The city of Aurora will hold two public hearings coming up on tax increment financing districts it intends to establish.
Both districts are what the city calls “micro-TIFs” and are tied to redevelopment agreements the city has entered into with potential developers.
One of the micro-TIFs is called the River Vine Tax Increment Financing District and is tied to the proposed 187-unit Pacifica Riverview apartment complex between the Fox River and North River Street in the city’s downtown.
The other micro-TIF is called the Cross Street Tax Increment Financing District and is related to redevelopment of a former industrial warehouse at 100 Cross St. in the southwest corner of downtown.
The hearings, which will be during Tuesday’s City Council meeting, are likely to get speakers, with the proposed TIF districts getting a lot of attention and chatter on social media. They have reenergized the discussion about TIF districts, what they can and cannot do.
Tax increment financing districts are a commonly used economic development tool by municipalities across Illinois, and in other parts of the country.
According to a Chicago Metropolitan Area for Planning report, 157 municipalities in Illinois currently have at least one district, and TIF districts account for more than 10% of the total property tax base in 24 municipalities.
Aurora has 14 active TIF districts, five of them downtown. They’ve had as many as 16, but two recently expired. According to CMAP, Aurora has less than 5% of its property tax base in TIF districts.
One reason for that is the micro-TIF approach Aurora has embraced, one that is somewhat of an Aurora creation. The idea of the micro-TIF is that it takes in less property than the past approach.
For instance, the city’s first TIF district was in downtown Aurora, and took in the entire downtown. With the micro-TIF, while the city has five TIF districts downtown now, it is much less actual property than the original downtown TIF district, which recently expired.
In TIF districts, assessed value is frozen for the purpose of tax collection, and as the value of the property rises, the taxes created by increasing property value goes into a special fund, known as an increment. That money is used for expenses related to the development.
All taxing bodies in the TIF district area continue to collect the same amount of taxes they were collecting; what they do not get right away is the increase in taxes created by the growing value of the land. Eventually, they will get that difference, but it will be after the TIF expires. TIF districts can run for a maximum of 23 years, but some have a shorter duration than that.
The property owner continues to pay real estate taxes on the entire property in a TIF district, just as it would normally. The change in a TIF district is where that money goes, which is into the TIF fund, called the increment.
Another reason the city adopted the micro-TIF concept is that it is tied to a specific development. Many municipalities put a TIF on an entire area, and then seek developers for property within that area, using the TIF as an incentive to develop there.
By getting a developer committed first, the city assures that to get any of the money from the TIF district as an incentive, the developer has to do something, officials said. If the developer fails to redevelop, no money is collected in the increment.
By using a redevelopment agreement, the deal is spelled out - how much the developer will spend, and how much the city will spend, officials said.
In the case of the River Vine TIF District, for instance, the city has a deal with Windfall Group that the city will pay about $6.6 million in upfront construction costs, as well as deed the 3.3-acre site to Windfall, a value of about $2 million. The city would pass bonds to raise the $6.6 million, then pay back the bonds with the proceeds from the TIF district.
That means the city would give an incentive worth about 12% of the value of the development, with Windfall paying 13% of it with direct equity of its own, and the remaining 75% with a loan Windfall would take out.
Information circulating about the River Vine TIF District is that it would raise as much as $37 million during the proposed 20-year life of the TIF district, which is an estimate, since no one can say for sure just how much the property value will increase.
The information also says that the $37 million would go to the developer. However, the development agreement caps the amount of the incentive directly to the developer at $6.6 million, with the rest of the funds generated going into the TIF increment. The city could amend the agreement if it was to pay the developer more, but that would have to be approved by the City Council.
“The money goes into the TIF project fund, which is used for some kind of infrastructure needs, such as sidewalks, sewers,” said Chris Minick, Aurora’s chief financial officer. “It does not automatically go to the developer.”
If money is left in the increment when the TIF district expires, it is distributed at that time to the appropriate taxing bodies.
The Tax Increment Allocation Redevelopment Act allows cities to develop TIF districts as a blighted area or a conservation area. They must meet at least five of 13 criteria to be considered blighted. For conservation areas, at least half of structures in a TIF district must be at least 35 years old and the area must meet at least three of the 13 criteria.
A TIF district is a tool, officials say. Like any tool, it depends on how it is used.
“TIFs can be a great tool, but they can also be used badly,” said Andrew Abdon, communications director for the Illinois Comptroller’s Office. That is the state office that keeps track of TIF district financial information.
Bruce Beal, an Aurora resident who tracked TIF districts through the organization Sweet Home Chicago when he lived there, said TIF district supporters should put more emphasis on the many districts that have worked.
“People should stop trying to explain how TIFs work, but show examples of how they did work,” he said.
Aurora has a good example of one that worked. TIF District Two was formed in the northeast section of the city and included the Chicago Premium Outlets mall as well as the Aurora Corporate Center, which runs along Bilter Road from the mall area west to Mitchell Road.
When the TIF district was formed, the land there generated about $25,000 worth of tax dollars for all the taxing districts. By 2015, when it was closed, it was generating about $9.6 million in property taxes.
Not all of that was attributable to the TIF district - there were a number of state and local efforts that made the land developable. But it was one of the tools that made the property valuable, contributing to the tax base, officials said.
Other taxing bodies sometimes raise concerns about TIF districts, including school districts. School District 204 raised concerns a few years ago concerning a proposed TIF district designed to pay for an extension of Commons Drive as part of a senior-oriented residential development on the far East Side of the city.
Springing out of that, the city of Aurora and District 204 approved guidelines for any future tax increment financing districts in the Route 59 corridor. One of the concessions the city made in the agreement is that it will only propose any TIF district in the Route 59 area for 15 years, instead of the allowed 23.
TIF districts have been used significantly to varying success throughout the Fox Valley and western suburban area.
In Aurora and Elgin, the use of TIFs has become commonplace, and they have been established in Geneva, Batavia, St. Charles and Yorkville.
The CMAP study of TIF districts pointed out that the transparency of data and information on all local economic development incentives - not just TIF districts but including them - has been “extremely uneven.”
Cities are required by law to provide basic information about project spending, contracts and other financial obligations in TIF districts each year to the state Comptroller’s Office. Abdon said when Susana A. Mendoza became comptroller a few years ago, “there were not a lot of records” about TIF districts, and the office started more closely enforcing the reporting rules.
But as a result of the coronavirus pandemic, enforcement fell off a bit, in large part because “municipalities have not been able to find (Certified Public Accountants) who do these things,” Abdon said.
Aurora failed to send in its reports this year by the end of June, as required, but has regularly filed its reports before that.
Minick said that is because a new audit software system the city is using this year has had some bugs, and has delayed the entire city audit.
Abdon said there are municipalities who have not filed for three or four years.
“If it’s just one year, we’re not going to be taking any disciplinary action,” he said.
Beal said one problem with TIF administration is transparency. He suggested municipalities do after-the-fact evaluations by independent organizations to show when TIF districts have been successful.