Tax Increment Financing (TIF) Incentive
Making It Work
WHAT IS TAX INCREMENT FINANCING?
At its Basic level, Tax Increment Financing (“TIF”) is a financing tool for capturing future tax benefits of real estate improvement in order to pay for the present cost of those improvements. Local government establishes a TIF district by setting the geographic boundaries of the TIF District and levying a sales tax rate and/or room occupancy tax rate, usually a few percentage points over the existing tax base. This extra sales tax or room occupancy tax rate is called the increment.
Over a period of years the increment is utilized to finance a myriad of eligible real estate and infrastructure improvements. In the City of Minden’s case the increment generated by a specific business will be channeled back to the property owner to finance new improvements to the property or to assist a new buyer of the property with financing additional improvements.
GENERAL INFORMATION ON T.I.F
- The Benefits
- How T.I.F Works
- Financing Guidelines
- Job Creation
- T.I.F District Life Span
- Anti-Speculation Provision
THE BENEFITS ASSOCIATED WITH THE TIF:
The TIF will provide funds ,to the business owner, derived from eligible sales tax from purchases in order to reduce the cost of new development/renovation projects.
If a property owner is seeking to sell their property or develop it on their own, the property in question must be within a TIF District or Economic Development District (“EDD”). There is no hard-set sunset provision for the TIF District. TIF Districts can exist for 20 or 30 years or longer.
The Buyer. The TIF incentive encourages the potential buyer to move forward with the real estate purchase because substantial funds are expended in the purchase of the property and little maybe left over to go to the next development phase. The TIF incentive can help with the next investment phase of the project.
Existing Owner. Many owners are property rich but cash strapped. The TIF incentive assists the existing owner to further develop the property with the use of tax revenue increment. The award of the sales tax increment or room occupancy tax increment generated by the business to the property developer is in essence a grant. The sales tax or room occupancy tax generated does not legally belong to the developer/owner. The sale tax or room occupancy tax is paid by the buyer of the hotel room or sales tax generated sale is the property of the government. Hence, the awarded TIF incentive to the developer/owner is considered a grant to be utilized as reimbursement for eligible property improvements.
HOW TIF GENERALLY WORKS:
To benefit from the TIF incentive a property must be in a TIF District. A developer or business investor purchases the property to build a project that generates sales taxes or room occupancy taxes. The developer/investor meets with the Economic Development Department of Minden to start the due diligence process and structure the TIF incentive package. Eventually, the plans for the new project and the TIF incentive package is approved by City Council. The sales tax or a room occupancy tax is increased up to 2% within the TIF District. Please note that most people do not make their choices to either eat at a restaurant or stay at a hotel based on the sales tax or room occupancy tax rate.
The developer or business investor goes to their financing source to receive a loan or investment to pay for the property improvements. Over the term of the loan or the repayment agreement, the 2% sales tax increment generated on the property is given back to the developer’s or investor’s financing source to repay the loan over the term of the loan agreement until satisfied.
GENERAL FINANCING GUIDELINES OF TIF STRUCTURED PROJECTS
Sales Tax TIF financed projects shall have a reimbursement ceiling cost for each project; a TIF reimbursement rate, which shall be 80% of on-going TIF proceeds until the ceiling amount has been reached and a financing participation rate with the City of Minden which is 20%. The term of the TIF financing shall be the same or less as the term for the source used to finance the project.
If Room Occupancy Taxes are used as a source for TIF projects, the same general financing guidelines shall apply as for sales tax TIF. Increment revenue from Room Occupancy Taxes shall be reimbursed to the financing source of the property owner at an on-going rate of 80% of increment proceeds until the ceiling cost of the item financed has been reached. The City of Minden will be fully reimbursed for its costs incurred to help install infrastructure and site preparation elements for project development.
