PA 15-57—sSB 677
Planning and Development Committee
Finance, Revenue and Bonding Committee
AN ACT ESTABLISHING TAX INCREMENT FINANCING DISTRICTS
SUMMARY: This act allows municipalities, through their legislative bodies, to establish a tax increment district (generally known as a tax increment financing (TIF) district) to finance economic development projects in eligible areas. It allows a municipality to finance projects in the district by (1) designating all or part of the new or incremental real property tax revenue generated in the district for repayment of costs incurred to fund the projects, (2) imposing assessments on real property in the district benefiting from certain public improvements (i. e. , benefit assessments), and (3) issuing bonds backed by these revenue streams to pay project costs.
The act imposes certain criteria for designating a TIF district. Under the act, a district must encompass property that is (1) blighted; (2) in need of rehabilitation or conservation; or (3) suitable for certain types of development, including downtown or transit-oriented development. The act limits the (1) taxable value of the districts a municipality may create to no more than 10% of the total value of its taxable property and (2) district's duration to a maximum of 50 fiscal years.
The act specifies a process for establishing a TIF district that, among other things, requires a municipality to (1) consider the proposed district's contribution to the municipality and its residents, (2) determine whether the district conforms to its plan of conservation and development, and (3) hold at least one public hearing on the proposal.
It requires a municipality's legislative body to adopt a master plan for the TIF district and prescribes the plan's components, including a financial plan that defines the costs and revenue sources required to accomplish the master plan.
To carry out a district master plan, the act allows municipalities to issue bonds with up to 30-year terms backed by various sources, including (1) their full faith and credit (i. e. , general obligation (GO) bonds); (2) the income, proceeds, revenues, and property within the district; and (3) tax increment revenues and benefit assessments.
Existing law allows municipalities to use TIF to finance economic development projects, but under narrower conditions than those the act establishes. Among other things, existing law generally (1) limits the type of projects eligible for TIF, (2) restricts the use of incremental tax revenue to repaying outstanding TIF bonds, and (3) requires multiple entities to approve the use of TIF (see BACKGROUND).
EFFECTIVE DATE: October 1, 2015
§§ 1-3 & 9 — ESTABLISHING AND DISSOLVING DISTRICTS
The act allows a municipality's legislative body to establish a tax increment district within the municipality's boundaries in accordance with the act's requirements. The district is effective when the legislative body approves it and adopts a district master plan, as described below. If the municipality operates under a charter, the act specifies that the district may not conflict with the charter.
The act encourages the legislative body to create a board to advise it and other designated entities on (1) planning, constructing, and implementing the district master plan and (2) maintaining and operating the district after the plan's completion. The advisory board's members must include people who own or occupy real property in or adjacent to the district.
Conditions for Approval
The act requires municipalities to take certain steps prior to establishing a district and approving a district master plan.
Planning Commission. At least 90 days prior to approving the district and plan, the municipality must transmit the plan to its planning commission, if it has one. The commission must study the plan and issue a written advisory opinion, including a determination as to whether the plan is consistent with the municipality's plan of conservation and development.
Public Hearing. The municipality must hold at least one public hearing on the proposed district. It must publish notice of the hearing at least 10 days in advance in a newspaper with general circulation in the municipality and include (a) the hearing's date, time, and place and (b) a legal description of the proposed district's boundaries.
Approval Criteria. The municipality must determine whether the proposed district meets certain criteria. Its legislative body (or board of selectmen if the legislative body is a town meeting) must consider whether the proposed district and district master plan will contribute to the municipality's economic growth or well-being or improve its residents' health, welfare, or safety.
In addition, the original assessed value of the proposed district (i. e. , the value of all taxable real property in the district as of the prior October 1), plus the original assessed value of all of the municipality's existing TIF districts, cannot exceed 10% of the total value of taxable property in the municipality as of the October 1 immediately preceding the district's establishment. This calculation does not include any TIF districts established after October 1, 2015 consisting entirely of “contiguous property” owned by a single taxpayer. Under the act, contiguous property includes parcels divided by a road, power line, railroad line, or right-of-way. The municipality may not establish a district if this criterion is not met.
Lastly, the municipality's legislative body must determine whether a portion of the district's property is (1) substandard, insanitary, deteriorated, deteriorating, or blighted; (2) in need of rehabilitation, redevelopment, or conservation; or (3) suitable for industrial, commercial, residential, mixed-use, retail, downtown, or transit-oriented development.
