Doug PattersonKansas House of Representatives - District 28

Home
Biography
Legislature
Newsletter
Media
Register
Links
Contact
Republican Elephant

Article, May, 2001, HB 2005

Author: Rep.Doug Patterson

Doug Patterson is a member of the Kansas House of Representatives representing the 28th District. He maintains a law practice with an emphasis on real estate matters, representing municipalities and developers using development and redevelopment tools, including Tax Increment Financing

2001 Legislature: HB 2005: A User Friendly TIF?

Previously, the Tax Increment Finance Law of Kansas1 (TIF) was known as the Redevelopment of Central Business District Areas law which appeared to apply strictly to the development and redevelopment of central business districts of municipalities. In State ex rel. Schneider v. City of Topeka, 227 Kan. 115, 605 P.2d 556 (1980), the constitutionality of tax increment financing of programs designed to redevelop blighted business areas in Kansas cities was confirmed. In the last decade however, communities within states surrounding Kansas have utilized TIF not just for the redevelopment of areas which had already become blighted but as an economic development tool. TIF is currently used as a preemptive measure to develop areas in danger of becoming blighted as well as a development incentive tool to retain and attract quality properties and employment.

TIF in Kansas has not enjoyed widespread usage due to the cumbersome and

procedurally intensive requirements which made TIF time consuming, expensive and practically impossible to use for anything but large projects such as NASCAR and major municipally sponsored in-fill developments. It has been estimated that over the twenty five years TIF has been in existence in Kansas, fewer than nineteen TIF projects have been developed in Kansas. By comparison, over thirty TIF projects have been approved by Kansas City, Missouri alone.

In 1996 major substantive amendments were made to the TIF law in order to allow TIF to be used as an economic development tool as well as a resource to eliminate blighting influences. The concept of a "conservation area" was adopted, with a definition of conservation area borrowed from Missouri, so as to allow the redevelopment of areas not let blighted, but heading that way. In additionally the 1996 amendments allowed for the TIF of areas not wholly within a city, added certain other eligible areas for TIF and clarified the use of locally imposed sales taxes and other forms of taxes on economic activity taxes to fund TIF developments on a bonded form of financing using full faith and credit bonds, limited obligation bonds or sales tax revenue bonds2. Subsequent to 1996, amendments have been made to the Kansas TIF law to allow for the NASCAR project, certain historical theater projects and to anticipate the OZ project, which ultimately choose another development tool so as to avoid the possibility of a county veto. The courts have held that there is no precise definition of what constitutes a valid public use, and what may be considered a valid public use or purpose changes over time. Ullrich v. Board of Thomas County Comm'rs, 234 Kan. 782, 789, 676 P.2d 127 (1984). Further, the courts have noted that as long as a governmental action is designed to fulfill a public purpose, the wisdom of the governmental action generally is not subject to review by the courts. State ex rel. Tamasic v. Unified Government , 265 Kan. 779, 962 P.2d 543 (1998)

But still TIF has remained user-unfriendly. It has been a cumbersome and procedurally difficult tool to use. The multi-step procedures were difficult and disjointed. The most problematic was a failure of definitions in the original statute to keep up with amendments to the TIF law were made from year to year.

In 2001, the Legislature adopted House bill No. 20053 (the "Act"). While making no policy changes or additions to the TIF statute, House Bill 2005 does substantially update and repair the law in a significant way to cause TIF to be more user-friendly. Most importantly, The TIF law now contains a comprehensive set of definitions5 which streamline and to defy the preparation of plan and an understanding of words and terms The major aspects of these procedural changes are as follows:

    1. . Eligible Areas. TIF plans are authorized in "Eligible" areas4. This is a nicknamed for blighted areas, conservation areas, entertainment zones, historical theater areas, tourism areas and other properties available for TIF financing.

    2. . De minimus5 criteria. As to TIF plans which been adopted and proposed for amendment, questions have arisen as to what level of amendment will trigger a repeat of all statutory and procedural requirements for original plan adoption. The Act describes a de minimus level of amendment involving Redevelopment District reduction which will not require a repeat of all procedural actions, thereby triggering another veto opportunity by school districts and counties.

    3. . Base Year6. Heretofore, questions had arisen with respect to establishing the timeline and benchmark to determine the base level of real property taxes and other economic activity taxes for purposes of establishment increment values. The base year establishes the assessed valuation of all property within the boundaries of a Redevelopment District on the date the Redevelopment District was established.

