ABC’S OF IOWA URBAN RENEWAL A Practical Guide for Cities League of Municipalities 9/22/11 R. Mark Cory & Patricia J. Martin Ahlers & Cooney, P.C. 100 Court.

ABC’S OF IOWA URBAN RENEWALA Practical Guide for Cities

League of Municipalities 9/22/11R. Mark Cory &

Patricia J. MartinAhlers & Cooney, P.C.

100 Court Avenue, Suite 600Des Moines, IA 50309-2231

[email protected]@ahlerslaw.com Telephone: 515-243-7611

FAX: 515-243-2149

CAVEAT

This Guide is intended for general informational purposes only. Answers to legal questions about Iowa urban renewal law can vary greatly depending upon the specific facts in a given situation. Please consult your attorney.

WHAT IS TIF?

• Tax Increment Financing• Concept is to capture the incremental

(increased) taxes generated from the construction of buildings/expansionsFrozen base (everyone shares in the base)Tax Increments generated (new value less base)Everyone benefits -- eventually

HOW TO COMPUTE TIF?

• New Value After Improvements $2,000,000• Frozen Base Value $1,500,000• Difference in Assessed Value $ 500,000

Combined Tax Levy = $32/$1,000Debt Service Levy and School’s PPE = $ 4/$1,000Net TIF Levy $28/$1,000

Net TIF Levy times Difference in Assessed Value = Tax Increment

$28/$1,000 x $500,000 = $14,000 Tax Increment per year

INCREMENTAL TAXES Potential TIF $$PPEL Will be IncreasedDEBT SERVICE LEVIES Will be IncreasedTAXES ON BASE VALUE No Change

WHEN IS TIF?

It takes a long time before Tax Increment is produced

FROM PROJECT COMPLETION TO TAX COLLECTIONHOW THE SYSTEM WORKS

2011 Project Completes Summer 2011_2012 Assessed 01-01-122013/2014 Taxes Based on 01-01-12 Valuation Will Not Be Paid Until Fiscal Year 13-142014/2015 Until And Unless Incremental Taxes Are or beyond Collected (Which Could be Even Later Than Fiscal Year 13-14) There Are No TIF Reimbursement Dollars to Spend

WHY IS TIF?

• Iowa Code Chapter 403 and 15A combine to give City authority for grants, loans, tax rebates to private entities

• Iowa Code Chapter 403 gives City authority to use Tax Increment for public infrastructure that promotes Economic Development

• 5 types or designations are available for UR Areas

• The types are described in an UR Plan

THE FIVE TYPES OF URBAN RENEWAL AREAS

Iowa law recognizes at least five different kinds of Urban Renewal Areas. It is not uncommon to mix two or more together. Each one has its own purpose and rules. A first step in considering adoption of an Urban Renewal Plan, or undertaking an Urban Renewal Project, is to identify the type or types of area needed. Some areas include two or more types. The five types are:

1. A SLUM AREA

This is an area where Slum conditions exist and the city or county wants to eliminate those conditions

2. BLIGHT AREA

This is an area where Blight conditions exist, and the city or county wishes to eliminate these conditions.(…deteriorated structure; defective or inadequate street layout; faulty lot layout in relation to size adequacy; unsanitary or unsafe; tax or special assessment delinquency exceeding the fair value of land; defective title, conditions that endanger life or property by fire; menace to public health safety or welfare.)

3. ECONOMIC DEVELOPMENT - COMMERCIAL/INDUSTRIAL AREA

This is an area where a city or county wants to create or retain jobs and income and strengthen the economy by promoting the development of new business and industry or by retaining existing business and industry.

4. ECONOMIC DEVELOPMENT – LMI HOUSING AREA

This is an area where the city or county wants to promote development or construct improvements to promote housing opportunities for LMI persons.

5. ECONOMIC DEVELOPMENT – INFRASTRUCTURE FOR NON-LMI HOUSING

This is an area where a city or county wants to help fund the cost of Public Improvements to serve housing that is too expensive for LMI persons. This type of area should be mixed with any of the other four types only when the effect that it might have is fully understood and accepted.

NON LMI HOUSING

• Can only use TIF for Public Infrastructure• Have to set aside LMI funds equal to the

percent of LMI residents in the county • Sunset restriction

WHO HAS TIF POWER?

