THE WORLD OF TIF, CIDs, NIDs, TDDs
TIF. CID. NID. TDD. All are economic development engines located in communities throughout Missouri. Some occasionally cause controversy. Many results in significant improvements to cities, towns, and transportation projects. As the Missouri General Assembly embarks on its 2021 annual session, some legislative changes affecting these acronyms may be in the offing. Striking the balance between addressing the controversial issues with balancing the benefits of these “economic engines” will be vital. Lathrop GPM Consulting can help assist in those objectives.
FIRST, WHAT IS:
TIF (Tax Increment Financing) is a tool used by municipal governments to stimulate economic development in a targeted geographical area. TIFs are used to finance redevelopment projects or other investments using the anticipation of future tax revenue resulting from the new development.
CID (Community Improvement District) is a local special taxing district that collects revenue within its designated boundaries to pay for special public facilities, improvements, or services. CIDs are created by ordinance of the local governing body of a municipality upon presentation of a petition signed by owners of real property within the proposed district’s boundaries, typically encompassing a commercial, not a residential, area.
NID (Neighborhood Improvement District) is a special taxing district that collects revenue within its designated boundaries to help pay for public infrastructure, facilities, or other improvements that confer a benefit on property within the district, normally a residential and not a commercial area. NIDs are created by election or petition of owners of real property within the proposed district’s boundaries and typically generate funding for projects through the sale of municipal revenue bonds backed by the district’s special property assessments which may be extended beyond the retirement of the bonds to pay for maintenance and upkeep.
TDD (Transportation Development District) may be created by the Missouri Highways & Transportation Commission if the project involves any of the state’s highways or transportation system to fund or operate one or more projects that would assist the promotion, design, construction, improvement, or operations of the particular infrastructure. A separate political subdivision of the state, a TDD “project” may include any public bridge, street, highway, intersection, signing, signals, parking lot, bus stop, garage, terminal, aircraft hangar, rest area, dock, wharf, river port, airport, railroad, light rail and any similar or related transportation infrastructure.
LET’S DIVE A LITTLE DEEPER
TIFs are authorized by state statutes, primarily in Chapters 67 and 99, RSMo. Local Tax Increment Financing (Local TIF) allows the use of a portion of local property taxes and sales taxes to assist funding the redevelopment of certain designated areas within a community. Areas eligible for Local TIF must contain property classified as a “Blighted,” “Conservation,” or an “Economic Development” area, or any combination, as defined in statute.
TIF may be used to pay certain costs incurred with a redevelopment project. Such costs may include, but are not limited to:
- Professional services such as studies, surveys, plans, financial management, legal counsel;
- Land acquisition and demolition of structures;
- Rehabilitating, repairing existing buildings on site;
- Building necessary new infrastructure in the project area such as streets, sewers, parking, lighting; and
- Relocation of resident and business occupants located in the project area.
The idea behind Local TIF is the assumption that property taxes and/or local sales taxes (depending upon the type of redevelopment project) will increase in the designated area after redevelopment, and a portion of the increase of these taxes collected in the future (up to 23 years) may be allocated by the municipality to help pay the certain project costs, partially listed above.
Proponents cite the use of TIF as helping dozens of Missouri communities thrive by creating new and better jobs while increasing tax revenue streams from formerly non-productive, unattractive, and substandard areas. TIF benefits redevelopment in the urban core areas of our largest metropolitan cities, as well as in smaller Missouri communities, wherever the need exists.
On the other hand, a criticism of TIFs is that some businesses receive tax advantages that not all businesses in the community are enabled to receive. Missouri reported 524 TIF projects in some 100 political subdivisions throughout the state in 2019. Those projects’ TIF costs were estimated at $10.1 billion that critics say are a drain on local tax revenue that could have funded local public services. Sometimes TIFs have failed in the areas of new jobs and new business growth. Legislation to amend TIFs is on the agenda in Jefferson City.
Missouri’s TIF Act defines a “municipality” as an incorporated city, town, village, or county. The governing body of a municipality is required to establish a TIF Commission, composed of certain members including representatives of other local taxing authorities within the redevelopment project area as defined by state statute. The municipality is also responsible for the approval of ordinances (or resolutions if a county) that establish a comprehensive Redevelopment Plan, and for approval of the specific TIF Redevelopment Project. Responsibilities of the TIF Commission are many and may include working with the local government in creating the Redevelopment Plan and TIF Redevelopment Project parameters, holding required public hearings, preparing economic impact reports and revenue projections, blight studies and other documents to justify the need for TIF and as required by state statutes governing Local TIF projects.
