TID/TIF Agreements – A Brief Summary
Tax increment financing districts, also known as TIDs or TIFs, are a means of long-term debt for cities. A common TIF example would be a developer-funded TIF. Generally, a city assists a developer by covering a portion or all infrastructure costs (roads, water lines, sewer lines, etc.) of a project. In exchange, the developer pays for the remainder of the development-related costs. The end goal is an increase in property taxes received by the city for the growth in such development.
Cities may choose to finance their portion of the debt (infrastructure assets) with the developer. However, a common area of confusion lies within the balance owed by the city. It is important to remember that the city is indebted to the developer based on the terms in the signed TIF agreement. Thus, if a developer also has debt to assist in financing the project, the developer may owe more to a lender than what the city owes the developer. In these instances, the developer is responsible for any required payments per their personal agreement with outside lenders regardless of TIF property taxes collected.
So, how does the money get paid to the developer and how much are those payments supposed to be? In the developer-funded TIF example, once a TIF has been established, the county will remove TIF related property taxes from the general pool of property taxes received and remit those to the city. The TIF related property taxes are those that result from increases in property tax assessments in the TIF boundaries. Then, the City remits the amount of TIF property taxes received to the developer until the debt has been repaid, or a maximum of 20 years. Once the TIF debt is repaid or 20 years has passed, TIF property taxes go back into the general pool of property taxes and are disbursed to the city, school district, and county, in their applicable portions.
What happens in the event that residents do not move in to the new development, and thus not generate any property tax revenue? In the developer-funded TIF example described above, cities will only be responsible for the TIF property taxes that are remitted to them from the county. Thus, if no taxes are received by the city, no payments are made to the developer. Again, the developer is still responsible for any borrowings to external lenders.
The city should obtain documentation from the developer to support all costs incurred and monitor the project. Cities will record infrastructure assets in the corresponding governmental capital asset or enterprise funds, depending on the nature of the asset. Any infrastructure costs incurred by the developer that exceed any agreed-upon debt balance with the city should be recorded as a capital contribution by the city. For questions on TIFs call the KTLLP Government Services Team.