Tax Increment Financing
Tax Increment Financing (TIF) is a public funding mechanism to assist private development of an area within the city. TIF may only be used when there is evidence the development would not occur without public assistance (But/For Test); and when the project area qualifies as a blighted or conservation area.
TIF is a financial tool used to capture the increase in real property taxes and sales taxes created from improvements within a Redevelopment Area. Up to 100% of the increase in real property taxes and 50% of the increase in local sales taxes (the “increment”) can be captured within the TIF Redevelopment Area. The real property tax and sales tax increment may then be used to reimburse a private developer for eligible expenses or to repay principal and interest on bonds used to finance the eligible expenses for up to 23 years.
By law, the city must determine that certain requirements have been met before approving a Tax Increment Financing Plan filed by the applicant. These requirements are set forth under Sections 99.805 to 99.865 of the Revised Statutes for the State of Missouri (RSMo).
In addition to meeting the statutory requirements referenced above, the city has established several criteria that will be applied in the review and evaluation of applications for TIF financing. In general, applications that meet each of the evaluation criteria will be viewed most favorably. However, TIF applications that do not meet some of these criteria may be approved if the application clearly demonstrates that the project, as a whole, is important to the city.
Expenses eligible for reimbursement under TIF include but are not limited to the following:
- Studies, surveys, plans and specifications.
- Professional services such as architectural, engineering, legal, marketing, financial, and planning.
- Site preparation, including demolition of structures, clearing and grading of land, and acquisition of land.
- Constructing public infrastructure such as streets, sewers, utilities, parking, and lighting.
- Rehabilitating and repairing existing buildings.
- Financing costs including bond issuance.
- Relocation costs if persons or businesses within the redevelopment area are displaced.
- Each TIF application must demonstrate that “but for” the use of TIF, the project is not feasible and would not be completed without the proposed TIF assistance.
- Demonstrates a substantial and significant public benefit by constructing public improvements that strengthen the economic and employment base of the city; and serves as a catalyst for further high-quality development or redevelopment. Development proposals under a TIF application are expected to meet high development standards and demonstrate innovative design. A TIF project requires high quality building materials and architectural design.
- TIF assistance will be provided for improvements that create significant public benefit(s) by creating new jobs and retaining existing employment, strengthening the economic base of the city, increasing property values and tax revenues, providing development absent or insufficient in the city, reducing poverty, upgrading older developments, and facilitating economic self-sufficiency.
- TIF applications seeking public assistance to cure blighted areas will be viewed more favorably if more than one “blighted area” condition exists.
- Applications which include TIF assistance for land acquisition and residential development will be discouraged unless creatively integrated into a large scale mixed-use project.
- TIF applications requesting the issuance of bonds or notes shall be required to demonstrate that the payments-in-lieu of taxes and/or economic activity taxes and revenues from special purpose districts expected to be generated will be sufficient to provide debt service coverage required by current market conditions (but not less than 1.25 times) in excess of the projected debt service on any tax increment bonds or notes. In no event shall the credit of the city be put at risk for the payment of debt service on bonds issued to financed redevelopment projects.
- TIF assistance to the project should generally not exceed 15% of total project costs, excluding public improvements. However, this threshold may be waived in circumstances where the developer:
- has a proven track record in completing successful projects comparable in scope and scale;
- documents the developer’s financial capacity to complete the proposed project;
- demonstrates that tenant commitments are already in place for a significant portion of the proposed project;
- documents evidence of substantial public benefit (ex: infrastructure), and other key components of the transportation, stormwater and sewer master plans; and
- a reasonable rate of return for the developer is generated.
- The projected term of the TIF project will be considered on the economic payoff expectations of the project with shorter terms being viewed more favorably than longer terms. TIF Applications which provide for the use of not more than 12 years of tax increment generated by each project is strongly encouraged.
- TIF Plans should contemplate that at least 25% of the Payments in Lieu of Taxes shall be declared as a surplus and distributed to the taxing districts.
- The TIF statute provides that redevelopment project costs can include all or a portion of a taxing district's capital costs resulting from a redevelopment project that are necessarily incurred or to be incurred in furtherance of the objectives of the redevelopment plan and project, to the extent the city by written agreement accepts and approves such costs. Taxing districts’ capital costs are defined as those costs of taxing districts for capital improvements that are found by the city to be necessary and to directly result from the redevelopment project. In accordance with these statutory provisions, any affected taxing district may submit a detailed request for reimbursement of its capital costs associated with a redevelopment plan or project and the city will consider such request in accordance with these statutory standards and requirements. Any taxing district submitting such a request shall carry the burden of proof to demonstrate to the city’s satisfaction that the capital improvements are necessary and directly result from the redevelopment project.
- Applications that include the utilization of a Community Improvement District (CID), Neighborhood Improvement District (NID), Transportation Development District (TDD) or other private or public financing special purpose districts which result in reducing the term of the TIF project will be viewed more favorably.
- Evidence the applicant has thoroughly explored alternative financing methods and has a track record which demonstrates the financial and technical ability to complete the project.
- Generally, TIF applications which encompass a project area of less than 10 acres will be discouraged.
- Care will be exercised in the use of TIF to thoroughly evaluate each project to ensure that the benefits which will accrue from the approval of the project are appropriate for the cost which will result, and that they are equitable to the city as a whole.
- The city may require an independent analysis(s) of the TIF application submittal. The cost of such study shall be paid by the applicant. The city shall administer the contract and the study shall be prepared by a professional consultant having a favorable reputation for the preparation of such studies. The study shall be submitted to the TIF Commission prior to the public hearing and the cost shall be reimbursed to the city prior to the Board of Aldermen action on the TIF project.
- IRR (Internal Rate of Return) or similar pro forma modeling is used by firms to decide whether they should make investments. TIF applications shall include a reasonable IRR calculation identifying IRR with TIF assistance and without TIF assistance.
- Following a public hearing before the city’s TIF Commission and approval of the TIF plan by the Board of Aldermen, the city and applicant shall enter into a Redevelopment Agreement for the purposes of accountability and governing the implementation of the TIF plan.
- An annual administration fee will be required as stipulated in the redevelopment agreement. The annual administration fee will be up to 5% of the TIF Revenue collected with a minimum of $20,000.
If the TIF application is being recommended based upon job creation criteria, language will be included in the development contract which stipulates that the city’s assistance to the developer may be reduced if satisfactory evidence is not shown that the indicated number and quality of jobs have been generated.
If businesses are to be relocated from other areas of the city, sufficient justification will be included to indicate why this relocation should be considered. If existing businesses are to be relocated to the TIF area, the base year of activity for purposes of determining the tax increment for both real property and economic activity taxes is the last twelve-month period at the businesses current location, immediately preceding the relocation. To accomplish this intent, a surplus will be declared which will have the same effect as if the previous level of taxes in the last full year at the previous location continued to be available to all taxing entities after the relocation.