A CID (Community Improvement District) is a local special taxing district that collects revenue within its designated boundaries to pay for special public facilities, improvements, or services. CIDs are created by ordinance of the local governing body of a municipality upon presentation of a petition signed by owners of real property within the proposed district’s boundaries, typically encompassing a commercial, not a residential area.
A CID, although approved by the local municipality, is a separate political subdivision with the power to govern itself and impose and collect special assessments, additional property taxes and sales taxes. CIDs may also generate funds by fees, rents or charges for district property or services and through grants, gifts, or donations.
CID annual reports are filed with the Clerk of the creating municipality and a copy filed with the Department of Economic Development which does not have oversight or audit responsibility for these districts.
Sections 67.1401 to 67.1571, RSMo, are known as the Missouri Community Improvement District Act, effective Aug. 28, 2007.
A NID (Neighborhood Improvement District) may be created in an area that seeks to build, maintain, or improve transportation (as well as other public) infrastructure. These activities are paid for by special tax assessments levied on property owners in the area in which the improvements are made.
Projects funded through a NID must be public in nature and be beneficial to property in the NID. NIDs are authorized by a resolution of the governing body of the municipality in which the NID is proposed. NIDs are regulated primarily in Sections 67.453 to 67.475, RSMo.
LEGISLATION ADDS TO NIDs
During the 2020 regular session of the Missouri General Assembly, House Bill 1768, sponsored by Rep. Louis Riggs (R-Hannibal), was passed and signed by the Governor, adding telecommunications and internet projects to the list of eligible NID projects: The 2020 legislation provides that the NID may “partner with a telecommunications company or broadband service provider in order to construct or improve telecommunications facilities which shall be wholly owned and operated by the telecommunications company or broadband service provider, as the terms ‘telecommunications company’ and ‘telecommunications facilities’ are defined in section 386.020 and subject to the provisions of section 392.410, that are in an unserved or underserved area, as defined in section 620.2450. Before any facilities are improved or constructed because of this section, the area shall be certified as unserved or underserved by the director of broadband development within the Department of Economic Development.”
A TDD (Transportation Development District) is authorized under Sections 238.200 – 275, RSMo. The Missouri Transportation Development District Act for State Highway System Projects, requires the formation of a development district be initiated by petitioning the local circuit court.
After the circuit court declares the TDD formed, the MoDOT Chief Counsel’s Office will forward a copy of a cooperative agreement to the transportation district. The TDD, in the interim, elects its board members and officers. The TDD must execute the cooperative agreement, between the Commission and the TDD, before the Commission will approve the project and appoint a Commission representative to the TDD board. Pursuant to the TDD Act, prior to project construction and imposition of any tax the Commission must grant approval of the project.
The district has the authority to finance the project through mechanisms such as special assessments (by a majority of district voters or approved special assessment petition by district property owners), property taxes or sales taxes approved by district voters, toll roads, debt financing, or issuing bonds, among other means.
2020 LEGISLATION ATTEMPTED TO AMEND CIDs, TDDs
House Bill 1854, a lengthy bill affecting local government, was passed by the General Assembly during the 2020 legislative session but was vetoed by Governor Mike Parson (R), because of the many (some unrelated) topics contained in the bill.
The following became a controversial sticking point in HB 1854: Currently, community improvement districts (CIDs) and transportation development districts (TDDs) are authorized to impose a sales tax on purchases made within such districts if approved by a majority of voters living within the district. HB 1854 would have required such sales taxes to be approved by a majority of the voters of the municipality in which the district is located, rather than just within the district. Additionally, current law authorizes TDDs to charge and collect tolls or fees for the use of a project if approved by a majority of voters within the district. This bill required such tolls or fees to be approved by a majority of voters within the municipality in which the TDD is located. This proposed change in statute may return in 2021, setting off fireworks.
STATE AUDITOR SEEKS INCREASED TIF TRANSPARENCY
Missouri State Auditor Nicole Galloway in late September released a report on the City of St. Louis’ use of Tax Increment Financing (TIF) for redevelopment projects. The audit recommended improvements to provide additional clarity and transparency for the city’s use of TIF and ensure the city is looking out for taxpayers when awarding these incentives.
“More than 100 active TIF projects in St. Louis have received over $650 million in incentives and, because millions are diverted from schools and city services, it’s imperative the city get this right,” Auditor Galloway said. “Taxpayers have every right to expect these projects are effective and transparent in using public dollars to move the city forward.”
With a TIF project, costs are funded through a portion of property taxes generated in a redeveloped area, as well as taxes generated through increased economic activity in the area. These taxes are then diverted from local taxing districts such as school districts and instead go toward project costs.
