Tax Increment Financing and the Local Economic Revitalization Tax Assistance LawNovember 2008 In The Zone
Tax Increment Financing (TIF)
The Tax Increment Financing (TIF) Guarantee Program is a loan guarantee program administered by the Commonwealth Financing Authority (the CFA) that promotes and stimulates the general economic welfare of communities in the Commonwealth and assists in the development, redevelopment and revitalization of Brownfield and Greenfield sites in accordance with the Tax Increment Financing Act of July 11, 1990 (53 P.S. § 6930.1 et seq.) (the TIF Act).
To be eligible to receive a guarantee under the TIF program, a project must at a minimum meet the following criteria:
- The project must be located within aTIF district and must meet all of the requirements imposed by the TIF Act
- The project must be for the:
- redevelopment, reuse or revitalization of previously developed land, including previously mined areas; or
- development of undeveloped land that may be the subject of future development pursuant to any existing comprehensive municipal plan and is zoned for that development at the time of application
- The project must be the intended recipient of the proceeds of the TIF obligations
- The project must demonstrate its ability to comply with all the requirements of the TIF Act prior to the issuance of the TIF obligations
- All applicants must demonstrate that the tax increment to be realized as a result of the TIF project will be sufficient to offset the amount of debt services to be incurred
- • Business or private developers must agree to create a certain number of permanent full-time jobs within the TIF district
Guarantee amounts are determined by the scope of the project, the estimated projections of future tax revenues to be generated by the project, the estimated financing cost savings realized through the provision of a guarantee and the ability of the CFA to assume the rights to security provided to the holders of the TIF project debt in the event of a default.
TIF funding should be used as follows: (a) infrastructure and environmental projects for industrial enterprises and retail establishments; (b) infrastructure, environmental and building projects for manufacturers, hospitals, convention centers and associated hotels; (c) utilization of abandoned or underutilized industrial, commercial, military, previously mined institutional sites or buildings; or (d) undeveloped sites planned and zoned for development in accordance with any existing comprehensive municipal plan.
Local Economic Revitalization Tax Assistance Law (LERTA)
The Local Economic Revitalization Tax Assistance Law, 72 P.S. § 4722 et seq. (LERTA),was created under the authority of Article VIII, Section 2(b)(iii) of the Pennsylvania constitution, which authorizes the General Assembly to “establish standards and qualifications by which local taxing authorities may make uniform special tax provisions applicable to a taxpayer for a limited period of time to encourage improvement of deteriorating property or areas by an individual, association or corporation.”
LERTA allows local taxing authorities to exempt new construction in deteriorated areas of economically depressed communities and improvements to certain deteriorated industrial, commercial and other business property. 72 P.S. § 4723. “Improvement” is defined under LERTA as:
repair, construction or reconstruction, including alterations and additions, having the effect of rehabilitating a deteriorated property so that it becomes habitable or attains higher standards of safety, health, economic use or amenity, or is brought into compliance with laws, ordinances or regulations governing such standards.
Id. at 4724. “Deteriorated property” is defined as
any industrial, commercial or other business property owned by an individual, association or corporation, and located in a deteriorating area, as hereinafter provided, or any such property which has been the subject of an order by a government agency requiring the unit to be vacated, condemned or demolished by reason of noncompliance with laws, ordinance or regulations.
In order for LERTA to apply to a property, each local taxing authority must, by ordinance or resolution, exempt from real property taxes the assessed value of improvements to deteriorated properties and the assessed value of new construction within the designated deteriorated areas of economically depressed communities. Id. at 4725(a). The taxing authority can include any county, city, borough, incorporated town, township, institutional district or school district that elects to participate. Id. at 4724.
At least one public hearing shall be held by the municipal governing body for the purpose of determining the boundaries of the deteriorated areas. Id. at 4725. At the public hearing, the local taxing authorities, planning commission or redevelopment authority and other public and private agencies and individuals that are knowledgeable and interested in the improvement of deteriorated areas, shall present their recommendations concerning the boundaries of the deteriorated areas for the guidance of the municipal governing bodies, taking into account the following criteria:
- unsafe, unsanitary and overcrowded buildings
- vacant, overgrown and unsightly lots of ground
- a disproportionate number of tax delinquent properties
- defective design or arrangement of building, street or lot layouts
- economically and social undesirable land uses
- high incidence of persistent, unemployment or underemployment
- high incidence of dependence upon public assistance
- high incidence of overcrowded, unsanitary or inadequate housing
- high incidence of crime and delinquency
- high incidence of rejection for selective service
- high incidence of disease disability
- high incidence of infant mortality
- high incidence of school dropouts or other evidence of low educational attainment
- other generally accepted indicators of widespread social problems or poverty conditions
Id. at 4725(a).
The ordinance or resolution shall specify a description of each such area, as well as the cost of improvements per unit to be exempted and the schedule of taxes exempted. Id. The tax exemption on the assessment must be attributable to the actual cost of new construction or improvements or up to any maximum cost uniformly established by the municipal governing body. 4726(a). In addition, the actual amount of taxes exempted shall be, in accordance with the schedule of taxes exempted, subject to the following:
- the length of the schedule of taxes exempted shall not exceed 10 years
- the schedule of taxes exempted shall stipulate the portion of new construction or improvements to be exempted each year
- the exemption from taxes shall be limited to the additional assessment valuation attributable to the actual costs of new construction or improvements to deteriorated property or not in excess of the maximum cost per unit established by a municipal governing body
Id. at 4726(b).
Once an ordinance or resolution is in place pursuant to LERTA, any person desiring tax exemption shall notify each local taxing authority granting such exemption in writing at the time of securing a building permit. Id. at 4727(a). A copy of the exemption request shall then be forwarded to the board of assessment. Id. The assessment agency shall, after completion of the new construction or improvement, assess separately the new construction or improvement and calculate the amounts of the assessment eligible for tax exemption, in accordance with the limits established by the local taxing authorities, and notify the taxpayer and the local taxing authorities of the reassessment and amounts of the assessment eligible for exemption. Id.
For more information regarding the TIF program or LERTA, please contact Kimberly Freimuth at 215.918.3627 or [email protected].