EPURA and Tax Increment Financing (TIF)

What is Tax Increment Financing or TIF?

TIF Chart

How does Property Tax TIF work?

How does Sales Tax TIF work?

What is Tax Increment Financing?

Tax Increment Financing (TIF) is a unique tool, allowed by state law, for communities to capture a portion of property and/or sales tax from a designated area so that the money can be reinvested in that area by an urban renewal authority (URA).  This ensures that the dollars spent in this area will be used to improve development and infrastructure for the benefit of the public. TIF is not an additional tax, rather, it is the difference or increment of tax received in the defined area from the day the URA is approved to the day it ends 25 years later.  The TIF is split between the URA and other taxing entities.

TIF has been in effect in the United States for approximately 50 years. Every state except Arizona uses some form of TIF to help municipalities and other public bodies finance redevelopment. TIF was authorized and created by the legislature in Colorado in 1975 and approved by the Colorado Supreme Court in 1980. URAs, such as EPURA, are authorized to use TIF, which can involve real property taxes and municipal sales taxes, if an agreement is made with the municipality.

All the revenue generated by the redevelopment within an urban renewal district reverts to the normal taxing entities when the urban renewal district sunsets at the close of 25 years.

How does Property Tax TIF work?

How property tax TIF works is illustrated by the TIF chart below. The county divides and allocates the property tax assessment roll and property tax revenues so that public bodies levying property taxes in the Plan area continue to receive the amount of tax revenues they received prior to the adoption of the Plan based on the existing assessment roll at the time the Plan is approved. This is the Base Assessed Valuation shown on the TIF chart. After the Plan is approved, revenue resulting from the levy by such taxing bodies against any increase in assessed value from new taxable construction in the Plan area is allocated and paid directly to a special EPURA fund created by statute to pay costs of carrying out the Plan for a period of 25 years.  The TIF Assessed Valuation is shown in green on the TIF chart.

The statute provides that upon a general reassessment of property, the assessment roll is adjusted proportionately every two years between the Base Assessed Valuation and the TIF Assessed Valuation so that any increases in assessed value that do not result from new taxable construction after the Plan is approved are shared by EPURA and the taxing bodies. This means the Base Value is not “frozen” for 25 years, but increases over time as illustrated on the attached TIF chart.

The Base Value for the existing EPURA area was $5,282,430 in 1982 and increased to $24,470,257 by 2007 - an increase of $19.2 million or 363%.

The legislature has directed that the portion of the property tax assessment roll dedicated to TIF Value and the revenue it produces belong to EPURA and never becomes the property of the taxing bodies any more than the revenue collected by a county treasurer for distribution to one taxing body can be said to be the property of any another taxing body. As a matter of law, TIF does not deprive a taxing body of any property tax revenue to which it is entitled. EPURA is expressly prohibited from levying any tax whatsoever, and cannot force any taxing body to levy taxes for any purpose.

How does Sales Tax TIF work?

The statute also authorizes cities and towns to commit all or any portion of municipal sales tax TIF to help finance urban renewal activities authorized by the law.  EPURA had the advantage of sale tax TIF in its first 25 years, although the amount diminished over time through four different cooperation agreements.  The Town Board and EPURA have yet to formulate a new cooperation agreement, which may or may not allocate sales tax TIF in EPURA’s second 25 years.