Tax Increment Financing
Mary Lilly Smith
Economic Development Director
840 North Boonville
Springfield, MO 65801
The following information is available in the Economic Development Incentives Resource Guide:
- Timeline for Adoption of a Tax Increment Financing Plan
- Tax Increment Financing Pre-Application
Tax Increment Financing (TIF) provides for the redirection ofthe incremental increase in sales and property tax revenue resulting from a redevelopment project to be used for approved project-related costs, infrastructure and capital improvements.
Sections 99.800 through 99.865 RSMo.; Sections 2-241 through 2-242 Springfield City Code; City of Springfield Resolution 8898.
Tax Increment Financing may be used to reimburse the following types of redevelopment project costs:
- Professional services
- Plans and specifications
- Land acquisition and site preparation
- Public improvements
- Private improvements, provided the TIF District has been declared blighted
If granted the power by City Council, the TIF Commission may use eminent domain in a TIF area to obtain property for use by a private developer implementing a project approved in the TIF plan.
The following revenue sources are transferred to a special allocation fund that is administered by the City and used to finance project costs.
Payments in Lieu of Taxes (PILOTS)
The tax increment produced as a result of increased assessedpropertyvaluesoverthebaselevel. TheStatuteauthorizestheredirectionof100%ofthe incremental increase in property taxes to the TIF special allocation fund. Taxing jurisdictions will continue to receive taxes based on the property values prior to the redevelopment.
Economic Activity Taxes (EATS)
The Statute authorizes the redirection of 50% ofthe incremental increase in taxes generated by economic activities within the project, such as new sales, earnings, profits, utility and food and beverage taxes.
The TIF Commission may also issue obligations to pay for Redevelopment Project Costs and pledge the funds in the special allocation fund to retire the obligations. Maximum bond term is 23 years.
Tax Increment Financing Commission
The Statute requires that a TIF Commission be established by City Council. The Commission must include two members appointed by the County Commission; two members appointed by the School District; one member appointed by the "other taxing districts" that levy taxes within the proposed TIF District; and 6 members appointed by the Mayor and confirmed by the City Council. Springfield City Code Section 2-24 1 requires that one o f the six mayoral appointees be a representative of the Springfield - Greene County Library and one be a member of City Council.
Concept of Tax Increment Financing
TlF is based on the premise that there will be an increase in the value of real property, new jobs and other economic activity within the redevelopment area as redevelopment occurs. As the property is improved, the assessed value of real property in the redevelopment area increases above the base level. By applying property taxes to the increase in the assessed value ofthe property over the base level, a tax increment is produced. These tax increments, also referred to as "payments in lieu oftaxes" or PILOTS, are transferred to a special allocation fund that is administered by the City. The City and County also transfers 50% ofall incremental sales tax revenues to this fund. The money collected in the special allocation fund is then used to pay directly for the redevelopment project costs or to retire bonds or other obligations issued to pay such costs.
Projects using Tax Increment Financing must have a redevelopment plan approved by City Council after a recommendation from the Tax Increment Financing Commission. A key element of the TIF Plan is to document that the area would not be developed unless the incentive is implemented. Section 99.810.1(1) RSMo. requires this "but for" provision. Once approved, the redevelopment project may utilize Tax Increment Financing for up to 23 years.
The redevelopment plan designates the redevelopment area, describes the redevelopment project, and sets forth a comprehensive program for redevelopment. The redevelopment area must contain property classified as the following or any combination thereof:
- Blighted Areas - areas which retard the provision of housing accommodations or constitute an economic or social liability or a menace to the public health, safety, morals, or welfare in its present condition and use, due to specific conditions;
- Conservation Areas - areas in the City in which 50% or more of the structures have an age of 35 years or more and may become blighted because of certain specific conditions, or;
- Economic Development Areas - areas that do not meet the requirements for a "Blighted Area" or "Conservation Area", and in which the Council finds that redevelopment is in the public interest because it will discourage economic development activities from moving to another state; or result in increased employment; or result in preservation or enhancement of the tax base of the City.
Notices must be provided to taxing jurisdictions, to property owners and the general public prior to adoption of the redevelopment plan and Tax Increment Financing. The TIF Commission and the City Council must conduct a public hearing prior to adoption.
Tax Increment Finance Policies
These policies supersede the TIF policies contained in City Council Resolution 8213.
- Each TIF application must demonstrate that the applicant has thoroughly explored the use of alternative financing methods.
- TIF applicants must demonstrate that they have the financial ability to complete and operate the project.
- The use of TIF will be considered for those projects which demonstrate a substantial and significant public benefit by constructing public improvements in support of developments that will create new jobs and retain existing employment, eliminate blight, and/or strengthen the employment and economic base of the City.
- Most favorable consideration will be given to TIF plans that propose no more than 20% of total project costs (including all hard and soft costs and developer fees) be reimbursed with TIF revenues.
- Any developer receiving TIF assistance shall provide a minimum of fifteen percent (15%) cash equity investment in the project. TIF revenue and land values shall not be used to supplant cash equity. Projects with equity contributions from the developer in excess of 25% will be viewed more favorably.
- TIF applications for retail and commercial projects will be considered for projects that encourage an inflow of customers from outside the City or will provide services or fill retail markets that are currently unavailable or in short supply in the City. Additional consideration will be given to projects in excess of $15 Million or the development of vacant property in areas where the project will be the initial development or will serve as a catalyst for further quality development.
- TIF projects which are constructed in phases are viewed with greater skepticism. TIF projects that propose a reasonable and certain end date for construction and occupancy and demonstrate clearly and convincingly how those goals will be achieved will be viewed positively. Projects with commitments by tenants by lease or other legally binding contracts will be viewed with greater favor.
- The term of the TIF shall be the minimum necessary, with shorter terms receiving more favorable consideration than those extending the maximum 23 years.
- Most favorable considerations will be given to TIF projects that provide immediate benefit to taxing jurisdictions.
- Proposed blight studies for TIF districts must be reviewed by the Land Clearance for Redevelopment Authority and TIF Commission for their recommendations regarding blight.
- The City will maintain a retainage account until each project is completed or satisfies other performance standards.
- The City may charge an administrative fee of 2% of annual TIF revenues to partially offset the cost of record-keeping for each TIF project. The fee may be assessed on a quarterly basis against the annual increment generated by the TIF project.
- Notwithstanding the foregoing, TIF applications which do not meet the above criteria will be viewed favorably if the application clearly demonstrates that the project is of vital interest to the City and will significantly assist the City in the elimination of blight by financing desirable public improvements, strengthening the employment and economic base of the City, increasing property values, reducing poverty, creating economic stability, upgrading older neighborhoods, and/or facilitating economic self-sufficiency.
All projects will be reviewed for consistency with both the policies for the desired incentive as well as the general policies listed on the Overview and General Policies page.