On March 6^th, 2013, Alabama Governor Robert Bentley signed into law the Major 21^st Century Manufacturing Zone Act (SB 96).  The law provides local government with authority to use TIF to attract industries with a public interest.

SB 96 authorizes local governments to create manufacturing zones of at least 250 acres which are suitable sites for manufacturing facilities for targeted industries such as automotive, aviation, medical, pharmaceutical, computer, electronics and energy conservation industries.  In addition, an anticipated aggregate capital expenditure by manufacturers in the zone of at lease $100 million is required for the creation of a manufacturing zone.

To provide TIF in a manufacturing zone, not less than 50% of the TIF district area created must be designated as a manufacturing zone. The term of the TIF district is up to 35 years.

To attract manufacturing companies, SB 96 allows local governments to expand the use of TIF funds to apply TIF revenues for private improvements as well as public works within manufacturing zones. Eligible private improvements include the construction of privately owned manufacturing facilities, equipment, redevelopment, rehabilitation and conservation.

The California Legislature is currently considering AB 690 sponsored by Assembly woman Nora Campos. If AB 690 is adopted, it will restore municipalities’ ability to use tax incremental financing to construct public works projects and create jobs in areas of high unemployment.

TIF was widely used as a powerful redevelopment tool in California until 2011 when AB 1X26 eliminated all of California’s approximately 400 redevelopment agencies. Although a few lawsuits were subsequently filed to challenge the constitutionality of AB 1X26, the practice of TIF has stopped in California since then.

Under AB 690, municipalities are authorized to create Jobs and Infrastructure Financing Districts (JIDs) with 55% voter approval in high employment areas. Tax increment generated by JIDs can be used to provide necessary assistance for targeted industries to locate or expand in JIDs. In addition, AB 690 requires each JID to prepare specific job creation plans and prove that 10 prevailing wage jobs will be created for every $1,000,000 investment.

AB 690 was referred to the Local Government Committee and the Housing and Community Development Committee for review on March 11, 2013.  To read it in its entirety, visit http://www.legislature.ca.gov/cgi-bin/port-postquery?bill_number=ab_690&sess=CUR&house=B&author=campos.

Illinois continues to improve its administration over the more than 1,200 TIF Districts in the State. The Illinois Comptroller’s Office recently added an “Upload TIF Reports” application to its website. The application allows TIF administrators to directly upload annual TIF reports to the State Comptroller’s Office website. This new upload feature became available in September 2012; prior to that time, TIF administrators were limited to submitting TIF reports via a CD/DVD or by email. Allowing TIF administrators to directly upload TIF reports to the State’s website helps to streamline the publication of the TIF reports, making the information more accessible.

The new TIF reporting option is a continuation of the State’s efforts to improve the transparency and administration of TIF programs statewide. In July 2010, the State adopted the Public Act 096-1335 which requires the State Comptroller’s Office to make TIF reports available on its website within 45 days after receiving them. In addition, the State Comptroller’s Office is required to publish a list of municipalities that fail to provide required TIF information online.

Illinois requires the following information to be included in the annual TIF reports:

• Amendments to TIF District Redevelopment Plans;
• Audited financial statements of each TIF fund with more than $100,000 on deposit;
• An analysis of each TIF fund showing fund beginning and ending balances, fund sources and expenditures; and
• A description of redevelopment activities undertaken in the previous year.

The annual reports for each TIF District in Illinois are available at http://www.comptrollerconnect.ioc.state.il.us/Office/LocalGovt/ViewTIFReports/SelectLocalGov.cfm

As part of recent urban renewal and tax increment financing reform, Iowa has adopted House Bill 2460, improving TIF transparency in Iowa.

Cities and Counties in Iowa are authorized to establish urban renewal areas and rural improvement zones. TIF can be used for economic development in those zones. Under previous law, Cities and Counties were required to submit a budget on an annual basis that contained financial information for each TIF area, including actual TIF revenue and estimated and actual TIF expenditures. House Bill 2460 broadened reporting requirements to mandate that each City and County with a TIF District disclose additional information in the annual financial reports, including:

·         Area boundaries, maps and descriptions;

·         Development plans;

·         Development projects;

·         Annual expenditures;

·         Amount of indebtedness;

·         Amount and use of tax increment;

·         Balance in the TIF fund; and

·         District property values.

In addition, House Bill 2460 requires the Iowa Department of Management to create a searchable database to be available online as of December 1, 2012. This searchable database is designed to provide the public with all information included in the annual financial reports for all of Iowa’s urban renewal areas and rural improvement zones.

