Tax Increment Financing (TIF)
Want to understand what a TIF is? The Baltimore Development Corporation (BDC) prepared this excellent overview.
What is Tax Increment Financing?
Tax Increment Financing (TIF) is an instrument that provides the opportunity to leverage limited public financing of public infrastructure and site preparation in order to attract private investment that results in public benefits. The City was granted authority to issue TIF bonds under Article II, Section 62 of the Baltimore City Charter by the General Assembly, effective October 1, 2000, and as amended on July 1, 2001.
How does a TIF work?
A TIF functions by pledging real property tax increments, gained over the pre-development year (the "baseline"), as a result of the new development in the tax increment district (the "TIF District"). Under a TIF bond, the City agrees to create a designated TIF District, to establish a special fund to capture the incremental tax payments generated by the TIF District, and subject to appropriation, to release the incremental tax payments to the purchasers of the bonds. The City is the issuer of the TIF bonds, but the bonds do not carry the "full and faith" of the City and the City's obligation does not extend beyond the customary collection of real property taxes and the release of those funds to the bondholders. Existing property taxes, received by the City, are not pledged to the payment of the bonds. NOTE: Tax increment financing will be transparent to area residents and will have no impact on an individual property owner's payment of their property taxes. In the case of this specific TIF for Charles Village, if the incremental taxes received by the city as a result of this project are not sufficient to pay the bondholders then there will be a "Special Tax" levied against the purchasers of the condominium units that are sold as part of the new development.
What can a Tax Increment Financing finance?
The enabling legislation requires that all bonds issued and sold be applied solely for:
- Acquisition of land or other property including right-of-way or other easement in the development district by purchase or condemnation.
- Site removal.
- Surveys and studies.
- Relocation of business or residents.
- Installation of utilities, construction of parks, playgrounds and other necessary improvements, including streets, roads, surface parking, lighting and other facilities.
- Construction or rehabilitation of buildings provided such buildings are devoted to a government use or purpose.
- Structured parking facilities, publicly or privately owned, that serve a public purpose.
- Reserves, capitalized interest in the bonds and issuance costs.
What is the City process to approve a TIF?
TIF bonds must be approved by an ordinance of the Baltimore City Council. In conjunction with the ordinance, the City will request the Supervisor of Assessments in the Maryland State Department of Assessment and Taxation to certify the original assessable property tax base of the TIF district. The final bond documents are subject to final approval by the Board of Estimates. TIF bonds may be tax-exempt or taxable private activity bonds, depending on whether a project meets the "private security and "private use" test under IRS regulations.
Repayment of the bonds is limited to the incremental tax revenues generated within the TIF district; areas outside the District cannot be charged or assessed for the improvements built within the TIF District. Development in the TIF district may be single or multiple projects or properties. Whether future property values in the TIF District increase to the level sufficient to pay the debt service on the bonds is the underlying risk of the transaction. Delays in construction or other factors may limit an increase in assessment and a commensurate rise in taxes. To mitigate this uncertainty, the bond purchaser typically requires a "Special Taxing District" to be established within the TIF District. Established by City Ordinance, and only after approval of two thirds of the property owners, the Special Tax District has the authority to assess additional taxes, if necessary, to repay the TIF bonds.
Typically, there will be four ordinances to be considered by the Council for a TIF transaction, as follows:
- A TIF District Ordinance - to create the TIF District and establish its boundaries.
- A Special Taxing District Ordinance - to create a Special Taxing District and establish its boundaries.
- A Bond Authorization Ordinance - to authorize the Mayor and the Director of Finance to issue the bonds.
- Supplemental Appropriation - to authorize the City to receive and disburse the bond proceeds for the eligible public improvements.
The Charles Village Development
Struever Bros. Eccles and Rouse (SBER or the Developer) approached the Baltimore Development Corporation (BDC) with the development plan and detailed financial proforma for the Charles Village College Town development requesting City assistance with the financing of the project. BDC then began testing the financial information to determine if the project could meet the "But For" test. That is, but for (or without) City financial assistance would this project create the necessary return to attract private investment? BDC concluded that indeed the project would not happen without the assistance and determined that the best means of assistance the City could provide is through a TIF. The project then had to pass another test; the "But Why" test that measures the overall importance and relevance of the project to the development goals of the City. SBER's Charles Village project clearly does that by building on the strengths of Johns Hopkins University, Union Memorial Hospital and the greater Charles Village and surrounding communities and, thereby enhances the viability of the area.
The City process for establishing a TIF has begun. On July 13, 2004 and on August 4, 2004 the Board of Finance and the Board of Estimates respectively authorized the introduction of TIF legislation to the City Council. The anticipated schedule is as follows:
September 13th - First Reader
September 30th - Planning Commission
October 4th - Councilman Mitchell announces Taxation Hearing
October 21st - Taxation Hearing
November 8th - 2nd Reader
November 22nd - 3rd Reader
DECEMBER 6th is the last meeting of the current City Council
Community support throughout the development of this project has been tremendous and is needed once again. Please direct your comments to:
To the Planning Commission:
Peter Auchincloss, Chairman,
Planning Commission
417 East Fayette Street,
Baltimore, Maryland 21202
cc: to Otis Rolley, Director
Planning Department
To the City Council Taxation Committee:
Councilman Keiffer Mitchell
City Hall
100 Holliday Street,
Baltimore, Maryland 21202
cc: to Sheila Dixon, City Council President.
Both letters should contain language explaining why the project is being supported and a petition to the City for the approval of tax increment financing (TIF) to support the project.
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