The audit found concerns with the city’s strategic planning for TIF incentives. New projects are approved without defined program goals or strategic preferences on the location of projects. More than half of the projects intended for redevelopment are located in the four city wards (out of 28 total) with the highest assessed property values. The city also does not clearly define the evaluation process or criteria used in project selection. In 2016, the city began implementing a new internal tool to evaluate projects, however, additional improvement is needed.
“TIFs can serve as a tool to help revitalize areas of our communities that badly need it. But strong guidelines and policies that control costs, provide transparency, and demonstrate need are necessary to protect taxpayers,” Auditor Galloway said. “It is the city’s responsibility to act on the side of taxpayers. I urge officials to put the audit recommendations into place to address the concerns we found.”
The audit also found the city does not maintain TIF data in a useful and transparent manner, making informed strategic decisions and complete analyses impossible, and hindering oversight of the TIF program by both the Board of Aldermen and taxpayers.
LEGISLATION HAS BEEN FILED FOR 2021 THAT COULD AFFECT TAXES, TAXING PROGRAMS, TAXING DISTRICTS, including:
Senate Bill 22 (Koenig, R-Manchester) – Modifies several provisions relating to tax increment financing.
Modifies the definitions of “blighted area” and “conservation area” and creates new definitions for “port infrastructure projects”, “retail area”, and “retail infrastructure projects”.
Modifies local tax increment financing projects by providing that a study shall be conducted by a party other than the proponent of the redevelopment plan, which details how the area meets the definition of an area eligible to receive tax increment financing.
SB 22 provides that retail areas, as defined in the act, shall not receive tax increment financing unless such financing is exclusively utilized to fund retail infrastructure projects, as defined in the act, or unless such area is a blighted or a conservation area.
The bill also prohibits new projects from being authorized in any Greenfield area and prohibits new projects from being authorized in certain areas designated as a flood plain by the Federal Emergency Management Agency, with exceptions.
Senate Bill 147 (Washington, D-Kansas City) – Modifies the definition of “blighted area” for the purposes of tax increment financing (TIF). Such areas shall be in a distressed community and be insanitary or unsafe for living or working; shall have unemployment one and one-half times greater than the average for the state; or have a median household income of less than fifty percent of the median household income of the metropolitan statistical area in which the area is located.
A redevelopment plan shall include all federal, state, county, and municipal tax incentives received as sources of funds for the redevelopment plan. Such redevelopment plan shall also include a study stating that the project was not developed through private enterprise and shall also include an economic feasibility analysis that indicates whether a return on investment is expected without public assistance.
SB 147 exempts redevelopment projects from funding limits for TIF projects associated with a geospatial intelligence federal employer in St. Louis City if such projects consist solely of public infrastructure improvements on public land that requires less than $2 million in TIF financing and will pay off its bonds in seven years or less.
This act requires a municipality to pay an amount equal to 25 percent of payments in lieu of taxes received for a TIF project to all other taxing entities in the municipality that are entitled to receive property tax revenue. Such amount shall be distributed pro rata to such entities. If a TIF project includes residential uses, real property tax levies attributable to the residential portion shall be distributed to the local school district or districts.
This act requires the Department of Economic Development to annually submit a report to the Governor and the General Assembly that provides certain information regarding TIF projects in the state, as described in the act.
Redevelopment districts providing emergency services in certain municipalities and counties, as described in the act, shall be entitled to reimbursement from a TIF special allocation fund in an amount between 25 to 100 percent of such revenue.
SB 147 adds blighted areas located in distressed communities to the areas eligible to receive state revenues for a TIF project. Additionally, this act prohibits redevelopment projects unless all school districts in the redevelopment area have low fiscal capacity, as defined in the act; all census blocks or groups have high unemployment, as defined in the act; or all municipalities or census blocks or groups are characterized by moderate income, as defined in the act.
Senate Bill 215 (Hough, R-Springfield) – Current law authorizes two or more counties or municipalities to form a regional economic development district to plan, formulate, develop, promote, fund, and conduct or cause to be conducted programs to encourage the economic development of the district. This act repeals such authority.
Senate Bill 221 (Beck, D-St. Louis) – Authorizes the State Auditor to audit any tax increment financing (TIF) redevelopment project in the same manner that he or she may audit any agency of the state.
This act also excludes local sales taxes whose revenue is dedicated to education programs or to a fire protection district from the definitions of “economic activity taxes” and “payment in lieu of taxes” for the purposes of funding TIF districts.
This act prohibits the implementation of a TIF redevelopment project without its redevelopment plan receiving approval from the local TIF commission.
