Developer-financed tax incremental districts

In general and in brief, a city or village makes use of TIF using the following procedure:

1. The city or village designates an area as a TID and creates a project plan laying out the expenditures that the city or village will make within the TID.

2. The Department of Revenue establishes the “base value” of the TID. This value is the equalized value of all taxable property within the TID at the time of its creation.

3. Each year thereafter, the “value increment” of the property within the TID is determined by subtracting the base value from the current value of property within the TID. The portion of taxes collected on any positive value increment is collected by the city or village for use solely for the project costs of the TID. The taxes collected by the city or village on positive value increments include taxes that would have been collected by other taxing jurisdictions, such as counties or school districts, were the TID not created.

4. Tax increments are collected until the city or village has recovered all of its project costs or until the TID reaches its statutory termination date.

This bill allows a city or village to create a TID designated as a developer-financed TID. To create a TID as a developer-financed TID, the local legislative body must adopt a resolution making certain findings, and the joint review board must approve the creation of the TID as a developer-financed TID. The following are the findings that must be included in the resolution:

1. That all project costs of the TID will be paid directly from tax increments or financed by a developer.

2. That the aggregate of all payments made to a developer providing financing for a developer-financed TID will not exceed an amount equal to 90 percent of the estimated tax increments to be generated by the TID.

Under the bill, developer-financed TIDs differ from other TIDs in that:

1. The 12 percent rule does not apply.

2. A developer-financed TID may contain noncontiguous areas.

3. All project costs must be paid directly from value increments generated by the developer-financed TID or financed by the developer.

4. A city or village may share not more than 10 percent of the positive tax increments allocated for a developer-financed TID in a year with any other TID created by that city.

5. If a developer secures a loan from a private lender to finance project costs, the city and the parties to the loan must agree that the debt is the responsibility of the borrower and not the city.

6. The city may not issue tax incremental bonds or notes for financing a developer-financed TID.

Under current law, towns have much more limited authority to use TIF than do cities and villages. This bill allows towns that are adjacent to a city and that have a population of more than 4,000 to create developer-financed TIDs if the project costs are used solely for the construction of housing-related infrastructure.