Tax experts talk TIF

Tax Increment Financing, better known as TIF, is not free money.

Steeleville High School hosted a "TIF 101" forum on Nov. 10 that was attended by around 50 people representing a variety of municipalities.

"This is not free money," Mike Armstrong, former Steeleville village president and its current TIF administrator, cautioned those in attendance. "If you come in and sign a development agreement, we're going to hold you to that."

Armstrong was part of a three-person panel that included Illinois Tax Increment Association (ITIA) Executive Director Tom Henderson and PGAV Planners Director Mike Weber.

Armstrong is also a member of ITIA's board of directors.

"We hope you leave here with a greater understand of TIF and how it helps your communities," said Steeleville Mayor Bob Sutton, who moderated the panel.

Steeleville is in a bit of a TIF boom, with several projects having recently been completed, are under construction, or are in the process of development through the use of TIF funds.

Two TIF projects in the planning stages in Steeleville are the new headquarters of Mevert Automotive on the former Bockhorn Motors property on the village's west end, and a still-announced project being spearheaded by Kim Rasnick at the site of the former Tom's Barber Shop, across the tracks from the Bockhorn property.

TIF calls for local taxing bodies to make a joint investment in the development or redevelopment of an area, with the intent that any short-term gains be re-invested and leveraged so that all the taxing bodies will receive larger financial gains in the future.

When a TIF district is created, the value of the property in the area is established as the "base" amount.

The property taxes paid on this base amount continue to go to the various taxing bodies as they always had, with the amount of this revenue declining only if the base declines (something that the TIF is expected to keep from happening) or the tax rate goes down.

It is the growth of the value of the property over the base that generates the tax increment.

"There are three ingredients for success," Weber said. "The first ingredient is private investment. The second is more private investment.

"Third ingredient, any guesses? More private investment."

Weber highlighted several examples of obsolete properties that had been transformed to productive properties, like the Sparta Center and a shopping complex in DeKalb.

The TIF area must be a minimum of 1.5 acres and meet the "But For" requirement, which means "but for" the public investment, the area would not improve on its own.

"The property owner or developer will have to assume the risk and pay the money up front, but they can go to the bank and use the property as collateral and they can get their investment back in TIF costs," Weber said.

For newer TIF districts, developers/property owners will enter into a "pay-as-you-go" TIF agreement with the local municipality, in which the developer/property owner agrees to do the project in exchange for reimbursement of a percentage of property taxes generated by the project over a certain number of years.

In Chester, the Chester Center and Kipp Redevelopment Project get 75 percent of their property taxes reimbursed by the city.

The Chester City Council approved TIF accounting for both developments at its Nov. 7 meeting, with the Chester Center to receive more than $30,000 in reimbursement.

Chester's TIF district, created in the city's northern corridor in 1997, will expire in 2020. Steeleville has two TIF districts that will expire in 2025 and 2032.

Extending the life of a TIF requires an act by the state legislature. Illinois law allows a TIF project to exist for up to 23 years.

"At the end of the day, the success of the TIF is predicated on private investment," Weber said.

Most common TIF-eligible costs include planning and design, property assembly and site preparation, building demolition, rehabilitation or retrofitting, public infrastructure (I.E. streets and utilities), job training and environmental remediation.

"In most cases, cost to construct a new building is not a TIF eligible cost," Weber said.

Weber noted that TIF is a tool for revitalizing older areas of the community and, in certain cases, can be established on "vacant" land.

But the overall objective is to induce private investment and support the long-term health of the tax base of all the affected taxing bodies.

Henderson noted there are some restrictions to TIF, like it can't be used for camping and hunting, or to develop vacant land for a golf course, clubhouse and related structures.

"That really didn't eliminate blight as far as I'm concerned," he said.

All taxing bodies also must share in any surplus generated by the TIF.

"If you give money to a taxing district, you are to distribute to all the taxing districts," Henderson said.

Municipalities can also assist schools with infrastructure through TIF and schools will not lose any state aid as a result.

Henderson advised the audience to strongly consider professional assistance by calling the Illinois Tax Increment Association at 217-523-4905 or emailing thenderson@illinois-tif.com.

"There's some bad TIFs out there," Armstrong said. "There definitely is."