The Illinois Second District Appellate Court recently delivered an opinion clarifying the terms “electors” and “owners of record” for purposes of establishing a Special Service Area (SSA).

On June 5, 2007, the Village of Johnsburg approved an Ordinance proposing the establishment of an SSA.  Residents of the proposed SSA subsequently filed a petition objecting to the proposed SSA.  Illinois SSA law provides that a petition opposing the establishment of an SSA must be signed by at least 51% of the “electors” and 51% of the “owners of record” of the land to be included within the boundaries of the SSA and the objectors claimed that they had met these standards.

The Village claimed that the petition failed to meet both the 51% of electors standard and the 51% of owners of record standard.  Residents of the Village filed suit and the trial court found for the petitioners.  The Village appealed.

Based on its review of the law, the Appellate Court found the following:

• The term “elector” means a person who is registered to vote at the address shown opposite his or her signature on a petition.  The petitioners claimed that certain electors who were included in the Village Clerk’s tally no longer resided within the boundaries of the proposed SSA and therefore should not have been counted.  The Appellate Court found that electors are determined by the names listed on the County Clerk’s list of registered voters.  Therefore, even if certain property within the boundaries of a proposed SSA is vacant, if the previous residents are still listed on the County Clerk’s list of registered voters for that property, they are considered electors for the purpose of the objection petition.

• Although the SSA Law provides that a property owned by a land trust, corporation, estate or partnership is considered to only have one owner of record, it does not state that land owned by more than one land trust, corporation, estate or partnership must be treated as having only one owner of record.  Therefore, since two living trusts owned some of the property in question, the property is considered to have two owners of record, requiring a larger number of owners to meet the 51% test.

The Appellate Court reversed the trial court’s decision and decided the case in favor of the Village, finding that the petitioners failed to provide enough signatures to meet the 51% requirement under both standards in the SSA Law.

The term of the Illinois Industrial Jobs Recovery Law (IJRL) (65 ILCS 5/11-74.6) sunset on March 14, 2010, however, the life of the law could be extended through January 1, 2012 if Governor Quinn approves SB 3619 which has already been adopted by the House and the Senate.

The IJRL provides an alternative to the traditional TIF Statute for municipalities to establish redevelopment project areas and to provide assistance to redevelopment projects in the form of tax increment.  Under the IJRL, municipalities can establish redevelopment project areas in industrial park conservation areas, vacant industrial building conservation areas or environmentally contaminated areas based on certain factors, including:  

• Status as a labor surplus municipality or substantial labor surplus municipality;
• Adequate public and road transportation;
• Existing industrial uses;
• Term of vacancy;
• Number of employees previously employed;
• Reduction in equalized assessed value; and
• Threat of environmental contamination

City of Chicago Alderman Walter Burnett (27^th Ward) has proposed an ordinance that would require the City to set aside an amount equal to at least 20% of the aggregate tax increment revenue collected from all TIF districts in the City in a fiscal year for affordable housing projects.  The Ordinance would require that at least 40% of the housing units constructed or preserved with the funds obligated by the City be affordable to households at or below 30% of the Chicago area median income, or approximately $22,600 for a family of four.

A joint City Council Committee on Housing and Finance debated the proposed ordinance earlier this month, however no vote was taken.  During the joint committee testimony, Aldermen debated the enforcement mechanism for such a requirement, whether there are sufficient developers in the City to build the amount of affordable housing that would be funded with a 20% set aside and whether neighborhoods without TIF districts would be eligible to receive a portion of the affordable housing funding.

In many States, TIF statutes provide local governments with the authority to use tax increment to pay for environmental remediation costs.  In Wisconsin, however, to finance redevelopment projects for parcels requiring environmental cleanup, local governments can rely on either the traditional TIF Statute (66.1105) or the Environmental Remediation TIF (ERTIF) Statute (66.1106). 

