Tax increment financing, more commonly referred to as TIF, is
a means by which municipalities can use tax revenues gained by
increased property values to reinvest in rehabilitation projects
inside a given area or TIF district.
There are different types of
TIF that can be created in an area: for either rehabilitation of
existing buildings, development of new buildings for business or
development of residential areas.
Myers and Kramer were introducing specifically a TIF program that
would involve rehabilitation of existing structures in the downtown
business district. This type of TIF is called a conservation TIF
During his presentation, Myers referred to the Illinois Tax
Increment Association website, saying that it could provide a great
deal of information to those who were interested in reading more.
Below is an example from that website of how a rehabilitation
project could be funded by the TIF, and after a period of time,
result in creating additional investment revenue:
For example, assume
that a municipality wants to develop an area that includes two
parcels that contain substandard commercial buildings. Let's also
assume that both of these parcels are paying $30,000 per year in
property taxes. However, the municipality finds that by making an
investment of $500,000 to rehabilitate the buildings on the two
parcels and provide necessary infrastructure, private developers
will commit an additional $2,000,000, making the commercial
buildings available for new use. This additional investment causes
the property to increase in assessed value, for example — and
conservatively — leading to the tax paid on each parcel going from
$30,000 per year in property taxes to $60,000 per year. The public
and private investment would increase the total property taxes paid
from $60,000 each year ($30,000 per parcel), to $120,000 each year
($60,000 per parcel). The project would result in $60,000 in new tax
increment, which the municipality could use to off-set its original
investment in less than nine years. After this initial investment is
paid-off, the newly generated increment can be used for additional
investments in the area.
Myers told the council he has worked with several municipalities
on creating their TIF districts, and they have been very successful.
He noted the village of Sherman, where on the north side of the
community, just off Interstate 55, several new businesses have gone
up. These are the result of a development TIF.
Lincoln Mayor Keith Snyder also noted there is a rehabilitation
project in the city of Normal that is the result of TIF dollars. He
said the work that has gone on in that area is amazing.
Myers also noted the village of Elkhart had used a residential
TIF to increase housing in that area.
In order for the city to create a TIF district in the downtown
area, there would first need to be a feasibility study. Kramer and
Myers are proposing to do that study for $25,000.
The first step in qualifying for the TIF would be to determine
that at least 50 percent of the downtown buildings are more than 35
years old. In addition, there would be a need for rehab of
structures in the downtown area.
Kramer also noted there would be an equalized assessed valuation
of the properties in the downtown area. She noted that over the last
five years, there has been a declining assessment of the downtown
structures as a whole. The declining assessment is one of the
criteria for establishing a TIF and also a good indicator that one
Snyder asked how the TIF would work with the enterprise zone.
Myers said if businesses in the downtown area are participating in
tax relief through the enterprise zone, they cannot use the TIF. It
has to be an "either-or" situation. The business can either drop out
of the enterprise zone and use the TIF, or stay in the enterprise
zone and continue to receive what is available there.
Myers explained that the TIF could also be used to attract new
business. If a developer wanted to come into the district and build
a new structure, the TIF could help with the preparation of the
building site, but could not invest in the new brick-and-mortar
In addition to TIF, Myers said another incentive that can be
coupled with TIF is the sales tax sharing program.
The city of Lincoln is familiar with sales tax sharing and just
recently completed its term in that type of program with Wal-Mart.
In that scenario the city reimbursed Wal-Mart for the increase it
saw in sales tax collections through increased sales of products.
The amount was set to be spread out over a period of time, and the
city ended up paying Wal-Mart $600,000, divided into annual payments
of roughly $180,000 each. In that particular case, the agreement
included Wal-Mart footing the bill for infrastructure improvements
around the new store.
City attorney Bill Bates asked if the TIF program would, for
example, pay for a new facade on his law office. Myers said it could
be used in that manner. He explained that the city will establish
the terms of the TIF agreement and should be certain the amount
eligible for use on a building is based on the tax increment gained
on that specific building.
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Alderwoman Melody Anderson asked about the opposition to TIFs
that often comes from the school districts in an area.
Myers said yes, school districts can be opposed to TIF districts,
but generally their opposition falls around districts that, when
created, increase the student population.
He said, for example, a development TIF may bring more residents
with more children to the community, but the school doesn't
necessarily get more money to educate those children.
Myers said in the case of a conservation TIF, where existing
businesses are the main ones using the money, the likelihood that
the student population will grow as a result is slim. Therefore, the
school districts shouldn't have much of a problem with this type of
Chuck Conzo, city treasurer, asked about others who might oppose
a TIF district. Myers said in the cases of development projects,
many folks are not interested in seeing big-box stores come into
their neighborhoods. He said residents often feel the large retail
businesses "trash the neighborhood."
Chief Ken Greenslate of the police department wondered if the TIF
could be used in building municipal buildings. He said Lincoln needs
a police station and a new fire department building.
Ultimately, Myers said, it really doesn't work for city
buildings, but on the other hand, it could be used to buy a new fire
He explained that if the local fire department didn't have the
equipment needed to fight a fire in a new building -- for example, a
four-story in a city without a ladder truck -- then yes, the TIF
funds could assist with that.
Myers said another problem sometimes comes from the business
owners in a proposed TIF. He compared it to an insult to them when
the city says their building qualifies for rehabilitation. He
explained those business can asked to be removed from the district.
However, Alderwoman Kathy Horn later asked what happened if they
decided they wanted back in, and Myers said it would equate to
starting over from scratch.
Bates, however, noted that just because a building is included in
the TIF, that is not an indication the business owner has to do
Another stumbling block for TIF is that the public sometimes
assumes there is a tax increase involved. Myers said there is no levy
of taxes in a TIF. The public will not see a change in their tax
bill. What will happen is the taxes collected will be changed in how
they are distributed back to local government.
The tax increases that will occur are going to be in the
increased assessed value of a building after it has been
rehabilitated. This increase is what funds the TIF. The EAV is
subtracted from the new assessed value. The difference goes to the
Snyder asked how the TIF could work with downtown revitalization
grants. Kramer said the TIF would be more flexible in what it could
be used for and therefore could be used to pay for enhancements the
She said one example of this is benches on the sidewalks. If a
grant requires the benches be bolted and they are not, the grant
won't pay for them. TIF funds could pay for the benches, and the
grant money could be used elsewhere.
She said the best advantages are that the TIF funds are under
local governance, are less regulated and come with fewer strings
attached than a state or federal grant.
At the end of the discussion, Snyder talked about how the city
would pay for this. On the city books there is a revolving loan
program that is not being used. He said it has been discussed for a
while to collapse that program and use the money elsewhere.
In addition to the $25,000 for the feasibility study, an
additional $10,000 would be needed for legal and engineering
expenses for work that would have to be done prior to the adoption
of an ordinance.
Myers told the council another option is to self-finance these
costs through expected TIF revenues. He said TIF could pay for the
feasibility study, but only if the city goes through with adopting a
At the moment, the targeted area for the TIF district runs from
Decatur to Delavan Street and Logan to Sherman. It would exclude all
residential properties inside those boundaries.
At the end of the discussion, Snyder asked aldermen to continue
giving this their consideration. He wants to keep the discussions
going on this and hopes to talk about it again in the very near
Illinois Tax Increment Association:
[By NILA SMITH]