General Information on Tax Increment Finance (TIF) Districts
The Illinois General Assembly adopted the Tax Increment Allocation Redevelopment Act (TIF Act) in 1977, which provided municipalities the powers and authority to address local blight conditions and conservation areas within the community by undertaking redevelopment projects that aid in improving the economic wellbeing of the community.
Tax Increment Financing (TIF) can help a community achieve improvements and economic development that would not likely occur on its own or without financial assistance.
Tax Increment Financing can be one of the most effective local economic development tools available to Illinois communities. Tax Increment Financing enables municipalities to self-finance redevelopment programs. TIF funds can pay for public improvements and provide economic development incentives using the property tax revenues generated by improvements within the TIF. In other words, the redevelopment itself supports related financing for the projects and programs, and not the general taxpayers of the community as a whole.
Illinois communities must be ever vigilant to maintain an environment conducive to maintaining, stabilizing and hopefully encouraging grow its local economy and workforce in both retaining existing businesses and attracting new businesses. Municipalities need to maintain or enhance their competitive positions in the marketplace by rebuilding aging infrastructure and upgrading older commercial centers, industrial properties and residential neighborhoods. With limited assistance available from federal and Illinois government and other grants, Tax Increment Financing is a significant economic development tool and is locally controlled.
How TIF works
A TIF District’s revenues (also known as the “tax increment”) result from the increased assessed value of real property and improvements with the boundaries of the TIF District. When a TIF District is established, the existing equalized assessed value (EAV) is determined and “frozen” for distribution of property taxes to the various taxing bodies providing services to the property.
Taxing bodies continue to receive its share of property taxes from this “base” valuation, so there is no loss of revenue to those taxing bodies. Growth in the assessed value (tax base) as redevelopment occurs within the TIF District, above the “frozen base,” will generate new property tax dollars for the TIF District and help to support the redevelopment activities.
The difference in property taxes computed on the “frozen base” and the new EAV is determined (known as the “tax increment”) and is distributed to the municipality to support economic development activities within the TIF District as authorized in the Illinois statutes. The use of the TIF funds are restricted and separate accounting of the TIF funds must be maintained.
How TIF funds are used
The real estate tax increment can be used to reimburse certain costs associated with public and private projects. The municipality may issue bonds or reimburse developers on a “pay as you go” basis as part of its economic development incentives to encourage new development to occur.
A TIF District, once approved, will remain in effect for a maximum of 23 years. Under certain circumstances requiring approval by the Illinois General Assembly, the life of a TIF District can be extended to a maximum of 35 years. When the TIF ends and the municipalities obligations for both public and private redevelopment projects within the TIF redevelopment area are fully repaid, property taxes on the then current EAV is shared by all of the taxing bodies. From that point forward, all taxing bodies would share in the expanded tax base instead of just the “frozen base.” The growth of the tax base would not have been possible without the utilization of Tax Increment Financing (see the graphic at right).
It is important to remember that TIF is not a new tax. While boundaries are established for the TIF District, it is not a new taxing body being added to the property tax bill. A TIF District does not have the authority to levy its own property tax request.
Creation of a TIF District
There are a number of steps required in the creation of a TIF District.
The municipality identifies an area that is economically stagnant, experiencing declining values, or has other factors wherein new development or redevelopment is desirable, but unlikely to occur at a reasonable pace if no public investment were to be provided. The conditions supporting creation of a TIF District include:
- Blighted conditions, which includes dilapidation, obsolescence, deterioration, inadequate utilities and infrastructure or declining property values.
- Conservation conditions, which includes the circumstances where at least 50% of the structures in the proposed redevelopment area are 35 years or older and some blighting conditions exist.
- Industrial Park Conservation conditions – relatively high unemployment.
The Village Board authorizes the preparation of an Eligibility Study and Report, and the Redevelopment Plan and Project.
The County Clerk certifies the total equalized assessed valuation (EAV) of each individual parcel included in the TIF District. Property taxes computed off of a maximum of this certified initial valuation (base value) continue to be paid to the existing taxing bodies existing within the TIF District. Any property taxes computed on increases in EAV above the base value are distributed to the municipal TIF District Fund and set aside for public and private redevelopment project costs of the TIF District.
The TIF District is created through a series of ordinances.
The municipality makes public improvements and/or provides other assistance to encourage private development within the TIF District. The municipality can reimburse TIF eligible project costs on a pay-as-you-go basis or issue bonds using the incremental taxes to support the repayment of the bonds.
At the end of the TIF District (generally a maximum of 23 years), all of the TIF obligations should be paid off and the TIF District ends. Thereafter, the taxing bodies within the TIF District receive benefit of the incremental increase in the EAV in addition to the initial base value.
How TIF funds are used
TIF funds can be used to support a number of public improvements and other investments that support the Redevelopment Plan and Project generally including:
- Public infrastructure improvements including roads, sidewalks, utilities, water, sanitary sewer, storm sewer, detention/retention, parking, street lighting, etc.
- Acquisition of property, land assembly, demolition, site preparation, etc.
- Rehabilitation of older buildings
- Correction and mitigation of environmental issues
- Job training, workforce readiness and other related educational and training programs
- Incentives to retain or attract private development
Reporting and disclosure
An annual TIF Report is required to be prepared for each TIF District reflecting both the financial and development activities for the year. These reports are provided to each of the taxing bodies that are found within the TIF District. A Joint Review Board consisting of representatives of the taxing bodies also meet annually to review the TIF Report. A copy of the annual TIF Report is filed with the Illinois Comptroller’s Office.