Revenue-Based Development Incentives September 2010

Brian Caputo, City of Aurora Bob Rychlicki, Kane, McKenna and Associates, Inc. Nick Greifer, Kane, McKenna and Associates, Inc.

Selection of Incentives By Type of Revenue to Be Generated  Property  Sales  Hotel  Utility  Other

Instruments to Accomplish Goals TIF SSA Business District (BD) Property Tax Abatement Sales Tax Sharing Agreement Other

Instruments SSA  SSA’s are a special taxing mechanism that can be used for services and/or physical improvements within a specific geographic area of a municipality.  Only the property owners, or tenants if pass thru is included in lease amounts, pay a proportional amount of the Special Service Area Tax.  Bonds can be issued in an SSA for public improvements.

Instruments Business District (BD) Powers:  Approve Development Proposals  Acquire, convey, manage real property  Expend funds for the Business District  Taxes Impose a retailers’ occupation tax in the Business District Impose a hotel operators’ occupation tax in the Business District.  Borrow funds for Business District Development  Issue bonds for Business District Development

Instruments Business District (BD) Powers:  Legislation Will Impact Municipal Authority  Refer to Handout

Instruments Property Tax Abatement  Any taxing district, upon a majority vote of its governing authority, may order the county clerk to abate a portion of its taxes on certain properties.  May require an Intergovernmental Agreement if more than one taxing district is involved.  Abatement for commercial/industrial can’t exceed 10 years and the aggregate amount of abated taxes for all districts can’t exceed $4 million. Only applicable to end users – no infrastructure funds.

Instruments TIF  Same revenue source as property tax abatement  But much more flexible and powerful… ….and much more complex from compliance standpoint Refer to handout for incremental property tax forecasting example

Instruments Sales Tax Rebate  Pay as you go incentive  Only paid from share of actual sales tax from development  Payable for public improvements or extraordinary costs

If Sales Tax…. Components:  Local Distributive Share  Home Rule  Non-Home Rule  Business District

Identifying Needs Public Infrastructure Public/Private Improvements Private Sector Gap

Determining Level of Subsidy Considerations/Criteria:  “True Public Need”  % Developer Contribution and Public Contribution (Leverage Ratio)  “Gap Analysis” Rate of Return Net revenue benefit Precedents

Funding Bonds  Village security  Revenue  Implications for municipality Marketable Notes Pay-as-You-Go

Case Study City of Aurora