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Tuesday, February 25, 2014

How to Wind Up a TIF District

Winding up a TIF district must be carefully planned and executed.  The ambiguity of the Act and the Illinois property tax collection system create pitfalls for the unwary.  

Section 3(n)(3) of the Act requires that the redevelopment plan must include the estimated date of completion of the redevelopment project and retirement of obligations issued to finance redevelopment costs, 
which shall not be later than December 31 of the year in which payment to the municipal treasurer…is to be made with respect to ad valorem taxes levied in the twenty-third calendar year after the year in which the ordinance approving the redevelopment project is adopted…
This clause is commonly interpreted to mean that the life of a TIF district is 23 years.  (It can be extended to 35 years by an act of the General Assembly or in limited circumstances defined in §3(n).)  

But what happens at the end of 23 years?  Does the TIF district self-destruct?  No.  The municipality must take certain steps, which must be coordinated with the county clerk.  

Buried in Section 8 of the Act is the following paragraph:
Upon the payment of all redevelopment costs, the retirement of obligations, the distribution of any excess monies pursuant to this Section, and final closing of the books and records of the redevelopment project area, the municipality shall adopt an ordinance dissolving the special tax allocation fund for the redevelopment project area and terminating the designation of the redevelopment project area as a redevelopment project area….Municipalities shall notify affected taxing districts prior to November 1 if the redevelopment project area is to be terminated by December 31 of that same year.
So closing a TIF district requires timely notice to affected taxing bodies and adoption of an ordinance.  Other steps include declaration of surplus, if any, filing the termination ordinance with the county clerk, and distribution of any surplus to the affected taxing bodies.  

The timing of the termination ordinance is driven by the fact that property taxes in Illinois are collected one year in arrears, e.g., taxes levied in calendar 2014 are collected and paid to the municipality in calendar 2015.  The language of §3(n)(3) set forth above says that the date of completion of the TIF project and the retirement of obligations may be December 31 of the year in which taxes levied in the 23rd year of the TIF are paid to the municipality by the county.  This would be the end of the 24th year after the creation of the TIF district.  

Assume for purposes of illustration a TIF district for which the last day of its 23 year  lifespan is August 30, 2014.  Incremental TIF revenue generated in calendar 2014 will be collected by the county and paid to the municipality in 2015.  If the municipality were to adopt and file an ordinance terminating the TIF district on August 30, 2014, it is likely that the county clerk would not calculate or pay TIF increment in 2015.  Thus, the municipality would lose the 23rd year of its TIF revenue.  The careful practitioner will consult with the county clerk to determine how that official interprets this provision of the Act.

As noted, project costs and debt obligations issued to pay project costs must be paid by December 31 of the 24th year after creation of the TIF district.  The ordinance terminating the TIF district must be adopted “Upon payment of all redevelopment costs, [and] the retirement of obligations.”  Upon adoption of the ordinance terminating the TIF district, property taxes are to be paid by the county to the affected taxing districts “in the manner applicable in the absence of the adoption of tax increment allocation financing.”   

Post Authored by Paul Keller, Ancel Glink


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