So you are ready to do a TIF in Connecticut – now what? Key steps to getting it done.

Last month we told you about Connecticut’s overhaul of its Tax-Increment-Financing (TIF) legislation that will make this funding mechanism far more usable to implement projects across the state. To review that summary, you can access the article here. This month we are going to walk you through an overview of the steps to start using TIF.

  1. Identify the need – both public and private.  TIF is a tool for when traditional project financing just isn’t going to cut it. This may be because there are certain costs associated with the project that will ultimately make it infeasible from a private developer perspective or it may be because public investments are needed, such as improved roads or other infrastructure. Get everyone on the same page about why TIF is needed and what those revenues are going to be used for. Check the eligibility of those uses as specified in the new legislation.
  2. Align with existing plans. If you don’t have one – do one. Don’t do a TIF on an ad-hoc basis. TIF should be done in conjunction with existing site, district, downtown, economic development, comprehensive, or other plans. If you don’t have a plan, now is the time to prepare one. Plans will ensure that the TIF projects align with the goals and vision for your community and provide a measure of political accountability.
  3. Consider TIF within a mix of financing options. Consider the full range of available options. TIF may not always be the best option and you don’t want to risk leaving money on the table by not considering other financing mechanisms. Other sources to consider could include, but are not limited to, state and federal tax credits (e.g., housing, brownfields, and others), tax abatements, grant sources, and bonds. There are also other development incentives such incentive zoning that provide inducements to developers for development projects that provide a community benefit. The legislation allows bonds to be issued backed by several sources including general obligation bonds, revenue, tax increment and benefit assessments, or any combination thereof.
  4. Describe the project and the district. The TIF District can extend beyond the boundaries of the project itself. The legislation allows for broad implementation by requiring that the district must encompass property that is 1) blighted, 2) in need of rehabilitation or conservation, OR 3) suitable for industrial, commercial, residential, mixed-use, retail, downtown, or transit-oriented development. At this point the project program (uses, square feet, etc.) should be fairly well-established.
  5. Understand the build-out schedule. Projecting what TIF revenues will be over the course of the agreement depends on a clear understanding of what the project is going to be assessed at and when. For large projects with build-out schedules over a year, projects are likely to be assessed incrementally each year until full assessment upon project completion.
  6. Estimate future taxable valuation. The local assessor will need to provide an estimated assessed valuation of the project upon full build out, and an estimate of assessed value for each year during the project construction based on how much of the project is built out at the start of each tax year. The assessor will use either a cost-basis reflecting construction cost outlays or an income-based approach for projects that will have a strong revenue component, such as rents from a housing development.
  7. Estimating costs to be financed by TIF. Know how much the improvements to be funded are going to cost. This includes any direct incentive to the developer as well as the investment needed for any public infrastructure or other costs. Review the developer’s pro forma (a schedule of revenues and expenses) or have it reviewed for you. Understand what they need to make the project happen without providing an excessive return to the developer.
  8. Determine any benefit assessments. The legislation allows a municipality to allocate a benefit assessment to properties in the district to help cover the costs of public improvements that benefit the properties. These benefit assessments are added to the tax bill of those properties. The legislation requires a specific process to allow affected property owners to comment and appeal.
  9. Develop an agreement between the public and private entities. Key terms of this agreement will include the percent of incremental revenues captured as part of the TIF (100% of revenues do not have to be captured) and the distribution of those revenues to the public side and private side. The first year and last years of the TIF program will also be specified in the agreement. A typical length for many TIF agreements is 30 years but the legislation allows for up to 50 tax years.
  10. Assemble the District Master Plan. The legislation requires specific components to be included in the plan including limits on the taxable value included in the district; boundaries of the district; descriptions of the district, and the development program; a plan of operations after construction is completed, the duration of the district, and other statutory requirements. The Master plan must also include the financial plan that specifies the cost estimates for public improvements, any debt issues to implement the master plan, anticipated sources of revenues, terms and conditions of any agreements related to the master plan, estimated increased assessed value of the district, and the percent of incremental assessed value that will be captured for the purposes of the TIF.
  11. Follow the rules on public deliberation and approval. The municipal legislative body must first consider whether the district master plan will contribute to the economic growth or well-being of the municipality. At least 90 days before establishing the district, the district master plan must be sent to the planning commission of the municipality (if any) to solicit a written advisory opinion. One public hearing must be held on the proposal to establish the district with notice published 10 days prior to the hearing. If the municipality will be allocating benefit assessments to district properties, then a public hearing on the payment schedule must be held and a special account established.
  12. Track, monitor, evaluate. After approval the legislative body is required to review the district master plan at least once every ten years. However, each year the municipal assessor must 1) certify the current assessed value, 2) the amount by which the current assessed value has increased or decreased from the original, and 3) the amount of captured assessed value. Any benefit assessments must be revised and adopted at least once a year within 60 days before the start of the fiscal year. 

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