TIF districts established under the ERTIF Statute differ from other TIF districts in Wisconsin in several ways, including:

• ERTIF districts can only be established on environmentally contaminated parcels while traditional TIF districts can include more generally blighted areas;
• An ERTIF district can be established without a public hearing, however, a traditional TIF district requires a public hearing at least 14 days before the resolution establishing  the TIF district is adopted;
• Once an ERTIF district is established, the district boundaries can not be amended, however, the boundaries of a traditional TIF district can be amended up to 4 times; and
• Project expenditures in an ERTIF district can be made no later than 15 years after the base is certified while expenditures in a traditional TIF district can only be made for up to 5 years.

In November 2009, the Wisconsin ERTIF Statute was amended by the State legislature, allowing local governments to allocate environmental remediation tax increment from one ERTIF district to another ERTIF district provided that both ERTIF districts are within the same municipality or county and the donor ERTIF district first repays all eligible costs within the donor’s district.

By amending the ERTIF Statute, the Wisconsin legislature strengthened a municipality’s ability to remediate or cause the remediation of environmentally contaminated land.  Local governments have already started to implement this amended legislation.  For example, the City of Cudahy created a new ERTIF district in April 2010 and approved plans to reallocate tax increment from a separate ERTIF district in the City in which all environmental remediation costs had been repaid.  This amended legislation enabled the City to more easily provide remediation funds to a private developer who subsequently acquired this contaminated land and intends to develop a retail project on the property.

The Innovation and Development Economy Act (Illinois Public Act 96-0939), signed into law by the Governor on June 24, 2010, is designed to assist in the development and redevelopment of major tourism, entertainment, retail and related destination projects within eligible areas of the state by authorizing municipalities and counties to issue sales tax and revenue (STAR) Bonds to finance certain projects.  The narrowly tailored qualification provisions provide that a STAR Bond district could only be established in an area that is between 250 and 500 contiguous acres, adjacent to a federal highway, within one mile of two state highways, within one mile of an entertainment user or a major or minor league sports stadium or other similar entertainment venue with an initial capital investment of at least $20,000,000 and includes land that was previously surface or strip mined.  Additionally, the area would have to qualify as blighted under the Illinois TIF law, the Business District law, or the municipality would be required to make certain other findings.

If an area were to qualify, a municipality or a county could issue STAR Bonds, which would be secured by 100% of the State sales tax increment generated by certain users within the STAR Bond district and 25% of the sales tax increment generated by all other users within the district.  Bond proceeds could be used to pay for both public and private improvements including costs of private buildings owned by certain users.  For retail projects, STAR Bond proceeds could be used to pay for private building costs if the retail user were to have a 150,000 square foot retail sales area, no other Illinois location within a 70 mile radius and an annual average of at least 30% of customers who travel from at least 75 miles away or from a different state.  The Act does limit the amount of traditional retail space that can be included in a STAR Bond district to 900,000 square feet.

California has adopted a new measure to bolster the State’s struggling economy.  In July 2009, the State adopted Budget Bill AB 26, which, among other things, requires Redevelopment Agencies (RDAs) to send a portion of their TIF funds to the State to help pay for certain State budget shortfalls.

On May 4, 2010, the Sacramento Superior Court upheld the constitutionality of AB 26 requiring California RDAs to transfer $1.7 billion in redevelopment funds to county Supplemental Educational Revenue Augmentation Funds to offset reductions in primary and secondary education funding.  RDAs were required to remit these funds by May 10, 2010 and pay an additional $350 million by May 10, 2011.  

This is not the first time that California attempted to use redevelopment funds to solve its budget problems.  In 2008, the State adopted a bill requesting the State RDAs to transfer $350 million in redevelopment funds to the Educational Revenue Augmentation Fund in each respective county. This was invalidated in 2009 because it was determined that the State could not apply an RDA’s tax increment revenues outside the RDA project area.

In its recent ruling, the Court found that AB 26 provided procedures designed to distribute redevelopment funds only to the school(s) serving redevelopment projects of the RDAs, thereby avoiding the legal and constitutional issues that affected the earlier legislation.

