Tax increment financing is one of several development incentives available in municipalities throughout the United States. Tax increment financing allows future real property taxes and other taxes generated by new development to pay for the costs of construction of public infrastructure and other improvements required to make the project possible.

The purpose of tax increment financing is to encourage development of blighted, substandard and economically under-utilized areas which would not be developed without public assistance. By passage of the Real Property Tax Increment Allocation Redevelopment Act, Sections 99.800 to 99.865, RSMo (the "TIF Act"), the Missouri General Assembly authorized Missouri municipalities to implement tax increment financing.

For purposes of the TIF Act, "municipality" is defined as any city, village, incorporated town or county of Missouri that has been established for a least one year prior to December 23, 1997. §99.810(7), RSMo.

1. Number of Members

   Prior to implementing tax increment financing under the TIF Act, the municipality is required to create a commission ("TIF Commission") of nine, eleven, or twelve persons, depending on the type of municipality. §99.820.2, RSMo.

   Nine Person - For a municipality which is:

   1. a city not located within a county (City of St. Louis); or
   2. a county which is not a first class county with a charter form of government with population in excess of 900,000 (all counties other that St. Louis County).

   Eleven Person - For a municipality which is:

   1. a city, village or incorporated town which is not located in a first class county with a charter form of government with a population of excess of 900,000 (cities, villages and towns that are not located in St. Louis Count).

   Twelve Persons - For a municipality which is:

   1. A first class county with a charter form of government and a population in excess of 900,000 (St. Louis County); or
   2. A city, village or incorporated town located in such county (cities, villages and town within St. Louis County).

2. Appointment of Members

   For all commissions, six members are appointed by the chief elected official of the municipality with the consent of its governing body, §99.820.2(3), RSMo; and two members are appointed by the affected school districts, §99.820.2(1), RSMo. For nine member commissions the remaining member is appointed jointly by all other affected taxing districts, §99.820.2(2), RSMo. For eleven member commissions, two members are appointed by the chief elected official of the affected county with consent of the county's governing body, §99.820.2(2), RSMo. For twelve member commissions, three members are appointed by the municipalities located within the county (St. Louis County0, §99.820.2(5), RSMo; and the remaining member is appointed jointly by all other affected taxing districts, §99.820.2(2), RSMo. The Act does not address how the remaining three members are selected if the municipality is a municipality within St. Louis County.

3. TERMS

   The six members appointed by the chief elected official serve a four-year term. At the option of the members appointed by the municipality, the other members will serve either:

   1. until final approval of the redevelopment plan, redevelopment project or redevelopment area by the municipality; or
   2. a definite term.

   The TIF Act does not specify the period of such definite term. §99.820(6), RSMo.

There are two statutory thresholds under the TIF Act which must be met to obtain tax increment financing. First, the redevelopment area on the whole must be either a "blighted area", "conservation area" or "economic development area" as defined in the TIF Act. The proposed redevelopment project must meet the "but for" test: but for tax increment financing the redevelopment area probably would not be developed. §99.810(1), RSMo.

1. Eligible Areas.

   Prior to the adoption of a redevelopment plan the municipality must find that the redevelopment area meets the definitional criteria of a blighted area, conservation area or economic development area. §99.810(1), RSMo.

   1. Blighted Area. A blighted area is: an area which, by reason of the predominance of defective or inadequate street layout, unsanitary or unsafe conditions, deterioration of site improvements, improper subdivision or obsolete platting, or the existence of conditions which endanger life or property by fire and other causes, or any combination of such factors, retards the provision of housing accommodations or constitutes an economic or social liability or a menace to the public health, safety, morals, or welfare in its present condition and use. §99.805(1), RSMo.

   2. Conservation Area. A conservation area is: any improved area within the boundaries of a redevelopment area located within the territorial limits of a municipality in which fifty percent or more of the structures in the are have an age of thirty-five years or more. Such an area is not yet a blighted area but is detrimental to he public health, safety, morals, or welfare and may become a blighted area because of any one or more of the following factors: Dilapidation; obsolescence; deterioration; illegal use of individual structures; presence of structures below minimum code standards; abandonment; excessive vacancies; overcrowding of structures and community facilities; lack of ventilation, light or sanitary facilities; inadequate utilities; excessive land coverage; deleterious land use or layout; depreciation of physical maintenance; and lack of community planning. A conservation area must meet at least three of the foregoing factors for projects approved on or after December 23, 1997, §99.805(3), RSMo.

   3. Economic Development Area.

   An economic development area is: any area or portion of an area located within the territorial limits of a municipality, which does not meet the requirements of a blighted area or a conservation area and in which the governing body of the municipality finds that redevelopment will not be solely used for development of commercial businesses which unfairly compete in the local economy and is in the public interest because it will:

   1. Discourage commerce, industry or manufacturing form moving their operations to another state;
   2. Result in increased employment in the municipality ; or
   3. Result in preservation or enhancement of the tax base of the municipality.
   §99.805(5), RSMo.

