By Jon Cameron, Senior Municipal Advisor | Managing Director

Changes to Tax Incremental Financing Law

Two pieces of legislation impacting tax incremental financing were recently adopted by the State Legislature and are waiting to be signed into law by Governor Evers. Provided the bills as enrolled are not vetoed, or partially vetoed, the following is an overview of the key provisions.

Assembly Bill 453 (AB 453) (Effective January 1, 2028)

Affordable Housing Extension Expanded

Under current law, a municipality may extend the life of a tax incremental district (TID) by one year to fund costs benefitting affordable housing. AB 453 now permits up to a two-year extension for that purpose. All other provisions pertaining to the affordable housing extension remain unchanged. To exercise an extension, a municipality must:

• Adopt a resolution extending the TID for a specified number of months.
• State within the resolution how the municipality will use the funds to improve the housing stock.
• Provide the Department of Revenue with a copy of the resolution.
• Use at least 75% of the tax increment received from the extension to benefit affordable housing. (Affordable housing is defined as housing that costs a household no more than 30 percent of the household’s gross monthly income.)

Newly Platted Residential Development Defined

The Bill also creates a definition for the previously undefined term “newly platted residential development.” Project costs related to newly platted residential development are only permitted in Mixed Use TIDs, with a further limitation restricting newly platted residential development to 35% of the TID area.

Beginning January 1, 2028, the term newly platted residential development will mean: “residential development on a parcel that has not previously been the site of permanent structures other than structures used solely for agricultural purposes.”

This definition will be helpful in making a clearer distinction between residential development on previously undeveloped land as compared to redevelopment situations. Under current law, it is unclear whether a redevelopment project that may require a new plat or a replat falls under the currently undefined term. In most cases, the shorter life of a Mixed Use TID along with the 35% area limit is incompatible with a redevelopment project. While the new definition makes it clear that residential development on a site where non-agricultural buildings existed previously is not considered newly platted, it creates a new concern in that it excludes redevelopment sites that may never been the site of structures, such as a parking lot, dump site or storage yard. Further refinement of this definition would be beneficial to avoid imposing the newly platted limitations on true redevelopment sites.

Senate Bill 480 (SB 480) (Effective October 1, 2026)

Residential Tax Incremental Districts

SB 480 creates a new type of TID: Residential Tax Incremental Districts (“R-TID” hereafter). An R-TID allows for newly platted residential development without the 35% area limitation associated with Mixed Use TIDs. Intended to facilitate denser, workforce style housing, development in an R-TID must meet the following requirements:

• Development in an R-TID is limited to owner occupied single-family or duplex units.
• Lot sizes for single-family homes may not exceed 7,500 square feet, with a maximum lot width of 70 feet, and maximum 10-foot side yard setbacks.
• Lot sizes for duplexes may not exceed 12,500 square feet, with a maximum lot width of 80 feet, and maximum 10-foot side yard setbacks.
• Single story residential buildings may not exceed 1,500 square feet. Two story structures may not exceed 2,000 square feet.

Like Mixed Use TIDs, an R-TID has a maximum life of 20-years. There are also a number of significant differences:

• An R-TID is excluded from the 12% equalized value test but is subject to a separate 3% valuation test: the base value of a proposed R-TID, plus the incremental value of any existing R-TIDs, may not exceed 3% of the municipality’s total TID IN equalized valuation.
• Project Costs in an R-TID are limited to construction or improvement of infrastructure needed for the residential development, related financing costs, professional services costs, imputed administrative costs and organizational costs. A developer’s costs to acquire land, on-site work (such as grading) and construction of homes are not eligible Project Costs in a R-TID, even if paid in the form of a development incentive.
• Any costs related to stormwater management are eligible only to the extent they provide service to the entire residential development, and not to individual lots.
• No municipal borrowing is permitted: Project Costs must be financed by the developer or cash funded with tax increment. Practically speaking, an R-TID will require a “pay as you go” structure with the developer fronting the cash to install public improvements, with reimbursement from tax increment over time.
• Within the R-TID creation resolution, or by municipal ordinance, the following must be established:
  • The maximum amount of development-related fees that may be charged for the residential development in the R-TID.
  • The architectural and construction requirements that will apply to the residential development in the R-TID.
• The Project Plan may only be amended to increase Project Costs with the first 10 years of its life. After 10 years, an amendment to increase Project Costs requires a unanimous vote of the Joint Review Board.
• An R-TID may not become a donor district, nor may it receive tax increments from a donor district.
• The 20-year maximum life of an R-TID may not be extended. (Not eligible for the 3-year extension).

If you have questions on how these changes to the tax incremental financing law may benefit your community, call your Ehlers Municipal Advisor. It is also important to note that the Department of Revenue may issue additional guidance as to their interpretation of the statutory language. Ehlers will monitor any DOR guidance and will be prepared to assist you with creation of R-TIDs as the effective date of the adopted Act approaches.

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