Tax Increment Finance Best Practices Reference Guide

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Tax Increment Finance Best Practices Reference Guide Tax Increment Finance Best Practices Reference Guide cdfa Council of Development Finance Agencies TAX INCREMENT FINANCE BEST PRACTICES REFERENCE GUIDE cdfa Council of Development Finance Agencies COPYRIGHT © 2007 by the Council of Development Finance Agencies and the International Council of Shopping Centers. All rights reserved. No part of this publication my be produced, stored in retrieval system, or transmitted, in any form or by any form by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of the publisher. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is available with the understanding that the publisher is not engaged in rendering legal, accounting or other professional services. If legal advise or other expert assistance is required, the services of a competent professional person should be sought. –From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers. Photographs for case studies were submitted by case study authors. Tax Increment Finance Best Practices Reference Guide Council of Development Finance Agencies and International Council of Shopping Centers EXECUTIVE SUMMARY The Council of Development Finance Agencies (CDFA) and the International Council of Shopping Centers (ICSC) have collaborated with teams of Tax Increment Finance (TIF) experts from across the country to develop this reference guide. The Reference Guide addresses what TIF is, why it should be used and how best to apply the TIF tool. The Reference Guide also highlights TIF projects from across the country and discusses how they can be applied to address many common economic development issues. The Reference Guide should be a reference manual for novice and experienced public officials, financers and real estate developers wishing to learn more about TIF. Today, 49 states and the District of Columbia have TIF enabling legislation. Arizona is the only state without TIF enabling legislation. California, which initiated tax increment financing in 1952, maintains hundreds of TIF districts, many to promote urban redevelop- ment in cities like San Diego, Oakland and Los Angeles. Chicago is another landmark municipality for tax increment financing. The city operates more than 130 districts with tax receipts totaling in the hundreds of millions, or about one-third of the city's total property tax revenue. As TIF continues to evolve, many states have recently made changes to their enabling laws to best reflect the needs of the states and communities within their jurisdiction. These changes have been spurred by efforts to make TIF use accountable and transparent. CDFA and ICSC applaud these efforts and encourage communities to consider public policy, goals and community vision as critical elements in the use of this important financing tool. While TIF is a popular development finance tool, it is often debated in the public arena. Sometimes it is criticized as unnecessary public support for development projects, but, if used judiciously and appropriately, TIF can result in dynamic economic changes. TIF can be seen as a transformational tool that resurrects blighted and abandoned communities and encourages new investment from the private sector. The following Reference Guide will help you understand the TIF tool and how it can be applied to achieve successful results. The case study examples illustrate how TIF has been used across the country to transform communities and stimulate economic growth. However, it is important to keep in mind that because TIF is a local tool and each state’s statute is different, the Reference Guide can- not address – and does not attempt to address – every possible situation one might encounter when considering the use of TIF. The information contained within is intended to provide accurate and authoritative information in regard to tax increment finance. The authors, CDFA and ICSC are not herein engaged in rendering legal, accounting or other professional services, nor do they intend that the material included herein be relied upon to the exclusion of outside counsel. CDFA and ICSC are not responsible for the accu- racy of the information provided in the Reference Guide. The information provided has been collected from a variety of sources. Those seeking to conduct complex financial deals using the tools mentioned in this document are encouraged to seek the advice of a skilled legal or consulting professional. Tax Increment Finance Best Practices Reference Guide Council of Development Finance Agencies and International Council of Shopping Centers ACKNOWLEDGEMENTS The Council of Development Finance Agencies (CDFA) and the International Council of Shopping Centers (ICSC) would like to thank the generous support and contributions