new students enrolled in the District who reside in increase in new students enrolled in the District who reside in housing units within the Redevelopment Project Area or the housing units within the Redevelopment Project Area or the Library District's increase in persons eligible to obtain a library Library District's increase in persons eligible to obtain a library card in the District who reside in housing units within the card in the District who reside in housing units within the Redevelopment Project AreaRedevelopment Project Area

– School and Library Districts may adopt a resolution waiving the School and Library Districts may adopt a resolution waiving the right to all or a portion of the reimbursement otherwise requiredright to all or a portion of the reimbursement otherwise required

– Acceptance of the reimbursement waives the District's right to Acceptance of the reimbursement waives the District's right to directly or indirectly set aside, modify, or contest in any manner directly or indirectly set aside, modify, or contest in any manner the establishment of the Redevelopment Project Area or Projectsthe establishment of the Redevelopment Project Area or Projects

Costs of Contiguous TIF AreasCosts of Contiguous TIF Areas– Can use TIF Revenues from one TIF Area Can use TIF Revenues from one TIF Area

for eligible costs in a contiguous TIF for eligible costs in a contiguous TIF AreaArea

– Contiguous if separated only by a public Contiguous if separated only by a public right of way from the TIF Area from right of way from the TIF Area from which the TIF Revenues are receivedwhich the TIF Revenues are received

– Contiguous if separated only by forest Contiguous if separated only by forest preserve property and the closest preserve property and the closest boundaries of such TIF Areas are less boundaries of such TIF Areas are less than one mile apart than one mile apart

Payments to School and Other Taxing DistrictsPayments to School and Other Taxing Districts– All surplus TIF Revenues must be distributed All surplus TIF Revenues must be distributed

annually within 180 days after the close of the annually within 180 days after the close of the Municipality's fiscal year to the Taxing Districts Municipality's fiscal year to the Taxing Districts in the same manner as real property taxes in the same manner as real property taxes

– Guaranteed pass through of a % of the TIF Guaranteed pass through of a % of the TIF Revenues must be distributed proportionately to Revenues must be distributed proportionately to all Taxing Districts; i.e. can’t just pass through a all Taxing Districts; i.e. can’t just pass through a % to the School District% to the School District

– Can fund certain Taxing District public Can fund certain Taxing District public improvements (typically Elementary or High improvements (typically Elementary or High School Building or Fire Stations or equipment)School Building or Fire Stations or equipment)

– Requires a written agreement with the Requires a written agreement with the Municipality and costs must result from the Municipality and costs must result from the ProjectProject

Procedures for Use of TIFProcedures for Use of TIF

– Redevelopment PlanRedevelopment Plan– Notice to Property Owners and Notice to Property Owners and

Taxing Districts Taxing Districts– Taxing Districts CommitteeTaxing Districts Committee– Advertised Notice & Public HearingAdvertised Notice & Public Hearing– Public Entity ApprovalPublic Entity Approval– Certification to Taxing AuthoritiesCertification to Taxing Authorities– Process takes approximately 6 monthsProcess takes approximately 6 months

TIF Redevelopment Plan BudgetTIF Redevelopment Plan Budget– Must include an itemized list of estimated TIF CostsMust include an itemized list of estimated TIF Costs– Should be based on TIF Act categories / not tied to Should be based on TIF Act categories / not tied to

specific Projectspecific Project– Budget should estimate use of all TIF Revenue for 23 year Budget should estimate use of all TIF Revenue for 23 year

TIF Term / not what Municipality is willing to provide to TIF Term / not what Municipality is willing to provide to specific Developerspecific Developer

– Footnotes in Plan should authorizeFootnotes in Plan should authorize• Consumer Price Index growthConsumer Price Index growth• Moving costs among categoriesMoving costs among categories• Use of TIF Revenues in contiguous TIF Areas pursuant to Use of TIF Revenues in contiguous TIF Areas pursuant to

that contiguous area’s TIF Plan and budgetthat contiguous area’s TIF Plan and budget– Budget amendments which increase the total estimated Budget amendments which increase the total estimated

TIF Costs by more than 5% (adjusted for inflation) require TIF Costs by more than 5% (adjusted for inflation) require the Municipality to give notice, convene a meeting of the the Municipality to give notice, convene a meeting of the Taxing District, and conduct a public hearingTaxing District, and conduct a public hearing