No project shall be financed utilizing TIF proceeds without the assured creation of a specified number of net new full-time equivalent jobs associated with each project. At least 51% of the jobs created by the project shall be held by existing or new residents of the City of Minden unless the investor can demonstrate that the job requirements associated with each position cannot be filled locally due to lack of qualifications. The number of net new full-time equivalent jobs to be created and when they are to exist shall be negotiated as part of the TIF financing package
Title VII of the Civil Rights Act prohibits employment discrimination. No participant in a TIF agreement shall be engaged in employment practices that are contrary to Title VII of the Civil Rights Act. If an employer who is a participant in the TIF is deemed guilty of employment practices that violate Title VII of the Civil Rights Act of 1964 and its amendments by a U.S. court of jurisdiction, the TIF agreement will become null and void and all future TIF proceeds derived to pay for an eligible project shall cease immediately. The employer of the TIF proceeds shall not receive other TIF financing until it has put in place policies and procedures that ensures that it will not repeat its previous discriminatory employment practices.
LIFE SPAN OF TIF DISTRICTS
The life span of a TIF District can be on-going without a specific sunset date; nevertheless, Minden’s TIF Districts should continue until at least 60% of the properties identified within the district have gone through at least one development or redevelopment cycle or until the Consortium with consent/approval of City Council has deemed that the development or redevelopment of the properties within a particular TIF District have been reached. Furthermore, all infrastructure and site preparation costs paid for by the City will have to be satisfied prior to the sunset of any TIF District.
In order for a property owner to secure the TIF financing incentive for the new development project, he/she must move demonstratively forward with plans to develop the property. In the case of a new owner of property, he/she must discuss the project with the Department of Economic Development of the City of Minden prior to project commencement, that is provide plans and timelines for the new investment within 120 days of the purchase or lose the opportunity to secure TIF financing for the property.
In the instance of an existing property owner who will provide new investment in their property, he/she must discuss the project, provide plans and timelines for the new investment to the Department of Economic Development, City of Minden. The property owner must move demonstratively forward with plans to develop the property.
The TIF incentive will be awarded based on the completion of negotiated milestones toward the project’s final completion for new and existing property owners. In addition, the completed project must obtain approval for code compliance from the Permits & Inspection Office of the City of Minden and secure approval from the Louisiana Fire Marshall for safety compliance prior to receiving TIF financing.
A non-refundable application fee of $500.00 must accompany all TIF applications.
All recipients of a TIF must pay a closing fee. Closing fees shall cover the cost of legal counsel and any consultative work, if any, to determine program eligibility and financial feasibility of the project in question. The cost of other incidentals in association with the Project’s application will be determined on a case-by basis.
Annual Administrative Fee
An annual administrative fee of $500.00 will be charged to the project until the expiration of the incentive
FOR MORE INFORMATION PLEASE CONTACT THE CITY OF MINDEN, DEPARTMENT OF ECONOMIC DEVELOPMENT.
ELIGIBLE SOURCES AND USES OF TIF INVESTMENT
The sources of T.I.F investment are derived from increments in sales taxes and room occupancy taxes.
Reimbursements utilizing T.I.F increment is slated for improvements on building and land.
Property Infrastructure Improvements
The concentrated application of economic development incentives in specific geographic areas of Minden allows the community to direct scare resources in a highly focused and impactful manner.
TIF District #1 is comprised mainly of downtown properties. The District’s development focus is the following;
TIF District # 2 is an area that is motor vehicle friendly. Product distribution primarily via commercial trucking exist within the area. The District’s development focus is primarily:
TIF District #3 is an area that is primarily characterized as the community’s Interstate Road Frontage Property. This District is prime real estate positioned to attract new spending dollars to the community from commercial and noncommercial motor vehicle travelers. It shall be developed with the following focus:
TIF District #4 is the major Southeastern by-pass that separates the downtown commercial corridor to the northwest from the primarily residential area to the Southwestern part of the community. Once a site primarily known for mechanical/vehicle repair and warehousing, this district is now being targeted for new industries such as: