Meeting #1 SR 02-05-2001 - Laserfiche WebLink

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Legislation in 1998 now requires that both manufacturing and distribution TIF projects on green acre parcels to pay 160 percent of the federal minimum wage to at least 90 percent of the employees. TYPES OF FINANCING Bonds. Bonds secured by tax increments are issued when there is a need for initial capital to finance public or private improvements. Typically, the bonds are general obligation bonds backed by the full faith and credit of the municipality. As long as at least 20% of the debt service on the bonds is reasonably expected to be paid with tax increments, the bonds may be issued without election. Pay As You Go. An alternative to bond financing is a "pay as you go" arrangement with the developer. The developer pays for various TIF-eligible costs initially, and the authority promises to reimburse the developer from tax increment over time as it is generated. The developer (rather than an unrelated bondholder) bears the risk that the increments will be insufficient to repay the costs incurred. This arrangement may be structured as a revenue note or bond issued to the developer, with an interest component to compensate the developer for costs of financing the improvements up front. LOCAL GOVERNMENT AID PENALTY Generally. The penalty applies only to districts requested for certification after April 30, 1990. The penalty is tied to the state school aid formula. When an authority creates a TIF District, the state calculates how much less the school aids would have been had the captured property value been available to the school district. That amount is then deducted from the municipality's local government aid (LGA) and if necessary from the homestead and agricultural credit aid (HACA). Amount. The LGA/HACA loss varies, but is usually about 30% of the tax increment collected annually when the maximum penalty applies. Note that the penalty does not change the amount of increment collected; it changes the amount of state aid the municipality receives. The amount of aid loss depends on the type of TIF district. Penalty Recapture. For districts created between May 1, 1990 and July 31, 1993, the municipality may obtain reimbursement from the developer for lost aid. However, tax increment may not be directly expended to reimburse the general fund for such aid loss. For districts requested for certification after July 31, 1993, new restrictions apply. If any agreement or "arrangement" provides for the developer to repay any part of the tax increment assistance provided, such developer payments are subject to restrictions imposed by law on tax increment itself. Thus, a municipality may not deposit such payments in the general fund, but rather must maintain them in the TIF district account for use only on TIF eligible activities. As a practical matter, this severely limits the ability to fill the aid-loss hole in the municipality's general fund. Ehlers & Associates - TiF Basics 9