Click here for the searchable database.

Recently, the Utah Governor’s Office of Economic Development (GOED) agreed to provide BioFire Diagnostics, Inc., a clinical diagnostics company, with approximately $25 million in tax credits under the State Economic Development Tax Increment Financing (EDTIF) program for the company to expand its operations and create more than 650 new jobs.

Utah has widely used the EDTIF program, authorized by the Economic Development Incentives Act, in the past several years both to attract new businesses and to incentivize the expansion of existing businesses. According to GOED annual reports, more than 70 projects have been awarded a total of approximately $570 million in assistance between fiscal years 2008 and 2012 under the EDTIF program.

The EDTIF program allows the GOED to grant tax credits for corporate and individual income taxes in an amount up to 30% of the total incremental State sales taxes, corporate income taxes and individual income taxes generated by a project over a 20 year period. However, in any year, the tax credits distributed may not exceed 50% of the tax increment generated by the project in that year. Typically, projects receive assistance over a 5 to 10 year period.

In order to be eligible for EDTIF assistance, a project must be in an economic development zone and meet the following criteria:

• Receive local incentives from the municipality where the project is located;
• Enter into an incentive agreement with the GOED;
• Create at least 50 jobs;
• Pay at least 125% of county average wages if the project is located in an urban county and pay at least 100% of county average wages if the project is located in a rural county; and
• Make significant capital investment directly in the economic development zone and make purchases from Utah vendors.

EDTIF assistance is typically given to life science, technology, financial and military industries. The law specifies that EDTIF assistance is not available for retail projects.

The Lafayette, Indiana City Council has approved the issuance of up to $6.5 Million in TIF Bonds to partially pay for the construction of a fiber-optic network in Lafayette, West Lafayette and parts of unincorporated Tippecanoe County.  It is anticipated that West Lafayette will issue an additional approximately $2.5 Million in TIF Bonds for the Project.  The Bonds will be paid over 25 years from increment generated by the fiber-optic infrastructure investment.  The project will be constructed by Metro FiberNet and is estimated to cost approximately $60 Million.

Lafayette, West Lafayette and Tippecanoe County have worked to jointly establish a TIF District for this Project.  Unlike a typical TIF District, which is a designated geographic area, the TIF District for this Project will consist only of the fiber-optic infrastructure.

The municipalities believe that providing fiber-optic cable will act as an economic development tool, bringing new business and industry to the area and providing existing businesses with faster Internet capabilities.  In addition, after the Project is completed, residents of these areas will be able to subscribe to fiber optic internet, telephone and television services.

Two lawsuits against the State of California allege that the adoption of AB1X26 in 2011 violates both the California and the United States Constitutions.  AB1X26 eliminated all of California’s approximately 400 redevelopment agencies and required successor agencies, typically the municipalities where the redevelopment agencies were located, to wind down redevelopment activities.  TIF fund balances not pledged to the repayment of outstanding obligations were to be transferred to the State for redistribution to other local taxing bodies.  Any pending projects or transactions that were not formally approved by June 29, 2011 were terminated and the validity of other recent obligations issued or entered into after January 1, 2011 was reviewed.   In passing this law, the legislature terminated the State’s TIF program and put the payment of outstanding obligations for both on-going and completed projects in jeopardy.

The two lawsuits, Syncora Guarantee Inc. v. State of California and City of Cerritos v. State of California, are both based on the theory that the United States Constitution and the California Constitution prohibit legislation that impairs existing contracts and that AB1X26 deprived bondholders of money owned to them under existing contracts.  AB1X26 requires payment of redevelopment bonds to be made out of general property tax coffers, with the same priority as all other claims against the property taxes.  However, the redevelopment bonds were issued based on assurances under the California Constitution that all property tax increment generated in a particular area would be used for redevelopment activities within that project area.

A finding by the Court that AB1X26 violates the contractual impairment clause of either the California or the United States Constitution may result in the entire act being struck.

The California Supreme Court previously upheld the constitutionality of AB1X26 in California Redevelopment Association v. Matosantos however the issue of impairment of existing contracts was not raised in the Matosantos case.

On October 10th, 2012, the City of Chicago released its 2013 proposed $8.3 billion budget. The City projected a $298 million deficit and proposed several measures to close the funding gap, including personnel savings, spending reform and long-term debt refinance.

