Chicago Mayor Rahm Emanuel announced several TIF reforms today which are designed to improve transparency and accountability in the City’s TIF Program.  The reforms are based on recommendations from the City’s TIF Reform Task Force, a Task Force that the Mayor created shortly after being elected.

The reforms, which are effective immediately, include the following:

• Creation of a comprehensive online TIF database.  The online database will provide the public with access to project and performance data and will allow the public to track all of the City’s TIF projects.

• Assessment Reports.  Prior to City Council consideration, the City will prepare these reports for every proposed private development TIF Project.  Information in these reports will include projected Project job creation and projected return on TIF dollar investment to the City.

• Monitoring of TIF Performance.  TIF Performance will now be monitored by the Department of Revenue and will include random audits of TIF Districts by independent auditors.

• City’s Internal TIF Task Force.  Representatives on the City’s TIF Task Force will now include the City Comptroller, the City’s Chief Operating Officer and the City’s Chief Financial Officer.  Previously, the Task Force only included members of the City’s Department of Housing and Economic Development.  This Task Force considers all proposed TIF deals that are brought to the City.

While the reforms are effective immediately, it is anticipated that they will be implemented throughout 2012.  According to the Mayor, “these critical reforms will strengthen the transparency and accountability involved in TIF projects, and will help the city focus the program on job creation and economic development.”

The City of Chicago’s Small Business Improvement Fund (SBIF) database shows that from 2001 to 2011, 565 companies received grants from the TIF SBIF fund to repair or remodel their commercial and industrial properties throughout the City. To be eligible, commercial applicants must have annual sales less than $3 Million during the previous three years and industrial applicants must employ no more than 100 full-time employees. The maximum grant per project is $150,000 but applicants are allowed to file multiple applications for grants from the SBIF program. Between 2001 and 2011, the total amount of all grants awarded was approximately $33 Million and the average grant was approximately $37,000. Approximately 34% of the 565 companies that received SBIF grants received multiple awards.

In 2011 alone, 162 companies received approximately $10 Million in SBIF grants for 222 projects. 87 TIF districts participated in the SBIF program in 2011, or approximately 50% of all of the City’s TIF districts.

Since 2001, the highest number of grant awardees has been in the Kinzie Industrial Corridor TIF District. From 2001 to 2011, 133 projects received SBIF grants in this TIF District for a total amount of approximately $5.3 Million. The Fullerton/Milwaukee TIF District and the Lawrence/Kedzie TIF District have also widely used this community redevelopment tool. In each of these TIF Districts, more than 50 projects have received SBIF grants between 2001 and 2011 in the total amount of $2.2 Million and $1.3 Million respectively.

The SBIF database is available on the City of Chicago’s website at:

https://data.cityofchicago.org/Community-Economic-Development/Small-Business-Improvement-Fund-SBIF-Grant-Agreeme/jp7n-tgmf

On December 29, 2011, the California Supreme Court upheld legislation that abolishes redevelopment agencies in California and struck down a companion law that would have allowed Redevelopment Agencies to continue to exist if they were to pay a certain portion of the tax increment that they collected to the State.

The Court’s decision means that approximately 400 Redevelopment Agencies throughout California will be disbanded and their obligations will be transferred to successor entities, typically local cities and counties where the Redevelopment Agencies are located.  As a result of the law, any pending projects or transactions that were not formally approved by June 29, 2011 will terminate and the validity of certain recent obligations issued or entered into after January 1, 2011 will be reviewed.

Newly constituted Oversight Boards comprised of local city and county officials have until March 1, 2012 to approve the list of enforceable obligations and the obligation payment schedules.  The lists must then be submitted to the State by April 15, 2012.  The Oversight Boards will also be charged with disbanding the Redevelopment Agencies and selling Agency assets.  Once the Redevelopment Agencies are disbanded, these Boards will oversee the distribution of taxes that would otherwise have been under the purview of the Redevelopment Agencies.

The California Department of Finance estimates that approximately $2.2 Billion out of $5 Billion in annual tax increment revenue must be set aside to pay debt service obligations for existing bonds.  The remainder of the tax increment would be distributed to local governments to ease budgetary pressures.

Under California’s Community Development Law, twenty percent (20%) of tax increment funds were allocated to low-income and moderate-income housing.  The Supreme Court’s ruling may have a significant impact on the construction and availability of affordable housing in California.