AB 26 provides that although the $2.05 billion is an indebtedness of the redevelopment projects, payable from tax increment revenues allocated to each RDA until paid in full, it is subordinate to payment of the principal and interest on any outstanding bonds of the RDA, including bonds secured by a pledge of tax increment revenues.

Although the RDAs were required to transfer their redevelopment funds to the State by May 10^th, the California Redevelopment Association has started an appeal process, challenging the Superior Court’s May 4^th ruling.

In March 2008, Indiana adopted HEA 1001 which would provide property tax relief and protection against future property tax increases beginning with the 2009 property tax, payable in 2010, by capping property tax at 1% of assessed value for residential property, 2% for apartments and agricultural land and 3% for commercial property.  To limit the ability of future legislatures to amend or revoke the property tax caps, the Indiana General Assembly adopted joint resolutions, SJR1 in 2008 and HJR1 in 2010, which, if approved by a referendum, would amend the Indiana Constitution to permanently cap the property tax.  Indiana electors will vote on this matter on November 2, 2010.

Although the property tax cap system has already taken effect in Indiana, it will not have any impact on TIF unless the property tax cap level is reached.  For example, if a TIF district that only includes commercial development is established in 2010 with a base EAV of $1,000,000 and in 2011 the TIF district EAV grows to $5,000,000, without the cap system, a 4% property tax rate could generate tax increment in an amount of $160,000 (4% x ($5,000,000 – $1,000,000) = $160,000) in 2011.  With the 3% property tax cap in place, the tax increment generated in 2011 would be reduced to $120,000 (3.0% x ($5,000,000 – $1,000,000) = $120,000), or $40,000 less in available increment.

Yesterday, the Illinois House of Representatives passed SB 2523, amending the Business District Development and Redevelopment Law, by a vote of 90 to 27 and today the Senate voted to approve the House version of the Bill.  SB 2523 would make significant changes to the Business District Law, including clarifying qualification criteria and delineating eligible Business District costs.  The Bill is now on its way to the Governor, who has a maximum of 60 days to sign it into law.

The Illinois legislature is currently considering SB 2523, which would amend the Business District Development and Redevelopment Law, 65 ILCS 5/11-74.3.  The proposed amendment was approved by the Illinois Senate in March 2010 and is currently being debated by the House of Representatives.

The Business District Law allows a municipality to establish a Business District and, if it is determined that the property within the Business District is blighted and certain conditions and procedures are met, enables a municipality to impose a Business District tax within the Business District and to use the funds generated to pay for Business District improvements.

SB 2523 proposes to change the definition of “blighted area” to an area “which, by reason of the predominance of defective, non-existent or inadequate street layout, unsanitary or unsafe conditions, deterioration of site improvements, improver subdivision or obsolete platting, or the existence of conditions which endanger life or property by fire or other causes, or any combination of those factors, retards the provision of housing accommodations or constitutes an economic or social liability, an economic underutilization of the area, or a menace to the public health, safety, morals or welfare.”  SB 2523 does not tie a blight finding to an area’s present condition and use since it deletes the words “in its present condition and use.”

Proposed SB 2523 may be in response to Geisler v. City of Wood River, 383 Ill. App.3d 828, 892 N.E.2d 543 (2008) in which the Circuit Court of Madison County decided that a blight finding in a Business District must be based on the area’s present condition and could not be based on the proposed future use of the area.  The court relied on the phrase “present condition and use” in the statutory language that defined a blighted area. The Fifth District Appellate Court upheld this decision.

The Illinois Legislature is currently considering SB3151, an Amendment to the TIF Act, which proposes an annual increase to the initial equalized assessed value (EAV) of a Redevelopment Project Area by the annual rate of increase of the Consumer Price Index (CPI).

If the proposed Amendment is adopted, it will result in a higher TIF base and a lower property tax rate, all other factors remaining constant, and may reduce the available tax increment for redevelopment projects.  The following example provides a detailed illustration of this impact:

Example of Proposed SB3151’s Impact on TIF Funds