Section 16.8 Real Property Tax Increment Allocation Redevelopment Act

• Library: Local Government Deskbook (2017 Ed.)

F. (§16.8) Real Property Tax Increment Allocation Redevelopment Act

The TIF Act (Real Property Tax Increment Allocation Redevelopment Act) authorizes the use of tax increment allocation financing, popularly known as “TIF.” Sections 99.800–99.865, RSMo 2016. TIF differs from the tax abatement programs discussed in §§16.2–16.6 above in that taxes continue to be paid on the redevelopment project, but the amount of resultant increases in tax revenue is “captured” and used by the sponsoring municipality to pay various costs of the project. Because the captured revenues are limited to incremental increases in real property taxes and “economic activity taxes,” such as sales tax, affected taxing jurisdictions continue to receive the amount of revenue that they received from the designated area before application of TIF.

The TIF Act targets two sources of revenue:

1. PILOTs (payments in lieu of taxes) reflecting levies on increased real property valuation resulting from the redevelopment project

2. EATs (economic activity taxes) representing 50% of increased revenues from levies of sales taxes and certain other transactional taxes within the redevelopment project area

The TIF Act requires that local collecting entities allocate and pay over revenues from these sources to the municipality. Section 99.845.1(2)(a), .3, RSMo 2016. The revenues are then deposited into a “special allocation fund” established by the municipality. Id. Funds deposited in the special allocation fund may secure bonds, notes, or other obligations issued by the municipality to finance designated redevelopment project costs. Section 99.835, RSMo 2016. TIF may be used to finance:

· costs of land acquisition;

· infrastructure improvements;

· building renovations;

· machinery and equipment acquisition;

· professional services fees; and

· within certain limitations, interim project financing.

See § 99.805, RSMo 2016.

Municipalities using TIF within enterprise zones, federal empowerment zones, and certain specified urban core areas may additionally obtain up to 50% of “new state revenues” resulting from redevelopment projects. Section 99.845.4–99.845.10. These new revenues include either incremental increases in state sales tax revenues within the project area, other than those constitutionally or otherwise dedicated to other uses, or amounts of state income tax withheld on behalf of new employees who fill jobs directly created by the TIF project. Section 99.845.8. Municipalities must prove that incremental increases attributable to retail sales were “from new sources which did not exist in the state during the baseline year.” Section 99.845.8(1). Different calculations of economic activity taxes and new state tax revenues are employed if any national headquarters relocates to Missouri from another state. Section 99.845.14. Applicants for this additional allocation must obtain approval of the Director of the DED (Department of Economic Development) and must meet certain other criteria. See § 99.845.10.

As a redevelopment tool, TIF provides several advantages. Use of TIF bonds provides available project funds when they are most needed, at the inception of the project. As noted above, TIF does not rely on property tax relief. Instead, TIF requires the dedication of portions of all incremental increases in most tax revenues, thus avoiding arguments of disproportionate burdens on those taxing districts relying solely on ad valorem levies. (Counsel should note also that the TIF Act entitles any district providing emergency services to reimbursement from the special allocation fund for at least 50%, but not more than 100%, of the district’s tax increment. Section 99.848, RSMo 2016.) TIF provides for direct representation of affected taxing districts through a commission that reviews and recommends TIF proposals to the governing body.

The TIF Act also permits use of eminent domain as a tool to facilitate property acquisition and assembly. Land for TIF projects acquired through eminent domain must be “acquired,” however, within five years of the adoption of the ordinance approving a redevelopment project. Section 99.810.1(3), RSMo 2016. In State ex rel. Broadway-Washington Assocs., Ltd. v. Manners, 186 S.W.3d 272 (Mo. banc 2006), the Supreme Court held that the filing of the condemnation petition within five years of the ordinance does not toll this requirement and the land is only acquired after the condemnation award is paid. Because the TIF commission failed to have the condemnation award paid within five years of the redevelopment ordinance, the Broadway-Washington Court dismissed the condemnation proceeding for lack of jurisdiction to enter a condemnation award. Broadway-Washington, 186 S.W.3d at 273; see also State ex rel. Watson v. Sherry, 436 S.W.3d 718 (Mo. App. E.D. 2014).

In City of Arnold v. Tourkakis, 249 S.W.3d 202 (Mo. banc 2008), the Supreme Court affirmed the ability of a noncharter city to utilize the TIF Act to acquire blighted property by eminent domain, holding that article VI, § 21, of the Missouri Constitution does not limit the ability to exercise eminent domain for purposes of blight elimination to charter cities and counties. Tourkakis, 249 S.W.3d at 205–06. Instead, article VI, § 21, authorizes the General Assembly to enact laws, such as the TIF Act, that allow noncharter cities to exercise eminent domain to acquire blighted areas. Tourkakis, 249 S.W.3d at 205–06.

TIF may be used by any county, city, village, or incorporated town. As a first step, the local governing body, by ordinance, establishes a TIF commission and calls for appointments to the commission. The composition of the commission depends on the status and location of the sponsoring local government.

In counties and in the City of St. Louis (a “city not within a county”), 2 members are appointed by affected “school boards” (the term “school board” is left undefined by the TIF Act and, although some practitioners read the term as including community college districts, the entirety of the Act, which also refers to “school districts,” suggests that this category may be limited to elected bodies responsible for secondary education); 1 member is appointed jointly by all other affected taxing districts; and 6 members are appointed by the Mayor or the presiding commissioner, as applicable, with the consent of the local legislative body, a total of 9 members.

In cities, towns, and villages located outside St. Louis, St. Charles, and Jefferson Counties, again, 2 members are appointed by affected “school boards,” 1 member is appointed jointly by all other affected taxing districts, and 6 members are appointed by the chief elected officer with the consent of the local governing body. In these municipalities, however, 2 additional members are appointed by the chief elected officer of the county with the consent of the county commission, a total of 11 members.

Since 2008, in municipalities in Jefferson, St. Charles, and St. Louis Counties, however, the commission consists of 12 members appointed as follows:

· 6 members appointed by either the county executive or the presiding commissioner (approval by the county’s governing body is not required)

· 3 members appointed by the cities, towns, and villages within the applicable county that have TIF districts in a manner in which the chief elected officials of such cities, towns, and villages agree;

· 2 members appointed by the school boards whose districts are included in the county in a manner in which the school boards agree; and

· 1 member to represent all other districts levying ad valorem taxes in the proposed redevelopment area in a manner in which all such districts agree.

Section 99.820.3(1), RSMo 2016. Counsel should note that none of the members are appointed directly by the municipality calling for creation of the...