The streamlining of the procedure for the adoption of a TIF plan is addressed in the Act. These procedures are still complicated yet there has evolved some order out of the chaos. Generally, a city or the sponsoring developer and will identify an eligible area within and without the city in need of development. In the event a portion of the area is within the county, the city may sponsor a plan for the entire area so long as the county commissioners approve a plan with for that portion within the county7. Thereafter the city oversees the redevelopment process.

The two important designations are the "Redevelopment District" and the

"Redevelopment Project".

To start the process8, the city begins the process by adopting a resolution identifying a Redevelopment District for redevelopment consideration. Notice of a public hearing is given describing the proposed boundaries of the Redevelopment District, identifying a district plan, identifying a description and map of the Redevelopment District and soliciting comments on the proposed Redevelopment District plan. Following the hearing on the Redevelopment District plan, the city may pass an ordinance approving the Redevelopment District plan, which must identify all proposed Redevelopment Project areas and the general manner in which the buildings and facilities are proposed for construction or improvement. One or more Redevelopment Projects may be proposed within the Redevelopment District plan.

Following the adoption of the Redevelopment District plan, the same is subject to veto by the Board of county commissioners and/or the school district levying taxes in the Redevelopment District within thirty days following the conclusion of the hearing on the Redevelopment District plan9. By implication, the city would have passed the ordinance approving the Redevelopment District plan since in the event of a veto, the city must pass and ordinance terminating the Redevelopment District plan.

Once a Redevelopment District plan is adopted, any addition of area to the Redevelopment District or any "substantial change" to the plan shall be subject to the same procedures for public notice and hearing as above described0. The city may remove real property from a Redevelopment District plan without a change in the base year assessed valuation if such remove area is de minimus, i.e., less than 15 percent of the entire land area within the Redevelopment District.

With the Redevelopment District plan in place, one or more Redevelopment Projects may be approved thereafter. Redevelopment Projects represent the separate development stages in order to implement the Redevelopment District plan.

The Redevelopment Project plans are prepared and reviewed with in consultation with the city planning commission1. A Redevelopment Project plan includes2 a summary of a feasibility study required to be prepared under the Act. The Redevelopment Project plan must be consistent with the Redevelopment District plan, describe legally and graphically the Redevelopment Project area, contain a relocation assistance plan, contain a detailed description of the buildings and facilities proposed to be constructed or improved and such other information as the governing body of the city deems appropriate. The relocation plan must be approved prior to the implementation of the Redevelopment project. Kansas Attorney General Opinion No. 95-103. Before adopting the Redevelopment Project plan, a copy of the same must be delivered to the Board of county commissioners and the school board. Thereafter, upon a favorable recommendation of the planning commission, the governing body may adopt a resolution stating that the city is considering the adoption of the Redevelopment Project plan. The notices for this resolution of a Redevelopment Project plan are the same as the Redevelopment District plan, except that the Redevelopment Project plan must also included a description of the financial guarantees of the prospective developer. This raises a chicken and a quandary. Which comes first, the Redevelopment Project plan or the developer. In practice, the developer is proposing the Redevelopment Project plan and therefore the city will typically enter and to a funding agreement and/or interim development agreement for purposes of preparing and funding the expenses involved in preparing the plan, feasibility study and other documents. Within this agreement between the city and the developer, a description of the financing should be detailed and specifically described.

Following the adoption of the resolution evidencing an intent to consider the adoption of the Redevelopment Project plan, such resolution and all supporting documents are sent certified mail, to the Board of county commissioners, the school board and all owners and occupants of property within the proposed Redevelopment Project area within certain time frames3. Questions of the ability to identify occupants are substantial. Publication of notice is also required.

After the hearing and adoption of the Redevelopment Project plan, implementation of the Redevelopment Project plan is undertaken. Condemnation of any property within the entirety of the Redevelopment District can be authorized by a two-thirds vote of the governing body as authorized by a Redevelopment Project plan4. Condemnation cannot occur however within a conservation area5. Redevelopment Projects are to be completed within 20 years from the date of approval of the project plan6. This is a clarification from prior law.

OBSERVATIONS

 

    1. Bonds. Both full faith and credit bonds as well as special obligation bonds may be issued pursuant to a redevelopment plan. In addition, however, and pursuant to Kansas Attorney General Opinion No. 96-45 bonds in a project need not be issued. Conventional financing on a "pay as you go" basis may support borrowings for reimbursable redevelopment project costs with incremental real estate taxes and economic activity taxes being pledged and secured pursuant to a development agreement to reimburse principal and interest on such conventional financing.

