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
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