AB 451

This bill allows cities and villages to designate tax incremental districts (TIDs) as residential TIDs, which under the bill would be subject to a different rule regarding the maximum equalized value of taxable property that may be contained in the TID than would apply to other TIDs.

TIF generally

Under current law, cities and villages may use tax incremental financing (TIF) to encourage development in the city or village. In general, under TIF, a city or village pays for improvements in a TID and then collects tax moneys attributable to all taxing jurisdictions on the increased property value in the TID for a certain period of time to pay for the improvements. Ideally, after that period of time, the city or village will have been repaid for its initial investment and the property tax base in the TID will have permanently increased in value.

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, and the designation and project plan are approved by representatives of the other taxing jurisdictions (joint review board).

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 (the tax increment) is collected by the city or village for use solely for the project costs of the TID. Tax increments collected by the city or village include taxes that would have been collected by other taxing jurisdictions, such as counties or school districts, if the TID had not been 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.

Residential TIDs

This bill allows a city or village to create a residential TID. To create a residential TID, the local legislative body must adopt a resolution finding all of the following:

1. That all project costs of the TID are related to residential developments that satisfy certain limits related to type of residences developed, setbacks, lot sizes, and structure sizes.

2. That all project costs of the TID are for the construction or improvement of infrastructure necessary for residential development within the TID.

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

Under current law, when creating a new TID or amending a TID, a city or village must make a finding that the equalized value of taxable property of the new or amended TID, plus the value increment of all existing TIDs in the city or village, does not exceed 12 percent of the total equalized value of taxable property in the city or village.

Under this bill, a residential TID is not subject to this 12 percent rule. However, residential TIDs are subject to a separate, but similar 3 percent rule. That is, when creating a new residential TID or amending a residential TID, a city or village must make a finding that the equalized value of taxable property of the new or amended residential TID, plus the value increment of all existing residential TIDs in the city or village, does not exceed 3 percent of the total equalized value of taxable property in the city or village.

Currently, a city or village generally may amend the project plan of a TID with the approval of the joint review board. Under this bill, with regard to a residential TID, a project plan may not be amended to increase the project costs of the TID later than 10 years before the unextended termination date of the TID except upon unanimous vote of the joint review board. The bill also specifies that a residential TID may not be a donor or recipient TID. That is, tax increments generated by the residential TID may not be used to pay project costs for another TID and tax increments generated by another TID may not be used to pay a residential TID’s project costs.

Because this bill may increase or decrease, directly or indirectly, the cost of the development, construction, financing, purchasing, sale, ownership, or availability of housing in this state, the Department of Administration, as required by law, will prepare a report to be printed as an appendix to this bill.