   NOTE: Enterprise Zones. As defined in the TIF Act a redevelopment area includes an area for which the municipality has found conditions that classify the area as a blighted area, a conservation area, an economic development area or an enterprise zone, §99.805(11), RSMo. An enterprise zone, however, must also be a blighted area, conservation area or an economic development area because Section 99.810(1), RSMo specifically provides that prior to adopting a redevelopment plan the municipality must find that the redevelopment area is either a blighted, conservation or economic development area.

   The redevelopment area must include only those parcels of real property directly and substantially benefited by the proposed redevelopment project, §99.805(11), RSMo.

2. "But For" Test.

   Prior to the adoption of a redevelopment plan the municipality must find that:

   [t]he redevelopment area on the whole---has not been subject to growth and development through investment by private enterprise and would not reasonably be anticipated to be developed without the adoption of tax increment financing, §99.810(1), RSMo.

   Other Required Findings.

   Prior to the adoption of a redevelopment plan the municipality must also find that:

   1. the redevelopment plan conforms with the general development plans of the municipality, §99.810(2), RSMo;
   2. dates for the completion of the redevelopment projects and the retirement of obligations to be issued by the municipality have been stated and such dates are within 23 years from the adoption of the ordinance approving the applicable redevelopment project, §99.810,(3), RSMo;
   3. a relocation assistance plan has been developed for businesses and residences in the redevelopment area, §99.810(4), RSMo;
   4. a cost-benefit analysis has been completed which shows the economic impact of the redevelopment plan on each taxing district which is at least partially within the boundaries of the redevelopment area, §99.810(5), RSMo;
   5. the redevelopment plan does not include the initial development or redevelopment of a gambling establishment, §99.810(6), RSMo. And
   6. the commission shall report, by the last day of February each year, to the director of economic development the name, address, phone number and primary line of business of any business which relocates to the redevelopment area, §99.810(7) RSMo.

   Developer Affidavit.

   The developer must submit with the redevelopment plan an affidavit attesting that the redevelopment area on the whole is either a blighted area, conservation area or economic development area and meets the "but for" test, §99.810(1), RSMo.

Once a proposal for the designation of a redevelopment area or the adoption of a redevelopment plan or redevelopment project is submitted to the municipality, the TIF Commission must hold a public hearing to hear any objections, comments or evidence of any interested person or affected taxing district related to the proposal, §99.825.1, RSMo.

Certain notice requirements set forth in Section 99.830, RSMo, must be met prior to the public hearing. The TIF Commission must vote on the redevelopment plan, redevelopment project or redevelopment area within 30 days after the hearing and must make recommendations to the municipality within 90 days after the hearing, §99.820.3, RSMo. An ordinance may be introduced to the governing body within 14 to 90 days after the public hearing to approve the redevelopment plan, redevelopment project or redevelopment area, §99.820.1(1), RSMo.

Prior to the implementation of tax increment financing the following actions must be taken in the following order or simultaneously:

1. the redevelopment area must be designated by finding that the area is a blighted, conservation or economic development area:
2. the redevelopment plan must be adopted: and
3. one or more redevelopment projects must be adopted and the redevelopment area for each redevelopment project must be designated, §99.820.1(1), RSMo. The redevelopment project area designated for a redevelopment project must include only those parcels of real property directly and substantially benefited by the proposed redevelopment project improvements, §99.820.1(1), RSMo.

At the time a redevelopment project is approved the municipality may adopt tax increment financing for the redevelopment project area selected for that redevelopment project by passing an ordinance (the "TIF Ordinance"), §99.845.1, RSMo.

The requirements to be met and procedures to be followed to change a redevelopment plan, redevelopment project or redevelopment area depends on the type and timing of the change as follows:

1. Prior to the conclusion of the public hearing changes may be made provided that notice of such changes is given to each affected taxing district at least 7 days prior to the conclusion of the public hearing.
2. After the conclusion of the public hearing but before the adoption of an ordinance approving the redevelopment plan, redevelopment project or redevelopment area, changes may be made without an additional public hearing provided that :
   1. the changes do not:
      1. enlarge the exterior boundaries of the redevelopment area:
      2. substantially affect the general land uses established in the redevelopment plan, or
      3. substantially change the nature of the redevelopment projects.
   2. notice of such changes are given by mail to each affected taxing district and by publication not less than 10 days prior to the adoption of the changes by ordinance.
3. After the adoption of the ordinance approving the redevelopment plan, redevelopment project or redevelopment area, the TIF Commission must hold a public hearing on changes if such changes either:
   1. alter the exterior boundaries;
   2. affect the general land uses established pursuant to the redevelopment plan; or
   3. change the nature of the redevelopment project.
   §99.925.1, RSMo.

Each redevelopment plan must set forth in writing a general description of the program to be undertaken to accomplish the objectives of the redevelopment plan and shall include, but need not be limited to:

1. The estimated redevelopment project costs:
2. The anticipated sources of funds to pay the redevelopment project costs;
3. Evidence of the commitments of finance the redevelopment project costs:
4. The anticipated type and term of sources of funds to pay redevelopment project costs:
5. The anticipated type and term of obligations to be issued;
6. The most recent equalized assessed valuation of the real property within the redevelopment area which is to be subject to PILOTs and EATs (defined below);
7. An estimate as to the equalized assessed valuation of the real property within the redevelopment area after redevelopment; and
8. The general land uses to be applied in the redevelopment area.