The act defines “downtown” as a community's central business district or other commercial neighborhood area that serves as a center of socioeconomic interaction, characterized by a cohesive core of commercial and mixed-use buildings, often interspersed with civic, religious, and residential buildings and public spaces, typically served by public infrastructure, and arranged along a main street and intersecting side streets.
It defines “transit-oriented development” as the development of residential, commercial, and employment centers within one-half mile or walking distance of a transit facility, including rail and bus rapid transit and services that meet transit supportive standards for land uses, built environment densities, and walkable environments in order to facilitate and encourage the use of such services. It defines a transit facility as a place providing access to transit services, including bus stops and stations, highway interchanges used by more than one transit provider, ferry landings, train stations, shuttle terminals, and bus rapid transit stops.
Dissolving the District or Changing Its Boundaries
Under the act, a municipality's legislative body may vote to dissolve a district or change its boundaries at any time, as long as the district does not have any outstanding bonds, other than municipal GO bonds.
§ 2 — DISTRICT POWERS
The act authorizes a municipality, within a district and consistent with its district master plan, to:
1. acquire, construct, reconstruct, improve, preserve, alter, extend, operate, and maintain property or promote development to meet the plan's objectives (in doing so, it may acquire property, land, and easements through negotiation or by other legal means);
2. execute and deliver contracts, agreements, and other documents related to the district's operation and maintenance;
3. issue bonds and other obligations in accordance with the act;
4. enter into fixed assessment agreements for real property in the district, subject to the restrictions described below;
5. accept grants, advances, loans, or other financial assistance from public or private sources and do anything necessary or desirable to secure such aid; and
6. according to terms it establishes, (a) provide services, facilities, or property; (b) lend, grant, or contribute funds; and (c) take any other action it is authorized to perform for other municipal purposes.
These powers are in addition to those the municipality has under the Constitution, the statutes, special acts, or the act's other provisions.
Fixing Assessments in the District
The act allows a municipality, through its board of selectmen, town council, or other governing body, to enter into written agreements with a taxpayer to fix the assessment of real property in the district for up to 15 years. The property's fixed assessment, plus the value of any future improvements, cannot be less than its assessment as of the last regular assessment date without the future improvements.
The act requires any fixed assessment agreements to be recorded on the municipality's land records. Any such recording (1) constitutes notice to the property's subsequent purchasers or encumbrancers, whether they acquire the property voluntarily or involuntarily, and (2) is binding.
A municipality may bring an action in the Superior Court for the judicial district in which it is located to force a taxpayer to comply with the agreement's terms.
§ 4 — DISTRICT MASTER PLAN
The act requires a municipality's legislative body to adopt a (1) “district master plan” for the district and (2) statement of the percentage or amount of “increased assessed value” that will be designated as “captured assessed value” under the plan, as described below. It must adopt the plan at the same time it adopts the district, pursuant to the act's procedures.
Under the act, the “district master plan” is a statement of means and objectives relating to a district designed to (1) provide new employment opportunities, (2) retain existing employment, (3) provide housing opportunities, (4) improve or broaden the tax base, or (5) construct or improve physical facilities and structures. It achieves these means and objectives through industrial, commercial, residential, retail, or mixed-use development; transit-oriented development; downtown development; or any combination of these.
The district master plan must include:
1. a legal description of the district's boundaries;
2. the tax identification numbers for its lots or parcels;
3. the present condition and uses of its land and buildings;
4. the public facilities, improvements, or programs anticipated to be financed in whole or part;
5. the (a) industrial, commercial, residential, mixed-use, or retail improvements and (b) downtown or transit-oriented development anticipated to be financed in whole or part;
6. a plan for maintaining and operating the district after its planned capital improvements are completed;
7. the district's maximum duration, which cannot exceed 50 fiscal years, beginning with the year in which the district is established; and
8. a financial plan, as described below.
Financial Plan Component
The act requires the district master plan to include a financial plan that identifies the project costs and revenue sources required to accomplish the district master plan. The plan must contain:
1. cost estimates for the anticipated public improvements and developments;
2. the maximum amount of indebtedness to be incurred to implement the plan;
3. the anticipated revenue sources;
4. a description of the terms and conditions of any agreements, including any anticipated assessment agreements, contracts, or other obligations related to the plan;
5. estimates of the district's increased assessed values; and
6. for each year, the (a) portion of the increased assessed values that will be applied to the plan as captured assessed values and (b) resulting tax increments.
