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TIF amounts
depend on a
complicated mix
of lega, financial
and political






Sam Polsky is a principal of Polsky & Associates Ltd., a law firm based in Chicago.






ne of the questions most frequently asked by developers is: "How much TIF assistance can I get for my project?"
     As most real estate professionals know, tax increment financing is a way for municipalities to capture new real estate and sales tax revenue generated by new commercial or industrial development. A project that's in a designated TIF area may use "incremental" real estate or sales taxes to finance a portion of the costs of development.
    But how much TIF assistance is available and how is that determined? Municipalities and taxing districts will naturally want to keep the TIF assistance to a minimum, to have the full value of newly developed property on the tax rolls as soon as possible. Developers, of course, want the maximum assistance to increase their rate of return.
     Developers need to ask three questions in order to assess the amount of TIF assistance for any project: What is legally allowed -what is financially available - and what is politically viable?
     The first test is a legal one: Are costs to be reimbursed with TIF dollars classified under the TIF statute as allowable "redevelopment project costs?" The most common categories of TIF assistance include costs of acquisition of land and improvements, demolition, site preparation including environmental clean up, clearing and grading of land, rehabilitation of existing improvements, public works, streets, roadways, traffic improvements, relocation, job training, and interest costs.
     These broad legal categories of costs are the first threshold in determining the level of TIF assistance for a particular project. For most developers, finding enough "redevelopment project costs" will not be especially difficult, since acquisition costs and site improvement work will frequently comprise a large portion of a development budget. The TIF Act provides plenty of allowable categories for a developer to recoup some major costs.
     Now we come to the next issue. Although a development project may have millions of dollars in eligible TIF costs, municipalities will generally only assist a project if it generates enough TIF revenue to support the assistance requested.


A project that generates only $2 million in new real estate and sales tax revenue (one or both sources can be used for TIF) will generally not receive more than that in TIF assistance, even though there may be $5 million in qualifying TIF eligible expenses.
     This is a common problem for developers who want to redevelop a site that isn't vacant and is occupied by taxpaying businesses. Although higher taxes will be due after redevelopment, if those base taxes are substantial, new incremental taxes may not be sufficient to support needed TIF assistance.
     But even if a project generates sufficient increment to support a TIF request, it has to deal with the next and perhaps most important threshold, the political one. Although the project may be in an existing TIF district, it must comply with the comprehensive plan for the municipality and must be consistent with what the municipality desires to see at that particular location. TIF assistance, unlike zoning, is entirely discretionary -even if the use is permitted, a city may not want to encourage a development with TIF.
     Part of a city's analysis will involve whether a developer is likely to develop the site, in a manner that is acceptable to the city, without TIF assistance, also known as the "but for" requirement. Although a plain "vanilla" project could be built without TIF, a municipality may agree to pay for upgrade costs by using TIF dollars. So specialty exteriors, more costly landscaping, and additional public improvements may be demanded to secure the necessary approvals, and those costs added to the TIT package.
     Then there's a "gap" analysis, which is often required to prove that the rate of return without TIF assistance is inadequate, and that a developer could not do the project otherwise. Cities may require that only the amount of the "gap" be funded by TIF.
     Notwithstanding the amount of eligible costs or gap requirements, some cities also have policy guidelines for the amount of TIF assistance awarded, relative to a total development budget; in the Citv of Chicago that percentage is about 251%. In such a case, a project of $20 million would support TIF assistance of about $5 million.

July/August 2001

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