The redevelopment plan should also include a statement as to the estimated dates for the completion of each redevelopment project and the retirement of obligations incurred to finance redevelopment costs, §99.810(3), RSMo.

1. Payments in Lieu of Taxes (PILOTS)

   Immediately after the municipality adopts the TIF Ordinance providing for tax increment financing for a redevelopment project area under the Act, the county assessor must determine the amount of the "total equalized assessed value" of all taxable real property within the redevelopment project area selected for the redevelopment project. This is done by adding together the "most recently ascertained equalized assessed value" of all real property within the redevelopment project area. The county assessor is required to certify such amount as the "total initial equalized assessed value" (the "Initial Assessed Value") of the taxable real property in the redevelopment project area. See §99.855.1, RSMo.

   In each year after the effective date of the TIF Ordinance, the taxes and payments in lieu of taxes ("PIOLTS") upon the taxable real property in the redevelopment project area are divided as follows:

   1. The taxes generated by the Initial Assessed Value of the real property in the redevelopment project area are distributed to the affected taxing districts as if tax increment financing had not been adopted. See §99.845.1(1), RSMo.
   2. As development occurs within the redevelopment project area, the assessed value will increase above the Initial Assessed Value. "Taxes" which are attributed to this increase in value are paid into the special allocation fund ("SAF") and are referred to as PILOTs. See §99.845.1(2), RSMo.

      Note on Taxes Excluded from PILOTS: Levies resulting from the blind pension fund tax or the merchant's and manufacturer's inventory replacement tax are not PILOTs, except in cases in which tax increment financing is adopted pursuant to a redevelopment plan approved after April 1, 1990 and before January 1, 1998, §99.845.1(3), RSMo.

2. Economic Activity Taxes

   In addition to the PILOTs, fifty percent (50%) of the increase in the economic activity taxes ("EATS") generated in the redevelopment project area, over the amount of the EATs generated in the calendar year prior to the adoption of the redevelopment project, are to be paid to a separate segregated account within the SAF. The EATs are those taxes which are generated by the economic activities within the redevelopment project area excluding personal property taxes, hotel/motel taxes, the Bi-State Cultural tax, taxes levied for public transportation pursuant to §70.500, RSMo, licenses, fees, and special assessments, §99.845.3, RSMo.

   NOTE: The TIF Act definition of "economic activity taxes" indicates that EATs are calculated based on the redevelopment area instead of on the redevelopment project area, §99.805(4), RSMo. The provision which actually authorizes EATs to be captured and paid to the SAF provides that EATs are to be calculated based on the redevelopment project area, §99.845.3, RSMo.

3. New State Revenues

   Up to fifty-percent (50%) of estimated new state revenues may also be available for deposit in the SAF under certain circumstances, §99.845.4, RSMo. "New state revenues" is defined as either:

   1. The incremental increase in the general revenue portion of state sales tax revenues, but excluding sales taxes that are constitutionally dedicated taxes deposited in the school district trust fund, sales and use taxes on motor vehicles, and future sales taxes earmarked by law, §99.848.8(1), RSMo; or
   2. State income tax withheld on behalf of new employees at a business located within the project, §99.845.8(2), RSMo; and
   3. New state revenues are to be returned to the Missouri Department of Economic Development for credit to the general revenue fund, §99.835.l, RSMo.

   These new state revenues are available only to blighted areas located in enterprise zones, federal empowerment zones, central business districts, or urban core areas, §99.845.9, RSMo. In addition, in order to be eligible, the area must:

   1. contain at least one building which is at least fifty (50) years old, and
   2. experience a general decline in population or property taxes during the 20-year period prior to the designation of the project area, §99.845.9, RSMo.

The PILOTs, EATs and new state revenues paid to the SAF may be used to pay for the redevelopment project costs or any obligations issued by the municipality to pay for the redevelopment project costs, §99.845.1(2), RSMo. Section 99.835.1, RSMo, authorizes the municipality to issue obligations to pay for the redevelopment project costs and to pledge the funds in the SAF to retire the obligations. If the SAF is used as collateral for the obligations issued, the obligations may be amortized for up to 23 years.

After all redevelopment project costs are paid and obligations retired, any surplus funds remaining in the SAF are distributed as follows:

1. Surplus PILOTs are paid to taxing districts within the redevelopment area which impose real property taxes in proportion to the current collections of revenue which each taxing district receives from real property in the redevelopment area, §99.820.1(12)(a), RSMo; and
2. Surplus EATs are to be paid to taxing districts in the redevelopment area which impose EATs in proportion to the amount of such EATs which each taxing district would have received from the redevelopment area had tax increment financing not been adopted, §99.820.1(12)(B), RSMo.

Tax increment financing is a powerful incentive which municipalities can use to attract developers for the development of property in Missouri. It can also be extremely beneficial to the municipalities because it encourages redevelopment which will create jobs and increase the tax bas in an area that would otherwise remain undeveloped.