The California Redevelopment Association and the California League of Cities have already called on the California Legislature to commence work on legislation that would re-create Redevelopment Agencies, citing comments made by key California legislators that the purpose of the legislation was not to eliminate redevelopment agencies completely, but rather to limit their sizes and budgetary impacts.  However, because of the significant financial challenges facing California, it is unclear whether the State Legislature will be supportive of such an effort.

On December 16^th, 2011, Illinois Governor Pat Quinn signed SB0397 into law as Public Act 97-0636, which, among other things, allows the Village of Hoffman Estates to extend the term of the Sears Economic Development Area (Sears EDA) for an additional 15 years. Sears had threatened to move its operations out of Hoffman Estates when its current agreement with the Village expires in 2012 if the legislature had failed to approve the extension, which could have resulted in a loss of approximately 15,000 jobs in the region. The adoption of SB0397 is a pre-condition to the Village’s extension of the EDA and the resulting public assistance. The Village and Sears still need to negotiate an amendment to the existing Development Agreement.

Unlike the TIF Statute, the Economic Development Area Tax Increment Allocation Act provides that municipalities can pledge tax increment to projects in Economic Development Areas without making a blight finding.  However, Economic Development Area projects must create or retain at least 4,250 jobs.  Additionally, private investment in Economic Development Areas must equal at least $100,000,000.  Unlike a TIF District, which only requires municipal approval, both municipal and State Department of Commerce and Economic Opportunity approval are required to establish an Economic Development Area.

The Sears EDA was initially established in 1989 by the Village of Hoffman Estates.  In 1990, the Village and Sears entered into a Development Agreement in which Sears agreed to construct a 1,600,000 square foot office complex and complete related infrastructure improvements in the Sears EDA, and the Village agreed to provide Sears with assistance including a portion of the incremental property taxes in the Sears EDA. According to Sears, it will have received a total of approximately $75 million in property tax assistance from the Village since the adoption of the Development Agreement in 1990.

It has been reported that Sears will receive approximately $125 million in property tax assistance if the Village approves an amended Development Agreement. In order to receive the assistance from the Village, SB0397 requires Sears to maintain at least 4,250 jobs in the Sears EDA for 15 years. Sears will likely also receive an additional $150 million in State income tax credits under the provisions of SB0397.

The City of Chicago is open for business and looking for TIF projects, especially in the City’s neighborhoods, according to representatives from the City of Chicago Department of Housing and Economic Development.

The City does plan to slow down the creation of new TIF Districts in favor of focusing on Projects in existing TIF Districts.  Additionally, the Department is working on strengthening one of the goals of the TIF Program, delivery of projects in the City’s neighborhoods.  Development in many neighborhood TIF Districts has been slower than anticipated for various reasons, including a lack of access to private capital.  Projects in core areas will still be considered, however the City will employ a higher level of scrutiny in its determination of whether to provide TIF assistance to those projects.

The City’s TIF Program has been the target of much debate throughout its existence.  Critics often argue that TIF lacks transparency and is essentially an inside game.  Based on recommendations from the TIF Reform Panel and on internal discussions, the City is working to improve TIF transparency and to utilize certain benchmarks to guide the TIF approval process.  One of the primary measures for TIF project approval will be the number of jobs that would be created by the Project, although other criteria would be considered for retail and residential projects.  The Department of Housing and Economic Development hopes that these changes will help to satisfy critics of TIF and will also provide Developers with a better understanding of the TIF process.

Developers with potential projects are encouraged to bring them to the City as soon as possible in order to begin the TIF review process.

On November 18, 2011, Wisconsin Governor Scott Walker signed Assembly Bill 179 into law, which allows two or more cities to jointly establish a TIF district.  Prior to the adoption of this law, municipalities were only able to establish TIF districts within their own jurisdictions.

The following criteria must be met to establish a multi-jurisdictional TIF district:

• All of the parcels within the proposed TIF district are contiguous;
• The proposed TIF district includes parcels in all of the cities that are parties to the TIF agreement; and
• At least one parcel in each participating city is adjacent to at least one parcel in another participating city.

To create a multi-jurisdictional TIF district, the following approvals are required:

• The governing body of each participating city must approve the resolution establishing the multi-jurisdictional TIF district;
• Each joint review board must approve the multi-jurisdictional TIF district establishment resolution by a majority vote; and
• Any public members of participating cities on the joint review board must approve the establishment resolution.

By amending the TIF law in this way, Wisconsin intends to provide municipalities with a regional economic development tool.

