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The ABC’s of the TIF

By LVEDC Staff on August 6, 2013

John Kingsley isn’t a doctor but he plays one at LVEDC. Our vice president of economic development finance is a specialist when it comes to dollars and sense.

It’s Kingsley who is usually tasked with filling the prescription for a healthier economy.

A recent in-house interview with the nimble-minded Kingsley focused on a frequently misunderstood and always newsworthy topic – Tax Increment Financing, or TIF.

Here are the basics.

Tax Increment Financing is an economic development tool that can be used in the Commonwealth of Pennsylvania by either a redevelopment or industrial development authority to promote an eligible TIF project. Keep in mind the word “eligible” is pretty liberal when it comes to the TIF. It’s also important to understand what is not flexible.

“The one thing for certain is that TIF district – which actually provides the confines for the TIF project – has to be certified as ‘blighted’ by the local planning commission,” Kingsley says. “This is blighted in the context of the urban redevelopment law, which provides a number of classifications of what constitutes blight.”

Recognizing that urban redevelopment law is probably not on your summer beach reading list, let’s just say it has to be an “economically or undesirable land use.” Talk about flexibility.

“The concept is that you will take the taxes derived from future development and utilize all, or a portion of them, to pay down debt service on a loan that will be used to pay for certain improvements related to the project,” Kingsley notes.

The key here is to remember that the current taxes being paid on the property are the base taxes and they continue to get paid throughout the life of the TIF. What is utilized to pay debt service on the loan is only the incremental taxes or only those taxes generated from the new assessment related to the improvements that the project will actually make.

In Pennsylvania, a potential TIF generally has to pass muster with three taxing bodies to receive the stamp of approval. LVEDC helps form the TIF Committee, which features representatives of each taxing body. Committee members then hash out the merits of utilizing Tax Increment Financing to support the project.

This is not a requirement of the TIF Act, but it is an effective manner to discuss the project, Kingsley notes.

After a review by the committee, the actual TIF Plan is hatched with a very detailed description of the project, the use of TIF to support it, a fiscal impact analysis to the surrounding community, and the actual structure of the financing. Once the taxing bodies give it their respective blessing, the district is usually created and operational. The length of a TIF cannot usually exceed 20 years.

Now bear in mind what we noted above – only a redevelopment or industrial development authority has the ability to manage a TIF district and issue debt. By contract, LVEDC manages the Lehigh County Industrial Development Authority, hence the organization’s involvement.

In Northampton County, there are four TIF districts that have been created (although one is currently dormant). There is one active TIF district in Lehigh County.

The proceeds from deals actually help the community in many ways.

The Valley’s newest TIF was established for the West Hills Business Center in Weisenberg Township. There a new 980,000-square-foot facility will house the operations of NFI Industries, a global logistics company that will serve Ocean Spray in nearby Upper Macungie Township.

There are a myriad of infrastructure improvements funded by this TIF, including rebuilding a section of Route 863 in the township and the access ramps to and from Interstate 78, repairs to a functionally obsolete bridge over I-78 and the expansion and improvement of a wastewater plant.

“This is a project that really does make community improvements above and beyond those necessary to support the project,” Kingsley noted.

When asked what in his view makes an ideal TIF project, Kingsley said it’s hard to say – but he had one in mind.

“Something like Martin Tower (in Bethlehem),” he said. “Taking an existing urban project that has enormous barriers to development and trying to assist the developer with offsetting those barriers.”

Or put another way, it’s nothing that a trip to the doctor can’t cure.

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