Redevelopment Through Tax Increment Financing By STEVE McCLURE, Director Department of Commerce & Community Affairs

Tax increment financing is a local redevelopment technique which Illinois municipalities may use to fund specified public and private improvements and services needed to prepare an area for further private investment. Tax increment financing allows a community to recapture the increase in various state and local taxes that result from a redevelopment project in a blighted residential, commercial, or industrial area. The tax revenues obtained from the project which exceed the level of tax revenues generated by the area prior to redevelopment is called the "tax increment", hence the term tax increment financing.

Authorized under the "Tax Increment Allocation Redevelopment Act" (Chapter 24, Section 11-74.4-1, Illinois Revised Statutes), tax increment financing permits all municipalities to recapture increasing property tax revenues generated from the site to pay for the various costs incurred by the municipality in its redevelopment efforts. In addition, communities which created tax increment financing districts prior to January 1, 1987 may recapture a portion of the state sales tax revenues generated by businesses within the district. Furthermore, increases in state gas and electric utility tax revenues from an industrial area within a district established prior to January 1, 1988 may be used toward redevelopment expenses.

Before tax increment financing is used, a municipality must first determine whether the area qualifies under the relevant state statutes for designation as a tax increment redevelopment area. Among the most important statutory restrictions are: a) that the district boundaries be limited to those properties which will substantially benefit from the project; b) that the corporate authorities ascertain that the area would not reasonably be expected to be developed without the adoption of the tax increment plan; and c) that the area qualifies as a blighted area, conservation area, or industrial park conservation area.

This latter restriction carries with it the requirement that the corporate authorities identify specific characteristics of the property which meet the appropriate statutory definitions of blight. Such characteristics may include for developed properties: excessive vacancy levels, obsolescence of physical structures, inadequate utilities, violation of state or local code standards, or other deleterious factors. For vacant parcels the presence of blight may be demonstrated by the existence of diversity of land ownership; flooding; property tax delinquencies; deterioration of neighboring structures; presence of unused quarries; railway tracks, or debris; etc.

Tax increment proceeds may be used for a broad range of public and private improvements and services. Permitted public-purpose expenditures include the cost of planning; architectural and engineering services; purchase of land and buildings; demolition and site improvement; rehabilitation of existing public buildings; installation and rehabilitation of public improvements, utilities, or buildings; bond financing costs, and administrative expenses.

Financial incentives provided to encourage private investment may include: building demolition and site improvement, rehabilitation and remodeling of exist-

January 1991 / Illinois Municipal Review / Page 9

Upon identifying an area within the community which appears to be suffering from physical deterioration or underinvestment, the municipality must undertake a study of the proposed project. Typically, this study will include such information as a legal description of the project area, a statement of the conditions on the property which meet the statutory definition of blight, a discussion of the specific redevelopment strategies, a map showing both current and proposed land uses, a listing of development design controls and criteria, an estimation of project costs and sources of funds, and a designation of current and anticipated equalized assessed valuation of the redevelopment district.

Following completion of the redevelopment plan, a public hearing must be convened to consider the matter and written notice of the hearing must be mailed to all property owners within the proposed project area. The corporate authorities must also establish an advisory Joint Review Board, consisting of representatives of the municipal government and specified local taxing bodies, which must meet to discuss the proposal.

Finally, the corporate authorities must enact three ordinances which serve to authorize the use of tax increment financing, identify the specific geographic boundaries of the project, and adopt the detailed redevelopment plan.

The Illinois Department of Commerce and Community Affairs has available three publications entitled "Tax Increment Financing," "Developer Incentives in Illinois Tax Increment Districts," and "Illinois Sales and Property Tax Increment Districts." To obtain these publications, or to learn more about tax increment financing, please call DCCA's Office of Local Government Management Services in Chicago at (312) 814- 6696, or the Office of Urban Assistance in Springfield at (217) 785-6132. •

Page 10 / Illinois Municipal Review / January 1991