Redevelopment AgreementRedevelopment Agreement

A. Selection of Developer & Approval of A. Selection of Developer & Approval of Development Agreement Development Agreement

B. Property Acquisition & CondemnationB. Property Acquisition & CondemnationC. Performance of Development ProjectC. Performance of Development ProjectD. Pledge of Revenue StreamsD. Pledge of Revenue StreamsE. Issuance of TIF ObligationsE. Issuance of TIF ObligationsF. Developer’s/Tenant’s Cooperation in F. Developer’s/Tenant’s Cooperation in

Determining TIF Revenues Determining TIF RevenuesG. RemediesG. Remedies

Form of TIF ReimbursementForm of TIF Reimbursement

• TIF Bonds As Source of Construction TIF Bonds As Source of Construction

Financing Financing• TIF Notes with Project Costs TIF Notes with Project Costs

Advanced by Developer Advanced by Developer• TIF Bond Take OutTIF Bond Take Out• Share of Incremental Revenue StreamShare of Incremental Revenue Stream

TIF Project Lease IssuesTIF Project Lease Issues

• Disclosure of Sales Tax, etc.Disclosure of Sales Tax, etc.• Operating Covenants, InsuranceOperating Covenants, Insurance• Non-profit and Service ProvidersNon-profit and Service Providers• ConfidentialityConfidentiality

Revenues to Augment TIFRevenues to Augment TIFBusiness Districts – Sales Tax, Special Business Districts – Sales Tax, Special

AssessmentsAssessmentsEconomic Incentive Agreements – Sales Economic Incentive Agreements – Sales

Tax TaxSpecial Service AreasSpecial Service Areas

Security for TIF BondsSecurity for TIF Bonds

Incremental Tax RevenuesIncremental Tax RevenuesGeneral ObligationGeneral ObligationTIF Alternate Bonds – Back Up GO TIF Alternate Bonds – Back Up GO

PledgePledgeDeveloper GuaranteeDeveloper Guarantee

So How Can TIF Fund the 2016 So How Can TIF Fund the 2016 Olympics?Olympics?• Chicago has an estimated 130 TIF Chicago has an estimated 130 TIF

Areas covering 30% of the CityAreas covering 30% of the City• Ability to use TIF Revenues in Ability to use TIF Revenues in

adjacent TIFsadjacent TIFs• Chicago has taken a creative approach Chicago has taken a creative approach

to the use of TIFs for housing, school to the use of TIFs for housing, school construction, etc.construction, etc.

Cost of 2016 Chicago OlympicsCost of 2016 Chicago Olympics

• Total cost estimates of $5 billionTotal cost estimates of $5 billion• $1.1 billion needed for the lakeside $1.1 billion needed for the lakeside

Olympic Village Olympic Village • $366 million for a temporary 80,000 $366 million for a temporary 80,000

seat Olympic Stadium to be built in seat Olympic Stadium to be built in Washington Park Washington Park

• City of Chicago has approved a $500 City of Chicago has approved a $500 million insurance policy against cost million insurance policy against cost overruns and revenue shortfallsoverruns and revenue shortfalls

Olympic FundingOlympic Funding

• Typical Developer Projects to Serve Typical Developer Projects to Serve the Olympics - Housing, Retail, Hotel, the Olympics - Housing, Retail, Hotel, etc.etc.

• Public Infrastructure – roads, utilities, Public Infrastructure – roads, utilities, parkingparking

• Olympic venuesOlympic venues

2016 Olympic TIF Innovations2016 Olympic TIF Innovations

• Chicago school financingsChicago school financings• Used TIF to fund public schoolsUsed TIF to fund public schools• TIF Bonds guaranteed by City of TIF Bonds guaranteed by City of

Chicago GO backingChicago GO backing• Bonds paid by TIF Revenues where Bonds paid by TIF Revenues where

school is located and adjacent TIFsschool is located and adjacent TIFs• Similar structure could be used for Similar structure could be used for

2016 Olympic venues2016 Olympic venues

2016 Olympics2016 Olympics

– A dream for the City of ChicagoA dream for the City of Chicago– TIF can help make the dream come trueTIF can help make the dream come true– Thank youThank you

Rhonda ThomasRhonda Thomas312.580.2202312.580.2202Rthomas@tcfhlaw.comRthomas@tcfhlaw.com