FAQ’s for the proposed Downtown Lincoln TIF District
(February 2013)
The Lincoln City Council has been talking about establishing a Tax Increment Financing (TIF) district in downtown Lincoln for some time. In an effort to provide further information on the next steps in establishing a TIF district, we thought it might be helpful to answer some common questions.
The Feasibility Study has been approved by the City of Lincoln. Does this mean a TIF District has been established? No. The Feasibility Study does not establish the Tax Increment Financing (TIF) district, but only determines if the requirements are satisfied for the area to qualify as a TIF district. The City of Lincoln has completed a Feasibility Study for downtown Lincoln and has determined the area is eligible for the establishment of a TIF district.
Then how is a TIF District established? A Redevelopment Plan has been provided to school districts and certain taxing bodies within the district for review. Notification of the Plan’s availability for review has been mailed to residents within the TIF district and to those within 750 feet of the proposed boundary. A Joint Review Board, consisting of representatives from affected taxing districts, has met, reviewed the Redevelopment Plan, and unanimously endorsed it. A Public Hearing on the proposed Redevelopment Plan and the establishment of the TIF will be held on Monday, March 4, 2013, at 6:00 pm in the City Council chambers. Following the completion of these steps, the City Council of Lincoln will vote on whether to formally implement the TIF District. This vote is expected to happen in March.
Has the City shared information on how TIF funds would be spent? A framework for the expenditure of TIF funds is included in the Redevelopment Plan which is on file in the City Clerk’s office. The City will monitor and evaluate proposals for expenditures from the TIF funds throughout the life of the TIF district.
What sorts of things can TIF funds be spent on? TIF funds can be used for public improvements, such as sewer replacement, street reconstruction, sidewalk improvements, or other public infrastructure improvements. TIF funds can be a valuable asset to have in the case of providing matching local funds to state and federal grants the City may get for downtown revitalization. TIF funds can also be used as matching grant funds as incentive for private property owners to complete building improvements such as façade renovations or to encourage new construction on private property.
What is a tax increment? A tax increment is the difference between the amount of property tax revenue generated before the TIF district designation and the amount of property tax revenue generated after TIF designation. Establishment of a TIF does not reduce property tax revenues available to the overlapping taxing bodies. Property taxes collected on properties within the TIF district at the time the TIF district is established continue to be distributed to the school districts, county, library, park district, community college, and all other taxing districts in the same manner as if the TIF did not exist.
But that means that as property taxes go up from year to year, all of the taxing bodies will not get increased tax revenue for areas within the TIF district. Yes, but if tax rates stay the same, property taxes within the district will not increase unless the Equalized Assessed Valuation (EAV) of the district is increased through redevelopment and reinvestment within the district. In fact, the EAV of the proposed TIF district has declined for four of the last five years for an overall decrease of 10%. Unless redevelopment of the area occurs, there is no reason to believe that this trend will not continue.
Will the TIF District increase my taxes? The creation of a TIF district does not increase anyone's property taxes. If you have property within the TIF district you will continue to pay the same property taxes as you normally would. The difference is that any increase in the amount of taxes collected at the time the TIF is established (whether that increase is caused by improvements made to the property or re-assessment of that property) goes into the TIF fund that is then used for improvements within the TIF district.
Here’s an example -- Let's say your property is in the TIF district and you're paying $1,000 in property taxes right now. Next year, let's say your property taxes go up $50 because your property is re-assessed. That means next year you pay $1,050 in property taxes: $1,000 of that is distributed to all the taxing districts the way it is now, and $50 would go into the TIF Fund to be spent on improvements in the district. You pay the same amount of taxes you normally would -- the TIF district doesn't increase your taxes at all. It just causes the increase to go into a different pot that will be used to make improvements within the downtown area.
What if I live outside the TIF District? Since the increased taxes within the TIF District won’t be distributed to the taxing bodies, won’t that increase my taxes to make up for the difference? The implementation of the TIF District should not result in an increased tax burden outside of the District. The current Equalized Assessed Valuation (EAV) for the proposed TIF district has declined for four of the last five years for an overall decrease of 10%, resulting in the tax burden being shifted away from the TIF District. Assuming this trend continues without the introduction of a TIF District, the tax burden carried by the TIF district should stabilize and taxes paid by properties outside the TIF district will not see additional increases due to the decline in the TIF district EAV.
Do TIFs divert money from the schools and other taxing bodies? Actually, establishing a TIF district can actually create more money for schools and other taxing bodies. First, all of the taxing bodies will continue to receive the tax revenue they are currently receiving. Second, when the TIF expires, all of the taxing bodies will benefit from increased property taxes from a redeveloped area with a higher EAV. Also for schools, the incremental growth in property values is excluded from the property tax base when the state calculates the amount of aid it should award to a school district, allowing for a higher state aid amount than if the tax increment were considered. Creating a TIF does not reduce property tax revenues available to the taxing districts. Only taxes derived from future growth that likely would not have occurred without a TIF district go to TIF projects.
How long will the TIF district last? The TIF district will be in place for up to 23 years. During the TIF, all taxing bodies will continue to receive the property taxes they are currently receiving. After expiration of the TIF, the entire property tax including the existing taxes and the TIF created taxes become available to all of the taxing bodies.
Can the City use TIF funds to provide funds to a private developer? Yes, but each case will need to be negotiated between the City and the developer and the terms outlined in a redevelopment agreement. Here is an example of how TIF funds might be used for a private development. A commercial building within the TIF district is currently generating $2,000 per year in property taxes and has a value of $75,000. The property owner is willing to make a $150,000 investment if the City will provide $75,000 in TIF funds for a total expenditure of $225,000 on rehabilitation of the building. Now, the commercial property has a value of $300,000 and annual property taxes of $10,000. The tax “increment” is $8,000, which the City can use to offset its original investment in less than ten years. After the initial investment is paid off, the newly generated increment can be used for additional investments in the area. Without this incentive, the property owner is unlikely to make such a large investment.
Why should tax dollars be used to help a private developer? Successful TIF investment serves both the public and private investors in a redevelopment area. Private investors are helped by a reduction in development cost and risk, making improvements that otherwise would not be feasible. In most cases, the TIF funds that would be provided to a private developer are more than offset by the amount that developer pays in higher taxes over time. The public benefits by having a redeveloped central business district, and from the additional tax revenue available at the conclusion of the TIF project.
How do we know that the TIF district will work to redevelop the downtown area? Although there is no guarantee that redevelopment will occur after establishment of the TIF district, it will provide an incentive to redevelop that is currently lacking. It is evident from the decline in property values of the area that redevelopment is not likely to happen on its own and the area will remain economically stagnant. The tax increment is used to pay for the improvements that attract private investment and stimulate economic growth and gives a reason for redevelopment that might not otherwise exist.
Are TIF Districts unusual? Actually, they are quite common. There are over 1,000 TIF Districts in over 250 municipalities around the State of Illinois. In our neighborhood, there are two municipalities with TIF Districts in Logan County, nine municipalities with TIF Districts in Sangamon County, and eight municipalities with TIF Districts in McLean County.
Where is the TIF District in Lincoln? Please visit the Logan County Web Mapping application for the boundaries for the Lincoln TIF District.