Tax Increment Financing
What is Tax Increment Financing?
Tax Increment Financing, or TIF, is a financial tool used to assist a municipality in redevelopment of a specific area.
How is a TIF district established?
In order to establish a TIF district, a municipality must determine if the area is eligible as outlined in State Statute. Certain criteria must be met to designate an area as a TIF district. The area must be blighted or it must show signs of becoming blighted. The concept is such that development in the TIF would not occur “but for” the use of TIF funds. Also, the municipality must develop a redevelopment plan for the TIF District, which contains goals and objectives, as well as a budget for expected redevelopment costs. The municipality must hold a public hearing of the Redevelopment Commission to hear testimony from the public.
How does a TIF work?
When an area is designated a TIF district, the amount of property tax the area generates is set as a base EAV amount. The EAV or (Equalized Assessed Valuation) is the county Assessor’s way of assigning similar taxes to similar structures and spreading the property tax burden equally. As property values increase, all property tax growth above that amount can be used to fund redevelopment projects within that TIF designated district. The increase, or increment, can be used to pay back bonds issued to pay upfront costs, or can be used on a pay-as-you-go basis for individual projects. At the conclusion of the 23-year period, all property taxes are collected at the increased levels and the increment is no longer collected.
For example if a TIF district is designated and the total EAV is 100,000, then after a few years of redevelopment and investment, the total EAV is 175,000. The property tax paid on the incremental EAV of 75,000 goes into a TIF fund that can be used to pay eligible costs of the redevelopment. The base year amount of property taxes is still distributed to the many taxing bodies. Essentially, that amount is frozen and is paid to the taxing bodies for the life of the TIF, or 23 years.
How long can TIF districts last?
23 years
What happens when a TIF district expires?
During the life of a TIF, the base year of tax revenues are distributed to the various taxing bodies with the increment in tax revenues distributed to the TIF fund. Once the TIF expires, then the full property taxes paid by each property owner in the TIF are distributed to the various taxing bodies. With a successful TIF, the taxing districts will receive a windfall in tax revenues, particularly the elementary and high schools districts – which have the highest tax rates.
TIF Districts in Arlington Heights
The Village of Arlington Heights has utilized Tax Increment Financing (TIF) to redevelop five specific areas beginning in 1983 with TIF 1 in the southern portion of downtown. The three existing TIF districts comprise only 1.0% of the Village's land area. The following is a status report on the current and past TIF districts in the Village.
- TIF 1 and TIF 2 – Southern and Northern portions of Downtown
TIF 1 was established in 1983 and expired in 2006 and comprised the southern portion of downtown. TIF 2 was established in 1986 and expired in 2009. During that time the Village leveraged approximately $50 million in TIF funds to facilitate $200 million in private investment. TIF funds were used for the following: construction of three public parking garages (including the expansion and renovation of the Vail Avenue garage), streetscape / sidewalk beautification of all downtown streets, development of Harmony Park, construction of the train station, acquisition of the Metropolis Performing Arts Theater, loans and grants to renovate the older buildings in downtown, new sewers and street pavement, among other items. All bonds issued by the Village in these two TIF’s were paid off (defeased) on time wholly from TIF increment.
- TIF 3 – Southwest corner Arlington Heights Road and Rand Road
TIF 3 was established in 1995 to spur redevelopment of the corner for 52,000 square feet of retail space. Current tenants include Barnes & Noble and Trader Joes. Funds were used to acquire land, remediate contaminated soils from a dry cleaners, and relocate a large antenna tower. $3.0 million in TIF funds were used to leverage $12.0 million in private investment. TIF 3 is estimated to terminate in 2015, which is three years early as tax increment will be sufficient to pay off the bonds ahead of schedule due to the TIF’s success.