Amending and Reviewing the Plan
The act (1) authorizes the municipality's legislative body to amend the plan and (2) requires it to review the plan at least once every 10 years after its initial approval in order for the district and plan to remain in effect. The act specifies that these provisions do not apply to plans that include development funded in whole or part by federal funds, if prohibited by federal law.
§ 5 — TAX INCREMENT REVENUES
In addition to imposing benefit assessments to finance projects, the act allows a municipality to finance them using the new or incremental real property tax revenue generated in the district. It also allows the municipality to use these revenue streams to repay the bonds issued to finance the projects, as described below.
Captured Assessed Value
The act allows a municipality to designate all or part of the district's new or incremental real property tax revenue (“tax increment”) to finance all or part of the district's master plan. Under the act, the amount of tax increment revenue designated by the municipality is determined by the district's “captured assessed value,” that is, the percentage or amount of the incremental increase in property values (“increased assessed value”) that is used from year to year to finance the plan's project costs. The incremental increase in property values is the amount by which the value of the district's property as of October 1 of each year (“current assessed value”) exceeds its original assessed value. The captured assessed value is subject to any fixed assessment agreements.
Upon the municipality establishing the district and adopting its master plan, its assessor must certify the original assessed value of the taxable real property within the district's boundaries. The assessor must also annually certify the:
1. current assessed value of the district's taxable real property,
2. amount by which the current assessed value has increased or decreased from the original assessed value, and
3. amount of the captured assessed value.
Apportioning Property Taxes in the Municipality
The act requires that property taxes paid by property owners within the district be apportioned equally with the property taxes paid by other property owners in the municipality located outside the district. It specifies that its provisions do not authorize the unequal apportionment or assessment of taxes on real property in the municipality.
§ 5 — DISTRICT MASTER PLAN FUND
Municipalities that have designated a percentage or amount of captured assessed value in their district master plans must establish a fund for depositing the resulting incremental tax revenues and paying project costs. They must also deposit in the fund any benefit assessments imposed on real property in the district, as described below.
The fund must consist of a (1) project cost account and (2) development sinking fund account for any bonds issued to carry out or administer the district master plan. The act authorizes the municipality to transfer funds between the accounts, as long as the transfers do not result in a balance in either account that is insufficient to cover its annual obligations.
Project Cost Account. The project cost account is pledged to and charged with paying project costs outlined in the financial plan, including reimbursing project cost expenditures incurred by a public body (e. g. , the municipality, a developer, property owner, or other third-party entity), other than reimbursements paid with bond proceeds.
Development Sinking Fund Account. The development sinking fund account is pledged to and charged with (1) paying interest and principal on district bonds as they come due, including any redemption premium; (2) paying the costs of providing or reimbursing any entity that provides a guarantee, letter of credit, bond insurance policy, or other credit enhancement device used to secure debt service payments on district bonds; and (3) funding any required reserve fund.
Depositing Tax Increment Revenues
The municipality must annually set aside all tax increment revenues on captured assessed values and deposit the revenues in a specific order. The revenues must first go to the development sinking fund account, in an amount necessary to pay the annual debt service on the bonds issued (taking into account estimated future revenues that will be deposited to the account and earnings on such amount), excluding any GO bonds issued by the municipality that are backed solely by its full faith and credit. Any remaining revenues must go to the project cost account.
At any time during the district's term, the municipality's legislative body may vote to return to the municipality's general fund any tax increment revenues remaining in either account that exceed the amount necessary to pay the account's obligations. In doing so, it must take into account any transfers made between the accounts.
The act requires the district master plan fund and its accounts to be audited annually by an independent auditor according to generally accepted accounting principles. The audit report must be (1) open to public inspection and (2) provided to the Auditors of Public Accounts.
§ 6 — ELIGIBLE COSTS
The act limits the use of a district master plan fund to paying certain costs for (1) improvements made within the district; (2) improvements made outside the district that are directly related to or necessary for the district's establishment or operation; and (3) economic development, environmental improvements, and employment training associated with the district.
Improvements Made in the District
The act allows the fund to pay the following costs for improvements made within the district:
1. capital costs, as described below;
2. financing costs, including closing and issuance costs, reserve funds, and capitalized interest;
3. real property assembly costs;
4. technical and marketing assistance program costs;
5. professional service costs, including licensing, architectural, planning, engineering, development, and legal expenses;
6. maintenance and operation costs (i. e. , the cost of the activities necessary to maintain and operate facilities after their development, including informational, promotional, and education programs, as well as safety and surveillance activities);
7. administrative costs, including reasonable charges for the time municipal employees, other agencies, or third-party entities spend implementing a district master plan; and
8. organizational costs related to the district's planning and establishment, including the cost of conducting environmental impact studies, informing the public about the district, and implementing the district master plan.
