State Representative John Fritchey filed HB6904 with the Clerk of the Illinois House of Representatives on August 27^th, which would amend the Illinois TIF Act to limit the availability of a major portion of the real estate tax increment from being used to pay for development costs.

HB6904, which would impact all new TIF Districts and all TIF Districts amended by the Illinois General Assembly after the effective date of the amendment, would require that the portion of real estate taxes levied on property in a redevelopment project area attributable to a school district be allocated and paid to the school district as if the redevelopment project area did not exist.

School Districts typically receive the largest portion of the real estate tax distributed to the overlapping taxing bodies.  The requirement to pay the school district portions of the incremental real estate taxes to the school districts instead of the tax incremental allocation fund would result in a substantial decrease in the amount of increment available to pay redevelopment project costs, in effect, crippling the utility of TIF as a viable municipal economic incentive tool.

According to media reports, the City of Chicago may consider using uncommitted TIF money to reduce the City’s 2011 operating deficit.  According to the Chicago Tribune, the total balance of Chicago’s TIF accounts is approximately $1.2 billion, of which approximately $500 million has been committed to specific projects, leaving approximately $700 million in available funds.  However, even if the City elects to tap into TIF funds for additional revenue, Illinois TIF law will dictate what portion can be used by the City. 

According to the Illinois TIF Statute, TIF revenue is typically used for redevelopment purposes in the TIF districts where the incremental tax was generated.  However, the City may elect to free up excess TIF dollars from TIF accounts by proportionally distributing the excess funds to all of the taxing bodies that overlap the City’s TIF districts.  For example, the general 2008 property tax rate for the City (established in October 2009) was 4.816%, consisting of 0.928% for the City of Chicago, 2.472% for the Chicago Board of Education, 0.415% for Cook County and 1.001% for the remaining taxing bodies.  If $700 million in TIF money is distributed proportionally to the various taxing bodies, the City may only be eligible to receive approximately $135 million, or 19.3% of the distribution (0.928% / 4.816% = 19.3%).  More than 50% of the excess funds, or approximately $360 million, would go to the Chicago Board of Education.

The Illinois Governor signed SB 3619 into law last week, extending the Industrial Jobs Recovery Law (“IJRL”) to January 1, 2012 (Public Act 96-1220).  The IJRL provides an alternative to the traditional TIF Statute, allowing municipalities to establish redevelopment project areas in “industrial park conservation areas”, “vacant industrial building conservation areas” or “environmentally contaminated areas” based on factors other than those set out in the TIF Statute.

The IJRL is intended to use incremental tax revenue to incentivize development in municipalities with high unemployment rates, vacant or underutilized industrial facilities or environmentally contaminated sites.

Illinois Governor Pat Quinn signed SB 2523 last week (Public Act 96-1394), clarifying the conditions to be met for a municipality to create a Business District and impose a Business District sales tax.

SB 2523 amends the Business District Law by refining the definition of “Blighted area” so that a blight finding is no longer tied to an area’s “present condition and use.”  The amendment to the Business District law may be a response to Geisler v. 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 an area’s present condition and use instead of a proposed future use of the area.