• Cities and counties have the ability to form an Urban Renewal Area by the adoption of an Urban Renewal Plan.– Usually adoptions of UR plans are done separately by

the City and County, but in some cases the City and County may work together on an Urban Renewal Project

– City needs the consent of the County to adopt an UR Plan within 2 miles of the City

– County needs the consent of the City to adopt a UR Plan within 2 miles of City limits or within the City limits

WHERE IS TIF?

• TIF can be used for Urban Renewal projects that are authorized within the UR Area that has been designated by the UR Plan within the time allowed under law.

• Therefore the first question is: Is the property on which the Urban Renewal project will occur (roads built or building constructed) within a current UR area?

HOW IS TIF?

In order to receive the right to use TIF or Tax Increment, the City goes through a plan or amendment adoption process in order to receive the legal authority to use tax revenues from affected taxing entities (school, county, community college).

HOW IS TIF?BY AN URBAN RENEWAL PLAN

• Identify Land• Type of Development• Land uses—current and future• Needs of the area—can include infrastructure

as a result of development • Identify projects• Expressly state use of tax increment financing

Ahlers & Cooney, P.C. ABC’S OF IOWA URBAN RENEWAL©Mark Cory. 2006

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AS

AP

•Obtain written permission of all Ag owners and city/county joint agreement (if applicable).

•Draft UR Plan is approved by Staff and Counsel

ASAP

•Resolution to set hearing

•Refer to P&Z

•Hold consultation

A

T LE

AST

5 DAY

S

•Send copy of resolution,

•plan

•and notice of consultation to affected taxing entities.

7 D

AYS O

R LE

SS

Hold Consultation

•Written comments about plan.

NOTMORE THAN 30 DAYS•Receipt by P&Z

•P&Z report to council/board

COUNCIL/BOARD

CLERK/ AUDITOR OR DESIGNATED

STAFF

AFFECTED TAXING ENTITIES

P&Z

•Publish Ordinance

•Record Plan

AT L

EAST

7 D

AYS

•Written response to consultation parties

•Report to Council/Board

•Receive reports on consultation

•Receive report from P&Z

•Hold Hearing

•Pass Ordinance

HOW TO GET HELP WITH AN URBAN RENEWAL PROJECT

Your PlannerCity/County AttorneyBond CounselCounty AuditorCounty AssessorFinancial AdvisorDepartment of ManagementState Auditor’s OfficeIowa Department of Economic Development (IDED)Your PeersYour Engineer

This list is not meant to be comprehensive. You won’t necessarily need to consult all of the above in any given project, and many will help you with areas outside those listed above.

WHEN IS TIF?

• How long can you collect TIF?• It depends of the designation or type of area;

and• It depends on when the property that the

project is located on was put in the Plan; and• It depends on what the Plan says

SUNSETS

• Slum and Blight—no statutory sunset, plan dictates

• Econ. Dev. (Comm./Ind) 20 years from calendar year after 1st certification of debt

• Econ. Dev. (LMI housing) 20 years from calendar year after 1st certification of debt

• Econ. Dev. (NON-LMI housing) 10 fiscal years starting with 2d fiscal year after 1st certification of debt, (can extend to 15 years with consent of other taxing entities if city is under 15,000 population)

AN URBAN RENEWAL AREA

• URBAN RENEWAL AREA

URBAN RENEWAL AREAThis is a specific geographic area, usually

defined by a boundary description, that has been designated as an appropriate area for

urban renewal projects.

A TYPICAL TIF AREA(CO-EXTENSIVE WITH AN URBAN RENEWAL AREA)

TIF AREAThis is a specific geographic area, usually described by its boundaries. The Incremental Taxes paid in this area can be captured by the city or county who formed the area as TIF Reimbursement for Urban Renewal Projects.

A TIF AREA FOR PART OF AN URBAN RENEWAL AREA

TIF AREAThis is a specific geographic area, usually described by its boundaries. The Incremental Taxes paid in this area can be captured by the city or county who formed the area as TIF Reimbursement for Urban Renewal Projects.

A SET OF TIF AREAS IN A SINGLE URBAN RENEWAL AREA

TIF AREAThis is a specific geographic area, usually described by its boundaries. The Incremental Taxes paid in this area can be captured by the city or county who formed the area as TIF Reimbursement for Urban Renewal Projects.