of the following team of authors and contributors. Bill Calderon Alexander Iams Toby Rittner Partner Editor Executive Director Hawes Hill Calderon LLP Council of Development Finance Agencies Jessica Perko Marc Hughes* Manager, Research & Technical Assistance Cynthia Stewart Director Council of Development Finance Agencies Director, Local Government Relations DEPFA First Albany Securities LLC International Council of Shopping Centers Laura Radcliff Gregory Hummel Director Cheryl Strickland* Partner Wachovia Securities Managing Director, Tax Allocation Districts Bell, Boyd & Lloyd LLP Atlanta Development Authority Case Studies Authors Mark Brady Price Finley Matthew Mayrl Assistant Vice President, Real Estate & President Master’s Candidate Community Development Argus Growth Consultants, Ltd. John F. Kennedy School of Government St. Louis County Economic Council Woodward S. Hanson Ken Powell Bill Calderon President Managing Director Partner Hanson Real Estate Advisors, Inc. Stone & Youngberg LLC Hawes Hill Calderon LLP Sarah Goss Laura Radcliff Harold Davis Policy Analyst, Office of the Director President Chief Financial Officer Wachovia Securities New England Economic Development Corp. District of Columbia Cheryl Strickland* Brian Dowling Pat Henry Managing Director, Tax Allocation Districts Associate Principal Atlanta Development Authority Basile Baumann Prost & Associates, Inc. The Atlantic Group Steve Strnisha Jessica Dunn Corey Leon President Senior Associate Director, Development & Rehabilitation Strnisha Development Advisors Strnisha Development Advisors Incentives Unit AKT Peerless Environmental Services Guide Oversight Team Members and CDFA Tax Increment Finance Coalition Joseph Branca* Lawrence Kilduff ✦ Toby Rittner Managing Director, Northeast Public President Executive Director Finance The Kilduff Company Council of Development Finance Agencies Bank of America Matthew Mayrl Myriam Simmons Bill Calderon Master’s Candidate Group Manager, Public Relations Partner John F. Kennedy School of Government Target Corporation Hawes Hill Calderon LLP Tina Neal* John Stalfort Maria Day-Marshall Senior Vice President Principle Senior Business Manger, Community Ferris, Baker Watts, Inc. Miles & Stockbridge PC Lending Darnell Moses* Cynthia Stewart Fannie Mae Authorities Manager Director, Local Government Relations Matt Diamond Allegheny County Department of International Council of Shopping Centers Associate Economic Development Cheryl Strickland* Stone & Youngberg LLC Jessica Perko Managing Director, Tax Allocation Districts Jessica Dunn Manager, Research & Technical Assistance Atlanta Development Authority Senior Associate Council of Development Finance Agencies Maurice Strul Strnisha Development Advisors Ken Powell Assistant Director Marc Hughes* Managing Director Allegheny County Department of Director Stone & Youngberg LLC Economic Development Depfa First Albany Securities LLC Laura Radcliff Frances Walton* Gregory Hummel Director Chief Financial Officer Partner Wachovia Securities Empire State Development Corporation Bell, Boyd & Lloyd LLP * Denotes CDFA Board Member ✦Denotes ICSC Officer Tax Increment Finance Best Practices Reference Guide Council of Development Finance Agencies and International Council of Shopping Centers Table of Contents CHAPTER 1: SETTING THE STAGE . .1 What is Tax Increment Finance? . .1 Why Use Tax Increment Finance? . .3 Encourage Development . .4 Eliminate Blight . .4 Environmental Issues . .5 Adaptive Reuse . .5 TIF for Economic Development . .6 When Should a Municipality Use TIF? . .8 TIF’s Ideal Usage . .9 Common TIF Developments . .10 Typical Improvements . .10 Infrastructure . .11 Site Preparation . .11 Facility/Amenity Construction . .12 Project-Specific TIFs vs. TIF Districts . .12 Project-Specific TIFs . .13 District-Wide TIFs . .13 Developing Policies for TIF Use . .14 Approach Selection . .16 CHAPTER 2: BUILDING COMMUNITY BUY-IN . .17 Public Policy and Community Buy-in . .17 Identifying Stakeholders and Partners . .17 Political and Government Stakeholders . .18 Buy-in: Neighborhoods Affected by Development . .19 Business Community Buy-In . .20 Marketing TIF to Constituencies . .22 Formulating a Communications Plan . .23 Tax Increment Finance Best Practices Reference Guide Council of Development Finance Agencies and International Council of Shopping Centers Table of Contents CHAPTER 3: TOOL MECHANICS AND FINANCING VARIATIONS . .25 Typical Sources: Property Tax, Sales Tax and Special Assessments . .25 Other Sources of Incremental Revenue . .26 Tax Sharing Agreements . .26 Complementary Special District Revenue . .27 Revenue and General Obligation Bonds . .28 Basic Characteristics of a TIF Bond . .28 Basic TIF Bonds in a Start-Up TIF District . .29 Flow of Funds in a Typical TIF Transaction . ..
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