Accessing Unclaimed TIF Funds

Developers looking for a new source of revenue during the housing slump should not overlook municipal redevelopment programs. Developing the right kind of project at the right location may qualify one for millions of dollars in government subsidies. Forty-nine states and the District of Columbia have some variation of Tax Increment Financing. [1] More commonly known as TIF, the program lets local municipalities subsidize projects in designated redevelopment areas. 

Illinois was one of the first states to develop TIF. The state enacted the original version of its TIF statute in 1977 for the purpose of promoting development in areas which are “blighted or are in danger of becoming blighted." [1] The program works by using future property taxes to “provide incentives to develop areas which would remain undeveloped if not for governmental assistance.”[2] TIF districts do not create new taxes or automatically increase property taxes. Revenue comes from an increase in property taxes over time generated by an increase in land values after the improvements take place. [3]

While designating a certain part of a city as a qualifying TIF district is usually a political process, accessing TIF funds after a district has been created does not have to be. To encourage small businesses to use TIF funds, the city of Chicago created a “Streamlined Tax Increment Financing for Small and Mid Sized Building Projects” program. [4] The program gives developers streamlined access to millions of government dollars that often sit unclaimed for years after a TIF district has been created. [6] Developers in Chicago may use TIF funds to pay for a number of costly redevelopment expenses that often hold back construction. Some of these expenses include land acquisition and clearance, site preparation, environmental remediation, building rehabilitation and repair, signs and awnings affixed to buildings, and professional fees related to redevelopment such as permit fees and legal fees. [7] Developers are also eligible for reimbursement of up to 30% of construction period interest costs. [8] Eligibility requirements vary by district and usually range from affordable housing requirements to a showing that the project is not financially and economically unfeasible without government funding. [9]

One example of an underutilized Chicago TIF with potential opportunity for developers is the Western Avenue North district in Chicago’s Lincoln Square neighborhood. [10] In 2003, the City approved $61 million for the life of the district located along Western, Lawrence, and Lincoln avenues. [11] Since the district’s creation, not one dollar has been appropriated. [12] By redeveloping areas such as the Western Avenue North district, developers can increase revenue by accesing government funds that often go unused for years after the creation of a TIF district. 

Sources:

1. Tax Increment Financing State Statutes, http://www.cdfa.net/cdfa/cdfaweb.nsf/pages/tifstatestatutes.html (last visited April 20, 2007)
2. 65 ILCS 5/11-74.2 et. seq. (West 1991)
3. Lincoln Square Business Improvement District, Tax Increment Area (TIF), http://www.lincolnsquare.org/document/bid_tif.php#bidprog (last visited April 15, 2007).
4. Id.
5. Active TIF Districts in Illinois, http://www.illinois-tif.com/IllinoisTIFs.htm#C (last visited April 15, 2007)
6. Supra Note 3
7. Id.
8. Id.
9. Id.
10. Id.
11. Id.
12. Id.
13. Id.

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