Monday, September 24, 2012
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City of Lincoln Q&A: creating a TIF district

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[September 24, 2012]  At last week's Lincoln City Council meeting, Mayor Keith Snyder handed out the following city Q-and-A for September to attending aldermen and media:


TIF District Questions and Answers

The Lincoln City Council has been talking about establishing a Tax Increment Financing (TIF) district in downtown Lincoln for some time. A Feasibility Study on the district was recently completed and approved by the Council. In an effort to provide further information on the next steps in establishing a TIF district, we thought it might be helpful to answer some common questions.

Since the Feasibility Study has been approved by the City Council does this mean a TIF District has been established? No. The Feasibility Study does not establish the TIF district, it only determines if the State requirements are satisfied for the area to qualify as a TIF district. The Feasibility Study determined that the downtown area is eligible for the establishment of a TIF.

How is a TIF District established? The process for the creation of a TIF district is spelled out in State law:

  • Following the approval of the Feasibility Study the next step is to develop a Redevelopment Plan. That plan will contain a broad outline of how collected TIF funds will be spent in the district.

  • The Redevelopment Plan will be provided to the school districts and other taxing bodies of the downtown area for review.

  • A notification will be mailed to all residents within the TIF district and those within 750 feet of the proposed boundary that the Plan has been developed and is available for review.

  • A Public Hearing will be held on the proposed Redevelopment Plan.

  • A Joint Review Board will be established consisting of representatives of the affected taxing bodies. The Joint Review Board will meet prior to the Public Hearing and will continue to meet at least once annually throughout the life of the TIF district.

  • Once all these items are completed, the City Council will vote to formally establish the TIF District. We are working towards having that vote in February or March of 2013.

Why hasn't the City shared information on how TIF funds would be spent? Because a framework for the expenditure of TIF funds hasn't yet been developed. That will be prepared as part of the Redevelopment Plan, the creation of which is the next step in the process.

What sorts of things can TIF funds be spent on? TIF funds can be used within the district for public improvements, for matching grants as incentive for private property owners to complete building improvements, or to encourage new development on private property. The public improvements could include things such as street reconstruction, sidewalk improvements, sewer replacement, downtown park improvements, etc. Having TIF funds available will be critical in allowing us to secure additional State and federal grants for downtown because those funds can serve as local matching funds.

What is a tax increment? The tax increment is the difference between the amount of property tax revenue generated before the TIF is established and the amount of property tax revenue generated after the TIF is in place. Property taxes will continue to be collected on properties within the TIF district at their full assessed value. Any amount above the level of property taxes collected at the time the TIF was established, however, will be invested in the TIF district rather than being distributed to the other taxing bodies

So if property taxes go up, the other taxing bodies will not get that increased tax revenue for areas within the TIF district? It is important to know that the Equalized Assessed Valuation (EAV) of the proposed TIF district has declined for four of the last five years and is now 10% lower than it was five years ago. That means that all taxing bodies have been getting less tax from downtown properties. If we do nothing to encourage investment in downtown, the decline will likely continue. With the TIF district, any increased property tax revenue is captured and invested in the district to promote increases in the EAV of the properties. Increases in EAV eventually lead to higher revenues for all taxing bodies.

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Do TIFs take money away from the schools and other taxing bodies? Creating a TIF will not reduce any property tax revenues available to the other taxing districts. Actually, the hope is that establishing a TIF district will create more revenue for the other taxing bodies. If a TIF is successful, when it expires all of the taxing bodies will benefit from increased property taxes in a redeveloped downtown. The only revenue that goes into the TIF district is from taxes derived from future growth that likely would not have occurred without a TIF district.

How long will the TIF district last? State law prescribes that TIF districts are in place for up to 23 years. While the TIF is in place, all taxing bodies will continue to receive the property taxes they are currently receiving. After expiration of the TIF, the entire property tax, including the existing taxes and any TIF-created taxes, become available to all of the taxing bodies.

Can the City use TIF funds to provide funds to a private developer? Yes, but each case will need to be negotiated between the City and the developer and the terms outlined in a Council-approved redevelopment agreement.

How would that work? Let's say a commercial building within the TIF district is currently generating $2,000 per year in property taxes and has a value of $75,000. The property owner is willing to make a $150,000 investment in renovating the building if the City will provide $75,000 in TIF funds for a total expenditure of $225,000. Following the development, the commercial property will have a value of $300,000 and annual property taxes of $10,000. The tax "increment" in this case is $8,000. With that amount of money staying in the TIF district, the City can recoup its original investment in less than ten years. After the initial investment is paid off, the newly generated increment can be used for additional investments in the area. Without this incentive, the property owner would be unlikely to make such a large investment.

Why should tax dollars be used to help a private developer? Successful TIF investment serves both the public at large and private investors in a redevelopment area. Private investors are helped by a reduction in development cost and risk, making improvements that otherwise would not be feasible. The community benefits by having a redeveloped central business district and from the additional tax revenue available at the conclusion of the TIF project.

How do we know that a TIF district will actually redevelop downtown? Although there is no guarantee that redevelopment will occur after establishment of the TIF district, it will provide an incentive that is currently lacking. It is evident from the decline in property values of the area that redevelopment is not likely to happen on its own. The tax increment is used to pay for the improvements that attract private investment and stimulate economic growth. The TIF district gives a reason for redevelopment that might not otherwise exist.

Are TIF districts unusual? No, actually, they are quite common. There are over 1,000 TIF districts in over 250 municipalities around the State of Illinois. There are two communities with TIFs in Logan County, nine municipalities with TIF districts in Sangamon County, and eight municipalities with TIF districts in McLean County.

[Text copied from file received from Lincoln Mayor Keith Snyder]

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