Senate Bill 247 (Arthur, D-Kansas City) – Allows a school district to exclude real property from a proposed tax increment financing redevelopment area if the school district determines that such redevelopment area will have an adverse effect on such school district. The school district shall adopt a resolution making such determination and shall deliver the resolution to the municipality establishing the redevelopment area. Within thirty days of receiving the resolution, the municipality shall remove such property from the redevelopment area or terminate the redevelopment area.
Senate Bill 97 (Hoskins, R-Warrensburg) – Modifies several provisions relating to sales taxes including:
SALES AND USE TAX MAPPING
Current law requires the Department of Revenue to create and maintain a mapping feature on its website that displays various sales tax information. This act requires such mapping feature to include use tax information.
This provision is substantially like provisions in several other bills filed for the 2021 legislative session.
SALES TAX RATES
For all tax years beginning on or after Jan. 1, 2022, all taxing jurisdictions levying a local sales tax shall reduce such levy to a rate that will produce substantially the same amount of revenue collected from such sales tax during fiscal year 2020, plus five percent of such amount. Such taxing jurisdictions shall provide data to the State Auditor substantiating that such tax rate complies with such rollback, as described in the act.
Current law imposes a statutory state sales tax at a rate of 4 percent. Beginning Jan. 1, 2023, this act reduces such rate by an amount to be determined under an agreement between the Director of Revenue and the State Treasurer and shall be an amount that is substantially equivalent to the use tax collections made under the provisions of this act during the 2022 calendar year.
Beginning Jan. 1, 2022, SB 97 provides that a vendor shall be considered to be engaging in business activities in this state if such vendor had cumulative gross receipts of at least $100,000 from the sale of tangible personal property for the purpose of storage, use, or consumption in this state in the previous twelve-month period, as described in the act. Vendors meeting such criteria shall be required to collect and remit the use tax as provided under current law.
TAXING JURISDICTION DATABASE
SB 97 requires the Director of Revenue to provide and maintain a downloadable electronic database at no cost to the user of the database for taxing jurisdiction boundary changes and tax rates. Such databases may be directly provided by the Director or may be provided by a third party as designated by the Director.
Vendors shall not be liable for reliance upon erroneous data provided by the Director on tax rates, boundaries, or taxing jurisdiction assignments.
House Bill 213 (Hill, R-Lake St. Louis) — Makes numerous changes to the community improvement district laws. In its main provisions, the bill:
(1) Adds the anticipated source of funds to pay improvement costs, and the anticipated term of the source of funds to the list of items that must be included in the five-year plan that is required to be included in a petition to establish a community improvement district;
(2) Limits the duration of the district to 21 years unless the municipality extends the time pursuant to statute;
(3) Requires a municipal clerk to report in writing the creation of a community improvement district to the state auditor;
(4) Sets out the qualifications for a district director if there are no registered voters in the district;
(5) Provides that even if the board of directors is to be elected pursuant to the petition to establish the district, a least one member must be appointed for a four-year term by the governing body of the municipality.
Contracts for construction or professional services must be submitted to competitive bidding and must be awarded to the lowest or best bidder. Notice of letting of the contract must be given in the manner provided in Section 8.250, RSMo.
Currently, community improvement districts are required, within 120 days after the end of the fiscal year, to submit a report to the municipal clerk and the Department of Economic Development stating the services provided, revenues collected, and expenditures made by the district during the fiscal year. The bill requires that the report include the dates the district adopted its annual budget, submitted its proposed annual budget to the municipality and submitted its annual report to the municipal clerk.
If a district fails to timely submit a proposed annual budget to the municipality, adopt an annual budget, or submit an annual report to the municipal clerk or the Department, it will be subject to a fine of $100 per day, which will be imposed and collected by the Department and paid into the public school fund of the municipality in which the district is located.
When a district expires or terminates, the real and personal property, machinery, equipment, materials, and supplies of the district must be sold or transferred according to the plan for dissolution approved by ordinance, and all proceeds of the sold property and district funds must be distributed to the public school fund of the municipality in which the district is located.
If a sales tax is imposed by a district, a sign must be posted outdoors by each customer entry of each retail establishment in the district. The sign cannot be smaller than one foot by two feet, and the writing on the sign must be clearly legible and no smaller than a three-quarters inch in height. A sign must also be posted at the point-of-sale area. The sign must state that the Community Improvement District board of directors charges a sales tax of a given percent, in addition to the state and local sales tax rates.
More legislation is expected to be filed, relating to such tax issues. These issues will continue to draw interest from various parties and will continue to seek a balance between (a) protecting the taxpayers and (b) community improvements.
Missouri Department of Economic Development
Missouri Department of Revenue
Missouri Department of Transportation
Missouri State Auditor
Revised Statutes of Missouri (RSMo)
Missouri House of Representatives