Tax Increment Financing
Tax Increment Financing also called “TIF” is an important economic development tool for the city to finance certain types of development costs. TIF’s are used by the city to provide public infrastructure improvements, attract private development, spur employment growth and increase the municipal tax base.
TIF Policy Statement & Scoring System
City Council established the Ad Hoc TIF committee to review the existing TIF’s, best practices and formulate a recommendation to City Council. The Committee consisted of John Holmstrom, Michelle Petrie, Bill Whitcher, Karen Walsh, John Phelps and Mike Fumo. The Ad Hoc TIF Committee, through a number of meetings, completed their review of the existing TIF’s, past development agreements and best practices from other communities. As a result of their efforts, they prepared a TIF Policy Statement and Guideline Scoring System.
The City Council approved the Policy on September 22, 2014, the Policy is a guide to developers, the Community and staff when evaluation development projects with public funding.
To date, there are 32 TIF districts scattered throughout the city which include commercial, industrial, residential and mixed-use neighborhoods. From small commercial strips to large tracts of land, these TIF districts are pumping new life and new opportunities into Rockford.
What is a TIF District?
TIF is a tool used by the City of Rockford to finance public improvements and assist private development projects within targeted neighborhoods. Rising property values within a targeted neighborhood create new incremental tax revenues, which the city uses to improve conditions within that neighborhood.
How do TIF districts work?
TIF districts can only be created by municipal government and can exist for up to 23 years. A project must be located within a TIF District to receive TIF Funding.
During the life of the district, TIF financing allows a developer or property owner to receive a portion of the increased real estate taxes generated from a rehabilitation or new construction project. Funds can be provided through two methods – First, a fixed annual dollar amount can be paid directly to the developer based on the amount of the yearly real estate tax increase generated by the project. This method is known as the “pay as you go method.” Secondly, through a bonding process, the City can provide funds during construction. This method is called the “upfront method”. The City borrows money by selling bonds, which are repaid by the increased real estate taxes generated by the development process.
TIF funds usually are a small portion of the overall project costs and are meant to close the gap between conventional bank financing, the owner’s funds and the project’s costs. TIF funds often make previously infeasible development projects possible.
TIF districts do not raise real estate taxes; rather, TIF districts capitalize on the increased revenues generated by the development and general improvement within the TIF district boundaries. A TIF designation merely permits any additional property tax revenue to be earmarked for improvements within the district.
What makes a project a good candidate for TIF assistance?
- Substantial increase in real estate taxes after construction
- New construction or substantial rehabilitation
- Adding building square footage
- Low present real estate value
- Vacant buildings or land
What projects make poor candidates for TIF Financing?
- Cosmetic work (i.e. painting)
- Largely interior work (i.e. redecorating)
- Minor repairs
- Small or no increase in real estate taxes after completion
- Roof work
- Parking lot work
How much TIF Funding will my project actually receive?
- Generally no more than the actual increased real estate taxes generated by your project
- Only the funds necessary to make your project feasible at reasonable market rates of return
- TIF funds are usually a small portion of project funding in the range of 20% to 40%
What project information do I need in order to apply for TIF funding?
- Firm constructions costs
- Sources and uses of funds (Pro Forma)
- At least a 15 year cash flow statement
- Site control (Purchase Contract, Option to Purchase, Deed)
Suggested TIF Application Steps:
- First; determine the estimated construction costs and anticipated uses for the property (including the total square feet for each use.)
- Next; schedule a meeting with the Township Assessor to obtain an estimated market value of the completed project – this will determine the estimated annual real estate taxes that the project will generate .
- Contact the City of Rockford Community Development Dept at (779) 348-7162 to negotiate a development agreement with appropriate City staff.
- Seek approval for the project and development agreement from the Mayor and Rockford City Council.