Archive for March, 2011

TIF can reimburse 30% of annual interest expense on qualified Project costs and under certain conditions 75%

Monday, March 28th, 2011

TIF  funds can be used to pay up to 30% of a Project’s annual interest expense.   The annual payment is made directly from the TIF fund and can not  be rolled into a TIF note.  Even if the TIF payments are being made on a pay-as-you-go basis, the interest expense payment is calculated on a separate basis annually. All interest expense payments are limited to amounts on deposit in the TIF fund for that year and can’t exceed 30% of the interest expense incurred for that year. If the municipality can’t make the full payment in any one year because there aren’t enough TIF funds on deposit, the unpaid portion accrues. The total interest expense reimbursement can’t exceed 30% of the total project interest expense, construction or permanent loans.

If TIF funds are being used to construct or rehabilitate low or very low income housing units, the amount of reimburseable interest expense increases to 75%.

TIF and the Chicago Public Schools: Four Things to Think About

Friday, March 25th, 2011

Would the Chicago Public School System (CPS) get more tax dollars if there were no TIFs in the City?  Aren’t new taxes generated in TIF districts funneled to the City of Chicago diverting funds from the schools, which would otherwise receive those funds? Aren’t TIF districts robbing our schools of much needed tax revenue. Well, not really.

For any of those questions to be answered affirmatively you would first have to conclude that most of the newly assessed value in TIF districts would have been generated anyway, that is, new development in TIF districts would have occurred without any TIF incentive. The way TIFs work is by capturing future tax dollars that are generated by new development in a TIF area, to help fund that new development. Without that new development there are no new tax dollars. While some TIF critics argue that development would occur anyway without TIF assistance, it is simply implausible to broadly assert that TIF incentives do not spur significant development in the area.  And while there may be no measurable means to test this hypothesis, respected independent analysts have found that “it is unreasonable to assume that …TIF ha[s], no impact on new construction.” Tax Increment Financing a Civic Federation Issue Brief, Chicago: Civic Federation, 2007, at p.16.

Second, the General State Aid formula in Illinois compensates school districts for a substantial portion of any potential “lost” TIF revenue even if one assumes that some new taxes would have materialized without the TIF. Some studies have shown that as much as 72% of the theoretical “loss” would be made up by the General State Aid formula. Ibid. p.20.

Third, you would have to discount the effect of the City’s contributing hundreds of millions of TIF dollars to school construction. Those dollars are raised in TIF districts and pledged to the CPS through intergovernmental agreements with the City and are therefore independent of bond debt limits to which the CPS would otherwise be subject. Without the benefit of those TIF dollars contributed by the City one would also have to take into account the additional capital borrowing costs to the CPS.

Fourth, and most central to the concept of TIF, after expiration of TIF districts (usually 23 years) all of the new incremental equalized assessed valuation becomes available for future tax levy by the CPS and other taxing districts. (And, that EAV is outside of the limits under the Property Tax Extension Limitation Law  — see the excellent analysis by the Civic Federation, ibid. p 32.)


Thursday, March 17th, 2011

Mayor Daley proposed an ordinance that would create a “Vacant Building TIF Purchase and Rehabilitation Program” to provide incentives to first-time homebuyers in the City.  The Program would provide TIF funds to homebuyers with total household incomes of less than 100% of the Primary Metropolitan Statistical Area Median Income (approximately $75,000 for fiscal 2010) to purchase and substantially rehabilitate eligible properties.  To qualify, a property must be vacant, require substantial rehabilitation, be located within one of Chicago’s approximately 150 TIF areas and contain not more than four dwelling units.  TIF funds would be available in amounts up to 25% of the sum of the purchase price plus the substantial rehabilitation costs.  The ordinance was introduced to the City Council on March 9th, 2011 and has been referred to the Finance Committee.

To take advantage of the incentive, a homebuyer would have to submit an application to demonstrate eligibility, include a copy of an inspection report for the proposed property and any other information deemed necessary by the Commissioner of Housing and Economic Development.  After review of the application, the Commissioner would determine an applicant’s eligibility and the amount of assistance.  Under existing Illinois TIF law, both acquisition and substantial rehabilitation costs are TIF eligible costs.

Questions remain about how the proposed program would be administered.  It is likely that City approvals would need to be streamlined in order to meet the normal home buying time frame so that applicants are able to obtain conventional financing in addition to the TIF incentive.

Additionally, the terms of the ordinance require the homebuyer to occupy the property as a principal residence for a certain period of time (between five and fifteen consecutive years depending on the amount of assistance received).  How this occupancy requirement will be enforced is not addressed in the ordinance, however in commercial developments, the City often requires a TIF recipient to pay back all or a portion of the TIF funds received if the TIF recipient does not meet the occupancy requirement.

This would be the first time that TIF incentives would be targeted at homebuyers in the City of Chicago.


Thursday, March 17th, 2011

Several bills introduced during the first few months of the Illinois Legislature’s 97th General Assembly would limit the availability of TIF Funds for development projects.  While these Bills are in the early stages of consideration, they could seriously affect the usefulness of TIF in Illinois.

The following Bills would limit the availability of taxes levied by school districts:

  • House Bill 1207/Senate Bill 1626.  If adopted, these bills would require that the portion of taxes levied by a school district in a redevelopment project area established by the City of Chicago be allocated to the school district rather than deposited in the Special Tax Allocation Fund of the TIF District.  This would result in a reduction of more than half of the available TIF funds to projects in newly created redevelopment areas in the City of Chicago.
  • House Bill 1234.  If adopted, this bill would require any portion of taxes levied by a school district or school districts located in a redevelopment project area be paid to the school district rather than deposited in the Special Tax Allocation Fund if tax increment financing has not been adopted in the redevelopment project area within 3 years of the area’s designation.

The following bills would limit the availability of TIF funds generally:

  • House Bill 1208/Senate Bill 1620.  These two pieces of legislation would require that any TIF revenues not specifically allocated to defined project costs within a redevelopment project area at the end of a municipality’s fiscal year be considered “surplus funds.”  Under existing TIF law, surplus funds must be distributed to overlapping taxing bodies, however under existing law, the amount of surplus funds is typically determined at the end of the life of the TIF district rather than on an annual basis.
  • House Bill 1575. This bill would permit any taxing district to opt out of a redevelopment project area, which means that its taxes would not be deposited in the Special Tax Allocation Fund but would be paid to that taxing district.  This bill would also require all redevelopment project areas to be approved by each county board and the governing authorities of all overlapping taxing districts that do not elect to opt out of the redevelopment project.

As of March 16th, all of these bills have been assigned to various House and Senate Committees for further review and debate.