Under the act, capital costs include the cost of:
1. acquiring or constructing land, improvements, infrastructure, public ways, parks, buildings, structures, railings, street furniture, signs, landscaping, plantings, benches, trash receptacles, curbs, sidewalks, turnouts, recreational facilities, structured parking, transportation improvements, pedestrian improvements, and other related improvements, fixtures, and equipment for public use;
2. acquiring or constructing land, improvements, infrastructure, buildings, and structures, such as facades, signage, fixtures, and equipment for industrial, commercial, residential, mixed-use, retail, or transit-oriented development;
3. demolishing, altering, remodeling, repairing, or reconstructing existing buildings, structures, and fixtures;
4. remediating environmental contamination;
5. preparing a site and finishing work; and
6. incurring associated fees and expenses, such as licensing, permitting, planning, engineering, architectural, testing, legal, and accounting expenses.
Improvements Made Outside the District
For improvements made outside the district that are directly related to or necessary for establishing or operating the district, the fund may pay the:
1. portion of the costs reasonably related to constructing, altering, or expanding facilities required due to improvements or activities within the district, including roadways, traffic signals, easements, sewage or water treatment plants or other environmental protection devices, storm or sanitary sewer lines, water lines, electrical lines, fire station improvement, and street signs;
2. costs of public safety and public school improvements made necessary by the district's establishment; and
3. costs of mitigating any of the district's adverse impacts on the municipality and its constituents.
Other Development-Related Costs
The act also allows the fund to pay costs related to economic development, environmental improvements, or employment training associated with the district. This includes (1) economic development programs or events; (2) environmental improvement projects; (3) permanent economic development revolving loan funds, investment funds, and grants; and (4) services and equipment necessary for employment skills development and training, including scholarships to in-state educational institutions for jobs created or retained in the district.
§ 7 — BENEFIT ASSESSMENTS
Under the act, a municipality that constructs, improves, extends, equips, rehabilitates, repairs, acquires, or provides a grant for public improvements may assess a proportion of the improvement costs as a benefit assessment on such real property. It may, by ordinance, apportion the value of such improvements according to a formula that reflects the actual benefits accruing to the various properties because of the development and maintenance.
The municipality may (1) require property owners to pay the benefit assessments in annual installments for up to 30 years and (2) forgive the benefit assessments in any given year without affecting future installments. The municipality may assess buildings or structures constructed or expanded in the district after the initial benefit assessment is imposed as if they had existed at the time of the original benefit assessment.
Revising and Adopting the Assessments
The municipality must revise and adopt the assessments at least once a year within 60 days before the start of the fiscal year. If the municipality imposes the benefit assessments before acquiring or constructing the public improvements, it may subsequently adjust the assessments once the improvements are complete to reflect their actual cost.
Public Hearing and Notice Requirement
Requirement. Prior to estimating and imposing a benefit assessment, the municipality must hold at least one public hearing on the payment schedule or any revisions to it. It must publish a notice of the hearing at least 10 days in advance in a newspaper with general circulation in the municipality.
The notice must include:
1. the hearing's date, time, and place;
2. a legal description of the district's boundaries;
3. a statement that all interested property owners in the district will be given an opportunity to (a) be heard at the hearing and (b) file objections to the assessment amount;
4. the maximum assessment to be extended in any one year; and
5. a statement indicating that the proposed list of properties to be assessed and the estimated assessments against those properties are available at the town or assessor's office.
The notices may also include the maximum number of years that the assessments will be levied. The municipality must make the proposed benefit assessment schedule available to any member of the public, upon request, by the notice's publication date.
Process. The act applies the same statutory public hearing and appeal procedures to district benefit assessments as apply under existing law to municipal sewer system benefit assessments levied by water pollution control authorities (CGS § 7-250). The act substitutes the municipality's board of finance (or legislative body if it has no board of finance) for the water pollution control authority for purposes of this process. The municipality must also follow this process when increasing benefit assessments or extending the number of years that they will be levied.
Under that process, the municipality's board of finance must hold a public hearing on proposed benefit assessments and provide notice of the time, place, and purpose of the hearing at least 10 days in advance. The notice and a copy of the assessments must be (1) published in a newspaper with general circulation in the municipality and (2) mailed to the last known address of the affected property owners. The board must file a copy of all proposed assessments with the municipal clerk at least 10 days before the hearing.
