Tax increment financing in Florida: a tool for local government revitalization, renewal, and redevelopment.

• Author: Hipler, Harry M.

Florida municipalities have undergone tremendous redevelopment in recent years. F.S. Ch.163 codifies redevelopment measures in the Community Redevelopment Act which provides for the establishment of a community redevelopment agency (CRA) and tax increment financing (TIF). (1) These tools represent a traditional "invest and grow" approach that local governments can use to generate growth within blighted areas. The act allows a CRA to annually capture and spend a portion of the incremental increase in ad valorem tax revenues resulting from redevelopment. The tax increment--the increase in real property taxes from the difference between the taxes generated before and after the investment in real property--is used by TIF to fund a portion of the costs for improvements. (2)

This article discusses TIF in Florida redevelopment within a specially designated district of a CRA. Even though TIF can be thought of as a financing tool, it is also a land development and improvement tool. There are other financing tools available, but by and large TIF has been the most common method used in Florida and elsewhere to increase investment and growth in local government development. Laws were enacted in 2006 restricting the power to take private property by eminent domain. What effect will this have on TIF? The arguments for and against TIF will be discussed. One Florida county has established a redevelopment capital program (RCP) as an alternative funding source in opposition to TIF, (3) and this article discusses issues raised by RCP.

History and Purpose

TIF began in California in 1952 as a way of providing matching funds for federal urban renewal plans, and it was slowly adopted by other states. As the federal government lessened its role in funding for urban development, TIF significantly increased. During the 1970s, federal dollars for urban renewal declined, and TIF became an alternate way to fund redevelopment projects. This increased interest in TIF spread in the 1980s and 1990s as the federal role in redevelopment was eliminated. More states began to pass laws on TIF, and now there are TIF laws in nearly every state and the District of Columbia. (4)

There are two fundamental ways TIF can be used. One is where TIF revenues are used on a "pay as you go" basis (where the annual stream of revenue is used to fund small projects), and another is "pay as you use" financing (where TIF revenues are used to pay debt service costs over the life of a project lasting 10 or more years). In either event, TIF has been effective at generating large amounts of funding for capital investments for roadway improvements, flood control programs, water and sewer and drainage infrastructure improvements, parking lots and garages, neighborhood parks, sidewalks, street and sidewalk tree plantings, signs, and building construction. (5)

During the life of the plan, tax increment revenues can be used when they are related to development in the designated redevelopment areas. These include expenditures for administrative and overhead expenses, planning and analysis, acquisition of real property in the redevelopment area, clearance and preparation of sites and relocation costs for site occupants, repayment of debt and expenses incidental to indebtedness, expenses incurred for the issuance, sale, redemption, retirement, or purchase of agency bonds, and development of affordable housing. (6) TIF can also be used with other county, state, and federal funding sources (advances, loans, tax increment revenue bonds, incentives, and grants) to carry out a redevelopment plan. (7) If a CRA has approved a plan before July 1, 2002, Florida law permits TIF for 30 years after the plan has been adopted up to a maximum of 60 years. For CRAs established on or after July 1, 2002, the TIF limitation period is 40 years. (8) On or before March 31 of every year, a CRA must file with the governing body a report of its activities for the preceding fiscal year, including a financial statement setting forth its assets, liabilities, income, and operating expenses as of the end of its fiscal year. (9)

Objectives of the Community Redevelopment Act

In 1969, the Florida Legislature enacted Part III, Ch. 163 of the Florida Statutes, which granted local governments the power to set up redevelopment agencies in their community. (10) The legislature's goal is to encourage neighborhood revitalization in downtowns and to provide maximum opportunities for private enterprise to participate in the revitalization of the designated areas. This partnership between the public and private sector is crucial to the success of any redevelopment plan. (11)

The primary objective of Florida's redevelopment legislation, F.S. Ch. 163, is based on the state's interest in protecting the health, safety, welfare, and morals of the community. (12) Florida law defines a "blighted area" as one in which there are deteriorated and deteriorating structures where economic distress or endangerment to life or property exists. (13) Its goals focus on eliminating the physical, social, and economic problems related to slum and blight by improvement of the physical environment (buildings, streets, utilities, parks) by rehabilitation, conservation, clearance, and redevelopment. Additional goals include acquiring blighted property, enhancing tax bases with private reinvestment, eliminating poor housing conditions, and providing affordable housing to residents of low and moderate income. (14)

Kelo and its After Effects

Before statutory amendments were enacted and became effective May 11, 2006, Florida permitted the use of eminent domain to support a TIF project, as long as the project funding could be used for economic development. (15) The controversy surrounding blight, eminent domain, and economic development was resolved in the U.S. Supreme Court's decision in Kelo v. Town of New London, 545 U.S. 469 (2005), in which the high court held that when a local government, as part of a comprehensive economic plan of development, condemns private property to transfer it to another private party to enhance the local government's tax base and hopefully to provide jobs, such governmental action is a public purpose allowable under the U.S. Constitution.

Although Kelo approved the use of eminent domain to promote economic development as a public purpose, the high court stressed that the states were free to place stricter standards on its eminent domain powers than the federal baseline. (16) Many who followed this issue considered the definition of "blighted area" too vague, because the Florida Statutes permitted local governments to easily meet the criteria for eminent domain. (17) In Fulmore v. Charlotte County, 928 So. 2d 1281 (Fla. 2d DCA 2006), dismissed 936 So. 2d 565 (Fla. 2006), (18) a Florida appellate court considered a challenge to the constitutionality of the Community Redevelopment Act, F.S. [section] 163.340(8), that defines "blighted area." The appellate court acknowledged that some of the statutory factors were subjective and nonquantifiable, while others were objective and quantifiable. Fulmore upheld this part of Ch. 163 and held that the definition of "blighted area" was not unconstitutionally vague on its face and as applied to landowners.

As a result of Kelo and the fear that "blighted area" was insufficiently defined in the statutes, the Florida Legislature passed statutory amendments contained in Ch. 2006-11, Laws of Florida, severely restricting a condemning authorities' power to take private property for economic development. This law amended F.S. Ch. 73 and created a prohibition...