WHAT CAN TIF REIMBURSEMENT BE USED FOR?

1. Is the Project within an Urban Renewal Area (exception: LMI Match Urban Renewal Project)?

2. Does the Project qualify under Iowa Law? Iowa Code 403.6; Iowa Code 403.12

3. Is the Project adequately described in the Urban Renewal Plan?4. Will the Project achieve approved goals?

Eliminate Slum.Eliminate Blight.Create or Retain Jobs or Income.Provide housing for LMI families.Provide Public Improvements for non-LMI housing development.

TIF REIMBURSEMENTIS NOT AN ENTITLEMENT

versus

LOCAL OFFICIALS TRYING TO EXERCISE GOOD STEWARDSHIP OF PUBLIC FUNDS

DEVELOPER TRYING TO GET THE BEST DEAL FOR INVESTORS AND OWNERS

URBAN REVITALIZATION

• Tax exemption or tax abatement• This is different from tax increment• Also requires a Plan and an ordinance• Like UR, there are different types of

designations• Various abatement schedules for residential and

commercial• If slum, blight, historic, you can adopt a more

generous schedule

URBAN REVITALIZATION

• Takes longer to adopt the plan• Notice requirements to property owners and

tenants• Downsides: Same approach for all projects, does

not have the same flexibility as urban renewal; must apply same schedule to all areas in the City

• Upsides: Easier to administer; can be extended so expiration is not a problem; city control

Special Tax Exemption Ordinance

• Chapter 427B: Special Tax exemption– Partial exemption by ordinance– Applies to “new construction” of industrial

property, research-service facilities, warehouses, distribution centers, acquisition of or improvement to M & E assessed as real estate

– Sliding scale from 75% to 15% over 5 years– Strict application requirement (Feb 1 of year value

added is first assessed for taxation)

Development Agreements

• What will Developer/Manufacturer do? Create or retain jobs?

• What will City do?• Timing of incentive is important• Advantages of Rebates• Drawbacks of Grants/loans• ABC Manufacturer—wants incentives and

needs public infrastructure

10 Development Agreement Tips

1. START WORKING ON THE AGREEMENT EARLY AND DON’T PROMISE ANYTHING UNTIL YOU CAN------- THE CITY HAS NO AUTHORITY BEFORE THE PLAN/AMENDMENT IS ADOPTED AND THE DEVELOPMENT AGREEMENT IS SIGNED------- WORK ON THE DEVELOPMENT AGREEMENT DURING THE PLAN APPROVAL PROCESS.

2. UNDERSTAND THE RISKS-- TERMS OF A DEVELOPMENT AGREEMENT CAN RANGE FROM LOW RISK TO HIGH RISK—-- MINIMUM ASSESSMENT AGREEMENTS ARE NOT RISK FREE.

3. DON'T AUTOMATICALLY AGREE TO 100% OF THE TAX INCREMENT AS AN INCENTIVE

10 Development Agreement Tips(continued)

4. TIE ALL INCENTIVES TO BENEFITS THAT CAN BE MEASURED---PROVIDE PENALTIES IF THE JOB REQUIREMENT IS NOT MET.

5. DON'T CERTIFY DEBT TOO SOON OR TOO LATE.

6. CONSIDER ALTERNATIVES TO TIF DEVELOPMENT AGREEMENTS.

7. TRY TO MAINTAIN FLEXIBILITY WITH TIF POLICY/PRACTICE.

8. GET ADVICE IF YOU ARE IN DOUBT—FINANCIAL ADVISOR, ATTORNEY, ASSESSOR, AUDITOR.

9. DON’T FORGET LEGAL REQUIREMENTS FOR DISPOSITION OF REAL PROPERTY BY CITY

10. ALWAYS HAVE A WALK-AWAY.

FINANCING ALTERNATIVES

REBATE AGREEMENTSINTERNAL LOANS OR FORGIVEABLE LOANSCHAPTER 384 G.O. BONDSCHAPTER 403 G.O. BONDSCHAPTER 403 REVENUE BONDSGENERAL FUND LOANSLEASE-PURCHASE AGREEMENTS

QUESTIONS?

Contact Information:R. Mark Cory (515) 246-0378

& Patricia J. Martin (515) 246-0350

Ahlers & Cooney, [email protected] & [email protected]

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