Once the board has determined the actual amount of the assessment, it must file a copy of the assessment with the municipal clerk and, within five days after such filing, (1) publish a copy of it in a newspaper with general circulation in the municipality and (2) mail a copy of it to the last known address of the affected property owners.
The mailings and publications must state the date on which they were filed with the town clerk and that all appeals must be taken within 21 days of that date. People aggrieved by a benefit assessment may appeal to the (1) Superior Court for the judicial district in which the property is located or (2) board of assessment appeals, if the municipality has adopted an ordinance authorizing the board to hear such appeals.
A court appeal (1) must have a return date that is between 12 and 30 days after the appeal is served and (2) is privileged in respect to its assignment for trial. The court may appoint a state referee to appraise the benefits to the property and report to the court. The court's judgment, confirming or altering the assessment, is final. The owner's appeal does not stay proceedings for collecting the assessment but the appellant must be reimbursed for any overpayments made if his or her assessment is reduced as a result of the appeal.
Collection and Enforcement
The municipality has the same powers to collect and enforce the benefit assessments as it does for municipal taxes. It must establish the payment due date and provide notice of the due date at least 30 days in advance by (1) publishing it in a newspaper with general circulation in the municipality and (2) mailing it to the last known address of the affected property owners. Assessment revenues must be paid into the appropriate district master plan fund account.
Unpaid benefit assessments are liens against the property. Property owners must pay the same interest rate on delinquent assessments as on delinquent property taxes (1. 5% per month or 18% per year). The liens (1) may be continued, recorded, and released in the same manner as property tax liens; (2) take precedence over all other liens and encumbrances, except those for municipal property taxes; and (3) may be enforced in the same way as property tax liens.
§ 8 — BONDS
To carry out or administer a district master plan or other functions under the act's provisions, municipalities may issue bonds and other obligations (e. g. , refunding bonds, notes, interim certificates, and debentures) backed by:
1. their full faith and credit (i. e. , GO bonds);
2. the income, proceeds, revenues, and property within the district, including grants, loans, advances, or contributions from state, federal, or other sources;
3. tax increment revenues and benefit assessments; or
4. any combination of these sources.
Under the act, only the municipality's GO bonds count towards its bond cap.
The act requires municipalities to authorize any such bonds, without the state's consent, by resolution of its legislative body, regardless of any other statute, municipal ordinance, or charter provision governing municipal bond issuances. The municipality's legislative body, or the municipal officers to which the legislative body delegates authority for issuing the bonds, must determine:
1. how the bonds will be issued and sold;
2. their interest rates, including variable rates;
3. the term over which they will mature, which must be no more than 30 years;
4. when interest will be paid;
5. whether and under what terms bonds may be purchased or redeemed; and
6. all other issuing conditions.
It allows the municipality to secure the bonds by executing a trust agreement with a bank or trust company that contains reasonable provisions for protecting and enforcing bondholders' rights. Any pledge the municipality makes concerning such agreement is (1) valid and binding from the time it is made; (2) immediately subject to a lien without physical delivery of the money; and (3) valid and binding against all parties with claims against the municipality, regardless of whether the parties received specific notice of the lien. It specifies that any expenses the municipality incurs in carrying out the trust agreement may be treated as project costs.
The act also provides that (1) any pledge the municipality makes concerning the bonds is binding from the time it is made and (2) the revenue received is immediately subject to the pledge's lien without physical delivery of the money.
The act assures bondholders that state and local entities may invest in the bonds and that the state will not limit or alter the district, or the municipality's powers and duties with respect to the district, until the bonds are repaid.
The act specifies that its provisions do not restrict a municipality's ability to raise revenue to pay project costs by any other legal means.
Existing Municipal TIF Programs
By law, municipalities can use TIF to repay bonds issued to finance physical projects in areas designated for redevelopment (CGS § 8-124 et seq. ), urban renewal (CGS § 8-140 et seq. ), or municipal development (CGS § 8-186 et seq. ). Redevelopment and urban renewal areas must be blighted; municipal development areas must be suitable for commercial and industrial uses.
State-designated distressed municipalities and targeted investment communities can also use bond-funded TIF to finance information technology projects; all municipalities can use it to clean up and redevelop contaminated property anywhere in a municipality (CGS § 32-23zz).
OLR Tracking: RP; JR; MS; BS