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Public Sector Incentives

Jim M. Page, CCE, IOM President and CEO Chamber of Commerce of West Alabama. Public Sector Incentives . The Missing Piece of the Retail Development Puzzle?. Tax Increment Financing (TIF).

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Public Sector Incentives

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  1. Jim M. Page, CCE, IOM President and CEO Chamber of Commerce of West Alabama Public Sector Incentives The Missing Piece of the Retail Development Puzzle?

  2. Tax Increment Financing (TIF) Tax Increment Financing, or TIF, is a public financing method that is used for subsidizing redevelopment infrastructure and other community-improvement projects. TIF is a method to use future gains in taxes to subsidize current improvements, which are projected to create the conditions for said gains. The completion of a public project often results in an increase in the value of surrounding real estate, which generates additional tax revenue. When an increase in site value and private investment generates an increase in tax revenues, it is the "tax increment." Tax Increment Financing dedicates tax increments within a certain defined district to finance the debt that is issued to pay for the project. TIF is often designed to channel funding toward improvements in distressed, underdeveloped, or underutilized parts of a jurisdiction where development might otherwise not occur. TIF creates funding for public or private projects by borrowing against the future increase in these property-tax revenues. Source: Tax Increment Financing and Economic Development, Uses, Structures and Impact. Edited by Craig L. Johnson and Joyce Y. Man. State University of New York Press

  3. City of Huntsville, AlabamaFormed in 2000, TIF 3 was created to support new schools in the area from Research Park Boulevard west to County Line Road. Funds in TIF 3 provided $30 million to build Columbia High School and Providence Elementary School, $10 million for roads and infrastructure in the school zones, and incentivized residential and commercial development in the western corridor. TIF 3 funds have generated $58.5 million in revenue. While the TIF was formed to provide capital income to build new schools, it has provided an additional $21 million to City and County schools. The market value of all properties in TIF 3 is estimated to exceed $2 billion. Much of that value was spawned by the road and infrastructure projects made possible by the TIF. New schools brought new families and housing, business opportunities, construction projects and jobs. The building surge began with the new Target on University and included the new Kroger on Jeff Road, Redstone Gateway, major growth in Research Park, and expanded residential areas on Martin and Zierdt Roads. Source:www.huntsvilleal.gov

  4. Amendment 772 Approved by the Legislature of Alabama in 2004, Constitutional Amendment 772 allows counties and municipalities to "lend its credit to or grant public funds and things of value in aid of or to any individual, firm, corporation, or other business entity, public or private, for the purpose of promoting the economic and industrial development of the county or the municipality." Source: Code of Alabama

  5. What powers are granted under Amendment 772? The statute provides four primary vehicles for use by governing bodies in attracting business: 1) Acquisition or improvement of real property, buildings, or equipment 2) Conveyance of properties to an individual or entity for use as industrial, commercial, research, or service facilities 3) Grants of funds, things of value, or lending of credit to promote economic or industrial development 4) Issuance of obligations (such as bonds, warrants, and notes) or of indebtedness as a means of securing funds to accomplish any of the above-mentioned activities Source: Robert E.L. Gilpin Kaufman Gilpin McKenzie Thomas Weiss, PC

  6. Types of Public Sector Incentives Debt Issuance to Recruit New Business • Public Improvements: Sewer, water, roadways, etc. • Earmarking Future Tax Revenues Debt Issuance to Retain Existing Business Lending Credit to Recruit and/or Retain Business

  7. Types of Public Sector Incentives Reinvestment Using Increased Sales Tax Rate • Higher tax rate for certain area of development Sales Tax Rebates / “Success Sharing” • No upfront public funding • Immediate revenue for public entity once project is completed • Pre-determined, capped timeframe and dollar amount • Infrastructure improvement and additional construction • Job creation • Increased property value • Proactively addresses retail leakage!

  8. Final Thoughts “Offering incentives for retail growth is horrible public policy. But that is the world we live in. Other cities are trying to land these same stores and we compete against one another. I had one person tell me its just jealousy, that Prattville wants to be like Montgomery. It's not jealousy, it's survival. Half of our budget is made up of sales tax collections. For any city to prosper, it has to maintain and grow its sales tax collections.” -Jim Byard, Jr. Former Mayor of Prattville, Alabama

  9. Jim M. Page, CCE, IOM President and CEO Chamber of Commerce of West Alabama Public Sector Incentives The Missing Piece of the Retail Development Puzzle?

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