    2. . Blight. While the Act defines a blighted area as an area which has a majority of nine factors7, a blighted area may constitute not just an area of physical deterioration, but also an area which constitutes an economic or social liability, or is a menace to public health, safety, morals or welfare in its current condition8. Therefore, identified Redevelopment Projects should not be considered only in light of physical deterioration but also in terms of the economic impact the redevelopment will have upon the community.

    3. . Feasibility study. The feasibility study required for the consideration of Redevelopment Projects need only to determine that the projects benefits and tax increment revenue as well as other available revenues are expected to exceed or be sufficient to pay for the Redevelopment Project costs9.

    4. . Redevelopment Project costs. Redevelopment Project costs include any number of typical infrastructure improvements, including utilities with an adjacent public right of way as well as all related expenses to redevelop that and finance the Redevelopment Project0. Problematic is whether Redevelopment Project costs must be expended within a Redevelopment Project area, or can include any costs necessary to implement the redevelopment plan, including expenditures made within the Redevelopment District. The former would appear to be the case. In addition, utility improvements and other public works projects may be constructed within public right of way.

    5. . Construction of buildings. Redevelopment Project costs reimbursable pursuant to a redevelopment plan cannot include costs and expenditures involving the construction of buildings or other structures to be owned by or leased to a developer1. By implication therefore, structures or buildings constructed for the benefit of governmental entities not constituting the developer of the redevelopment plan may be funded through a TIF Plan.

    6. Eligible area. While the new definition of eligible area includes areas considered blighted, conservation, environmentally contaminated areas or other conditions of areas described with in the Act, it is possible to include a variety of conditions of areas within a Redevelopment District. Therefore, while a portion of a Redevelopment District may be blighted, another portion may be a conservation area and other area may be an environmentally contaminated area. While these designations are in some instances mutually exclusive, an eligible area need not be exclusively one condition of property.

    7. . Condemnation. A plan which anticipates the acquisition of property may condemn such property only upon a two-thirds vote of the governing body. It would appear that condemnation or other forms of property acquisition can only occur pursuant to a Redevelopment Project plan, however, there should be no reason to limit property acquisition to areas only within a Redevelopment Project during any acquisition necessary for the implementation of a Redevelopment Project plan. Prior to such condemnation, the city must make a good faith offer to acquire the property with such offer being the highest appraised valuation determined for property tax purposes by the county appraiser for any of the three most recent years next preceding the year of the condemnation2.

    8. . Sources of funds to reimburse Redevelopment Project costs. Certainly incremental real estate taxes can be used3. In addition however, the Act anticipates any form of extraordinary revenues derived from the Redevelopment Project or the developer by defining eligible sources as "revenues of the city derived from or held in connection with the undertaking and carrying out of any Redevelopment Project" work3. In addition, the municipality may pledge all or any portion of revenue received by the city from transient taxes, sales and use taxes and other similar sources of refunds generated by the Redevelopment District4 and may pledge also all or a portion of increased revenues received by a city from franchise fees collected from utilities and other businesses using public right-of-way within the Redevelopment District5. Once again, it appears that the source of funds and other incremental form of taxes is not limited to those revenues derived from operations within the Redevelopment Project, but within the entirety of the Redevelopment District6. While this greatly expands the jurisdiction and universe from which to collect revenues to finance Redevelopment Project costs, great care must be exercised in drafting development agreements involving multiple developers. Consideration must be given to defining which flow of incremental revenues are to be used to finance or reimburse separate Redevelopment Project costs for separate developers. The city must assure that the developer is responsible for generating evidence of incremental non-real estate taxes, such as requirements that all users within the redevelopment produce reports on sales volume, site specific sales tax returns, utility billings and other economic activities.

    9. . Post plan adoption procedures. After the adoption of a Redevelopment Project plan, the clerk of the municipality must deliver a copy of the ordinance adopting the plan, the plan, and a map or plan indicating the boundaries of the district to the clerk, assessor and treasurer of the county for purposes of segregating and apportioning the tax increment7. The practitioner and developer representatives should participate in this process to confirm a logical and proper apportionment of incremental revenues, particularly in multi-phased and multi-developer plans. While each Redevelopment District established shall constitute a separate taxing entity for the purposes of the computation and levy of taxes8, there will be developments involving more than one developer or municipality interested in the totality of revenue sources generated by the project, and such conflicting interests in a cash flows stream must be carefully segregated and apportioned.

 

C:\Dist28\Articles\TIF.rtf

 

| Home  | Biography  | Legislature  | Newsletter  | Media  | Register  | Links  | Contact |

Paid for by the Committee to Elect Doug Patterson, Dave Imhoff, Treasurer