In Chicago’s 2012 proposed budget, approximately $62 Million in TIF funds have been designated as surplus.  Based on Illinois TIF law and current property tax rates, the surplus will be distributed as follows:

• approximately $30 Million to the City of Chicago school district;
• approximately $12 Million to the City of Chicago; and
• the remainder to the other taxing bodies.

Chicago plans to use the one-time surplus distribution of approximately $12 Million as one resource to reduce its $635 Million budget deficit.

This is not the first time that Chicago has tapped TIF funds to temporarily solve budget issues. In 2010, Chicago declared a surplus of approximately $180 million in 25 TIF districts, and used its share (approximately $38 Million) to partially fill a $655 million gap in the 2011 City budget.

As a result of the economic downturn, Chicago is not the only government using TIF dollars to pay for other expenses. Earlier this year, California requested that state-wide redevelopment agencies be allowed to transfer TIF dollars to schools and other special districts.

Texas recently adopted House Bill 2853 which increases City and County ability to use tax increment financing as an economic development tool. By amending several sections of the Tax Code regarding Tax Increment Reinvestment Zones (TIRZ), HB 2853, among other important measures, broadens the scope of TIF eligible costs and eases several conditions on TIRZ designation.

Major changes include:

• Costs of programs and projects benefiting a TIRZ and the actual costs of remediation, preservation, or demolition of public or private buildings become TIF eligible.
• A TIRZ may be established on undeveloped land.
• Cities with a population of 100,000 or more can designate up to 25% of its appraised value in a TIRZ rather than 20% under the previous law.  For Cities with less population, the percentage increases from 10% to 50%.
• New TIRZ designation rule allows the percentage of residential property in the proposed TIRZ to increase from 10% to 30%.

On August 11^th, 2011, the California Supreme Court decided to hear a case filed by the California Redevelopment Association (CRA) and the League of California Cities (LOCC), challenging the constitutionality of two recently adopted Assembly Bills: ABX1 26 and 27. 

ABX1 26 would eliminate all redevelopment agencies in California effective October 1^st, 2011; ABX1 27 however provides that a redevelopment agency can remain in existence if the host City or County participates in a Voluntary Alternative Redevelopment Program (VARP).  VARP requires a participating City or County to transfer a portion of tax increment to schools and other special districts on an annual basis by way of a Redevelopment Property Tax Trust Fund.  For the 2011 – 12 fiscal year, the State-wide total transferred amount is $1.7 billion and for the 2012 – 13 fiscal year and thereafter, the State-wide total transferred amount is anticipated to be $0.4 billion.  Cities and Counties not participating in VARP will see their redevelopment agency dissolved under ABX1 26.  The tax increment to be collected by the redevelopment agency and transferred to the taxing bodies will be used to first pay off any previously incurred redevelopment agency debt and then distributed to other taxing bodies.

On July 18^th, 2011, CRA and LOCC filed a petition with California Supreme Court, alleging that ABX1 26 and 27 violate Propositions 1A and 22 and, therefore, are unconstitutional.

On August 11^th, 2011, the California Supreme Court granted a partial stay of ABX1 26 and 27, allowing redevelopment agencies to continue to exist while the case is pending.  However, redevelopment agencies are prohibited from entering into new contracts and incurring new indebtedness.

Indiana Governor Mitchell Daniels recently signed House Enrolled Act 1313 into law which enables a taxing body’s tax base to include incremental assessed value of any overlapping TIF districts for its own tax levies due to referendums held after April 30, 2010.  Prior to this amendment, only the base assessed value of TIF districts could be included in the tax base of overlapping taxing bodies.  An expanded tax base will effectively reduce the tax rate for referendum-approved tax levies.  In addition, under the amended law, a tax rate increase due to referendum will no longer change the amount of TIF dollars generated.

For example, if a school district with a tax base of $1,000,000 overlaps a TIF district with an incremental assessed value of $200,000, the school district’s tax base for any referendum-approved tax levies would be $1,000,000 under the previous law and $1,200,000 ($1,000,000 + $200,000 = $1,200,000) under the amended law.  For a referendum-approved school district tax levy in an amount of $12,000, the tax rate increase would be 1.2% ($12,000/$1,000,000 = 1.2%) under the previous law, but 1% ($12,000/$1,200,000 = 1%) under the amended law.  In addition, under the previous law, there would $2,400 ($200,000 * 1.2% = $2,400) incremental property tax collected by the TIF fund while there would be no additional tax collected by the TIF fund under the amended law.