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Redevelopment Through
Tax Increment Financing
By STEVE McCLURE, Director
Department of Commerce & Community Affairs
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Tax increment financing is a local redevelopment
technique which Illinois municipalities may use to fund
specified public and private improvements and services needed to prepare an area for further private
investment. Tax increment financing allows a community to recapture the increase in various state and local
taxes that result from a redevelopment project in a
blighted residential, commercial, or industrial area.
The tax revenues obtained from the project which exceed the level of tax revenues generated by the area
prior to redevelopment is called the "tax increment",
hence the term tax increment financing.
Authorized under the "Tax Increment Allocation
Redevelopment Act" (Chapter 24, Section 11-74.4-1,
Illinois Revised Statutes), tax increment financing permits all municipalities to recapture increasing property
tax revenues generated from the site to pay for the
various costs incurred by the municipality in its redevelopment efforts. In addition, communities which
created tax increment financing districts prior to January 1, 1987 may recapture a portion of the state sales tax
revenues generated by businesses within the district.
Furthermore, increases in state gas and electric utility
tax revenues from an industrial area within a district
established prior to January 1, 1988 may be used toward
redevelopment expenses.
Before tax increment financing is used, a municipality must first determine whether the area qualifies
under the relevant state statutes for designation as a tax
increment redevelopment area. Among the most important statutory restrictions are: a) that the district
boundaries be limited to those properties which will substantially benefit from the project; b) that the corporate authorities ascertain that the area would not
reasonably be expected to be developed without the
adoption of the tax increment plan; and c) that the area
qualifies as a blighted area, conservation area, or industrial park conservation area.
This latter restriction carries with it the requirement
that the corporate authorities identify specific characteristics of the property which meet the appropriate
statutory definitions of blight. Such characteristics may
include for developed properties: excessive vacancy
levels, obsolescence of physical structures, inadequate
utilities, violation of state or local code standards, or
other deleterious factors. For vacant parcels the presence of blight may be demonstrated by the existence of
diversity of land ownership; flooding; property tax delinquencies; deterioration of neighboring structures;
presence of unused quarries; railway tracks, or debris;
etc.
Tax increment proceeds may be used for a broad
range of public and private improvements and services.
Permitted public-purpose expenditures include the
cost of planning; architectural and engineering services;
purchase of land and buildings; demolition and site
improvement; rehabilitation of existing public buildings; installation and rehabilitation of public improvements, utilities, or buildings; bond financing costs, and
administrative expenses.
Financial incentives provided to encourage private
investment may include: building demolition and site
improvement, rehabilitation and remodeling of exist-
January 1991 / Illinois Municipal Review / Page 9
ing structures, relocation costs, up to 30 percent of
interest costs borne by the developer for property purchase or development, and the cost of training the businesses employees.
Upon identifying an area within the community
which appears to be suffering from physical deterioration or underinvestment, the municipality must undertake a study of the proposed project. Typically, this
study will include such information as a legal description of the project area, a statement of the conditions on
the property which meet the statutory definition of
blight, a discussion of the specific redevelopment
strategies, a map showing both current and proposed
land uses, a listing of development design controls and
criteria, an estimation of project costs and sources of
funds, and a designation of current and anticipated
equalized assessed valuation of the redevelopment district.
Following completion of the redevelopment plan, a
public hearing must be convened to consider the matter
and written notice of the hearing must be mailed to all
property owners within the proposed project area. The
corporate authorities must also establish an advisory
Joint Review Board, consisting of representatives of the
municipal government and specified local taxing bodies, which must meet to discuss the proposal.
Finally, the corporate authorities must enact three
ordinances which serve to authorize the use of tax increment financing, identify the specific geographic
boundaries of the project, and adopt the detailed redevelopment plan.
The Illinois Department of Commerce and Community Affairs has available three publications entitled
"Tax Increment Financing," "Developer Incentives in
Illinois Tax Increment Districts," and "Illinois Sales and
Property Tax Increment Districts." To obtain these
publications, or to learn more about tax increment financing, please call DCCA's Office of Local Government Management Services in Chicago at (312) 814-
6696, or the Office of Urban Assistance in Springfield at
(217) 785-6132. •
Page 10 / Illinois Municipal Review / January 1991
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