The budget also proposed using TIF funds to reduce the 2013 deficit. Approximately $10 million in TIF funds will be distributed to the City, comprised of $6.7 million in released surplus from existing TIF districts and $3.3 million from expired and terminated TIF districts. In 2012, about $12 million in TIF surplus funds were distributed to the City to aid in reducing the City’s $635 million budget deficit and in 2011, approximately $38 million in TIF surplus funds were used to help fill a $655 million spending gap.

The City anticipates that TIF dollars to be collected in 2013 will decrease to approximately $332 million, which represents an approximately 27% reduction from the $454 million collected in 2012.

After approving the use of sales tax increment financing (STIF) in two economic opportunity development districts located in Ohio County and Harrison County, the 2013 West Virginia legislature may consider approving a third economic opportunity development district in Monongalia County.

Compared to traditional property tax increment financing, STIF is used less frequently in West Virginia. West Virginia collects a 6% State sales tax on retail sales throughout the State. Current West Virginia Statutes provide that counties and municipalities may create economic opportunity development districts with State legislature approval and use State sales tax increment for up to 30 years to finance certain development costs. In order for the State legislature to consider approving the establishment of an economic opportunity development district, the proposed project must include capital investment of at least $25 Million within two years after district designation unless environmental remediation activities are required, in which case developers have up to four years to meet the minimum capital investment requirement.

In 2003, Ohio County established West Virginia’s first economic opportunity development district and in 2006, $99 Million worth of STIF bonds were issued, supported by sales tax increment generated by approximately 60 businesses located in the approximately 300 acre district. The District includes a 1,100,000 square foot Cabela’s distribution center, a 175,000 square foot Cabela’s retail store, a movie theater and several other big box stores. In 2012, the State legislature approved the Charles Pointe Economic Opportunity Development District in Harrison County, only the second economic opportunity development district in West Virginia. With approximately 300,000 square feet of commercial/office space, 200 hotel rooms and a 15,000 square foot conference center already constructed, when completed, the Charles Pointe development is expected to generate sufficient tax increment to support up to $400 Million bonds with bond proceeds to be used for certain development costs.

Developers in Monongalia County intend to construct a multi-use development in a 1,400 acre area, including a new baseball stadium in the greater Morgantown area.  Both the County and the State approved the property tax increment financing in 2012.  The State legislature will debate approval of the STIF agreement during the 2013 legislative session. If approved, project proponents anticipate that approximately $15 Million in STIF bonds would be issued to pay for certain development costs.

Vermont Governor Peter Shumlin is considering an expansion to the State’s TIF program by allowing seven municipalities to use state education property taxes to stimulate local economic development instead of six as is currently allowed under Vermont’s TIF law.

The Vermont legislature approved the use of TIF for economic development in 1985. Since then, TIF statutes in Vermont have undergone considerable changes, most notably when Vermont created a state education property tax in 1997, replacing local school district property taxes. After this change, the Vermont TIF statutes were amended to allow both municipal property tax increment and state education property tax increment to be pledged for TIF projects.

In order to be eligible for TIF assistance in Vermont, a project must be located in an existing industrial area, approved growth center, or economically distressed area. In addition, a project must meet at least three of the following criteria:

• Requires significant public investment in amounts substantially greater than normal municipal expenditures;
• Includes affordable housing;
• Impacts the remediation and redevelopment of a brownfield;
• Stimulates business creation and expansion; and
• Improves public transportation

If a project is eligible for TIF assistance, a municipality can pledge up to 75% of both the municipal property tax increment and the state education property tax increment generated within that TIF district to the project. Both types of property tax increment must be pledged in equal percentages.

A 2008 amendment to the TIF statutes provides that between July 1, 2008 and June 30, 2013, only six TIF districts can use the state education property tax. Further, the 2008 amendment limits each municipality to the creation of only one TIF district during this period.

In order to establish a TIF district and use the state education property tax, a municipality must receive approval from the Vermont Economic Progress Council (VEPC). So far, the VEPC has approved the requests of five municipalities (Burlington, Colchester, Hartford, Milton and St. Albans). Because there is only one slot remaining but there are two applicants (Barre and South Burlington), the Governor is considering an expansion of the TIF program by making seven slots available. This proposal will be considered during the 2013 legislative session.

It is unclear whether a municipality has the authority to establish a TIF district and pledge only municipal property taxes, and therefore not be subject to the TIF cap. The VEPC has requested that the Vermont legislature clarify this issue during the 2013 legislative session.