March 31, 2011 in TIF
A “housing” district is a common types of TIF district. The housing assisted by TIF must be intended for occupancy families of low and moderate income. Housing districts are most often created on raw land sites. Housing districts do not need to meet the “blight criteria” required for a redevelopment district and, conversely, redevelopment districts are not subject to the income restrictions that apply to housing districts. Both types of TIF districts may provide assistance to housing developments, but “housing” districts have some unique features unavailable to other types of TIF districts.
There are many types of affordable housing programs, and each program defines affordability differently. In Minnesota TIF districts that help rental housing units, residents’ income must be limited for the life of the District. But not all of the units need to be restricted. The income limitations follow the low income housing tax credits guidelines. At least 20% of the units must be affordable at 50% of median income or 40% of the units at 60% of median income, adjusted for family size. Limits vary by region. TIF authorities do not have to, but often include limitations on rents as well. TIF authorities should require annual verifications of income limits by the developers of the housing.
For owner-occupied housing, at least 95% of the units assisted with TIF must be initially purchased and occupied by individuals whose family income is less than or equal to the applicable income restrictions. The income limits for owner occuped units are higher – 100% to 115% of median income – or $65,000 up to $85,000 depending upon where you live. After the first occupant moves, the home can stay in the TIF district even if the second resident has higher incomes. A limited amount of additional homes can be included in the TIF district, but cannot be assisted with TIF. A common method to utilizing TIF for owner occupied housing is to write down the costs of special assessments related to construction of the streets and utilities. Some TIF authorities will require repayment of TIF from homeowners if they do not live in the home for a certain number of years. This strategy helps to avoid a subsidy for very short-term affordability.
TIF can cause confusion for some homeowners, however, because their annual property tax bill includes a line item for “tax increment financing”. Some homeowners think that their taxes would go down if the TIF district went away. Unfortunately, this is not true.
Expanded Eligible Costs: Local governments can only use TIF to pay for certain costs of qualifying improvements (“eligible costs”) necessary to create new development. Land acquisition, demolition, public improvements and site grading are typical eligible costs. However, in a housing district, most attorneys allow for the building itself to be an eligible cost.
No Pooling Limits: Housing districts are exempt from the pooling rules (which for most other types of districts requires that at least 75% to 80% of the increment be spent within the boundaries of the district).
No Five Year Rule: An authority is allowed to retain increment and spend for new affordable housing buildings, even after five years.
So, if a TIF authority has an existing housing district, it may amend the TIF plan to authorize expenditures for additional “housing projects” anywhere within the same project area. After expiration of the five-year period from certification of the district, a TIF authority may make new expenditures, enter new contractual obligations and issue new bonds related to housing projects.
TIF is a financing tool which captures and redirects new property taxes paid by private development to promote development which would not occur “but for” assistance. Creating a new TIF district usually takes 60-90 days (if everything goes well). This process also includes opportunities for public input.