- TIF 4 – Northeast of Golf Road and Arlington Heights Road
TIF 4 was established in 2002 and includes 35 acres, including International Plaza (which is approximately 13 acres, or 37% of the total TIF area). The Village’s development agreement to redevelop for a SuperTarget store was terminated due to delays resulting from law suits filed against the Village. In January, 2006 Judge James R. Epstein of the Circuit Court of Cook County, ruled in favor of the Village determining that the Village did legally establish the TIF district. In Fall, 2009 Judge Epstein's ruling was upheld by the First Appellate Court of Illinois, thus confirming that the Village properly declared the area as a TIF district. Recently, the Village has focused on the corner of Golf Road and Arlington Heights Road and has acquired the former Arlin Golf Plaza and the former Kitikada Restaurant site. Both buildings have been demolished and seeded for grass. The Village has also conducted site remediation removing contaminated soils from a former dry cleaners at Arlin Golf Plaza. The Village is also attempting to acquire the former gas station site at the corner. Once acquired, the Village will market the three properties for a consolidated commercial development.
- TIF 5 – Town & Country and Southpoint Shopping Centers – Rand Road / Palatine Road
TIF 5 was established in 2005 and includes two large shopping centers which were distressed with significant vacancies. In 2007, redevelopment of Town & Country Shopping Center was completed and new tenants opened including Dicks Sporting Goods, Ashley Furniture Store, and Joann Fabrics. $4.2 million in TIF funds were used to leverage approximately $24.0 million in private redevelopment. The Village is currently working with the owners of Southpoint Shopping Center to redevelop the vacant building at the southeast portion of the site along Rand Road, although no definitive plans are currently being discussed.
Growth in Equalized Assessed Value
| |
Established
|
Base EAV |
Final Year EAV |
EAV 2009 |
Terminate |
| TIF #1 |
1983 |
$8.5 million |
$80.9 million |
N/A |
2006 |
| TIF #2 |
1986 |
$2.2 million |
$25.2 million |
N/A |
2009 |
| TIF #3 |
1995 |
$0.92 million |
N/A |
$5.2 million |
2015 est. |
| TIF #4 |
2002 |
$5.9 million |
N/A |
$14.0 million |
2025 |
| TIF #5 |
2005 |
$30.1 million |
N/A |
$40.5 million |
2028 |
How has the Village utilized TIF funds?
The Village has used TIF funds to assist with several redevelopment projects in our downtown area. The public parking garages across from Dunton Tower and across from 200 N. Arlington were built and paid for by the Village to provide parking for commuters, shoppers, employees, and for residents of the two buildings. The Village is paying for the garages form the incremental property taxes generated by the property owners in the TIF district. TIF funds have been used to assist in land acquisition and land cost write-downs for Dunton Tower, 200 Arlington Place and Towne Place (201 N. Vail). This is a common practice in TIF districts not only in Arlington Heights, but other municipalities as well. The incremental tax dollars have also been used for the streetscape program, which includes brick paver sidewalks, trees, decorative benches, and street paving. The Village has also established a Façade Improvement program, whereby TIF funds are used to assist small businesses and property owners with rehabilitation of their storefront facades. This program has been instrumental in preserving the older building facades, which add to the character of the downtown. Some examples of façade improvements include Mitchell’s Jewelry and Regina’s Restaurant, among many others.
What costs are eligible for TIF financing?
State Statute allows certain costs to be financed with TIF funds. These costs include: costs of infrastructure improvements such as water and sewer mains and public garages; land acquisition, demolition of buildings and site grading; bond financing costs and other costs as outlined in the Statute.
Will the use of TIF funds to spur redevelopment increase property taxes for residents of the Village?
No. Any TIF related obligations the Village commits to will not result in an increase in property taxes for the residents of Arlington Heights.
Arlington Heights TIF Districts Annual Reports
Where can I get additional information on TIF financing?
The Department of Planning and Community Development Department is available to answer any additional questions you may have on tax increment financing in Arlington Heights. Please feel free to
e-mail or call (847) 368-5200 with any questions. To obtain more information about TIF in Illinois, visit the Illinois Tax Increment Association's website at
www.illinois-tif.com.