Creates tax increment financing program

Summary of provisions

The bill adds a new Article 21-A to the Private Housing Finance Law to authorize any city, town, or village to utilize tax increment financing as a method of financing the construction or rehabilitation of residential housing for low and moderate income persons and families. Specifically, the bill authorizes the governing body of any municipality to adopt a project plan using tax increment financing for: the development of a tax increment area through the construction or rehabilitation of residential or commercial dwellings; or the installation or upgrading of water and sewer lines to a public connection, the installation or upgrading of private wells and sanitary systems, storm sewers and road and sidewalk construction, and the installation of gas and electric lines or other site improvements which are necessary for the development or rehabilitation of residential or commercial dwellings.

Any project would not qualify under this article if the fair market value of the planned improvements which are constructed or rehabilitated for commercial uses consists of more than one-third of the total fair market value of the improvements which are constructed or rehabilitated for commercial uses consists of more than one-third of the total fair market value of the planned improvements which are constructed or rehabilitated for commercial uses consists of more than one-third of the total fair market value of the planned improvements in the project plan. The bill defines "residential dwellings" as housing for persons for whom there are no other reasonable and affordable home ownership, rehabilitation, or rental alternatives in the private market and who will occupy a dwelling assisted under the bill's provisions as their principal place of residence.

The bill further defines "tax increment" as the tax levied on the real and personal property situated in a tax increment area to the extent that the tax is attributable to an excess of the aggregate taxable valuation of the property over its aggregate taxable valuation as of the base date. The latter term refers to the last assessment date next preceding the adoption of the project plan by the municipality. A tax increment area or a project area may consist of one or more parcels of land, whether or not contiguous, which is designated as a single unit for purposes of assessment. The aggregate taxable valuation of

the property within all tax increment areas within a municipality could not exceed 25% of the taxable valuation of all property subject to taxation within the municipality.

Any project plan adopted by a municipality must indicate an estimate of project costs and the amounts and sources of funds to be used to defray those costs. The plan must include provisions for tax increment financing of the project costs in whole or in part and with respect to these provisions must disclose the estimated amount of indebtedness to be incurred, the tax increment which will be generated, and the method of calculating the tax increment. The bill authorizes the municipality to utilize funds from any source, including the issuance of bonds and notes, in order to implement the project plan. The plan must also indicate the location and boundaries of the tax increment area and any land acquisition, construction, rehabilitation, or demolition which is necessary for the implementation of the plan.

In adopting a project plan, the governing body of a municipality must find, with respect to that portion of the plan providing for the development of residential housing, that there exists within the municipality a lack of affordable housing within the private market and that with respect to any portion of the project providing public facilities or infrastructure improvements that they are needed in connection with the development of residential housing.

The bill also authorizes every municipality to undertake projects pursuant to adopted project plans and to acquire certain powers including the ability to incur indebtedness and to pledge tax increments for bond repayment. Additional powers include the authority to: receive loans or grants from any source; to defray project costs; to purchase or acquire property within a project area; to contract for the construction, development, or rehabilitation of residential or commercial dwellings; to undertake authorized public improvements; to sell, mortgage, or lease any property acquired by the municipality; to loan the proceeds of any issue of bonds or notes to a private enterprise to undertake the construction or rehabilitation of any project; and to invest project revenues as authorized.

The bill further authorizes any city, town, or village to borrow money through the issuance of special obligation bonds for the purpose of carrying out a project. Any special obligation bonds which are issued would have to be payable solely from project revenues and would not be deemed to be a pledge of faith and credit of the municipality. Any bonds issued may provide for annual or more frequent installments of principal in equal, diminishing, or increasing amounts with the first installment of principal due at any time within five years from the date of bond issuance. In addition, any bonds could be secured by one or more trust agreements between the municipality and a corporate trustee. Any trust agreement could pledge, project, or assign revenues and could contain provisions for protecting and enforcing the rights of the bondholders.

The bill also provides that in anticipation of the issuance of bonds, the municipal officers authorized to sell the bonds could issue tempo- rary notes without obtaining further authorization. The notes would be

payable within three years; however, the principal of and interest on notes issued for a shorter period could be refunded by the issue of other notes.

The governing body of any city, town, or village which has authorized the issuance of bonds pursuant to the provisions of the bill must establish and maintain a special fund entitled the "tax increment bond fund". The uses of the fund may include: receiving the proceeds of bonds and notes and any other moneys which may be available for the project; paying project costs and expenses; paying the principal of and interest on bonds and notes; and paying additional tax increment revenue, if any, to the municipality where the tax increment area is located, provided that no less than 20% of this revenue is allocated by the municipality to the development of low and moderate income housing.

The bill further designates in which obligations a municipality could invest bond and note proceeds and also outlines the remedies of bondholders and noteholders. The bill further designates any bonds and notes issued pursuant to the provisions of the bill as legal instruments in which all public officers and fiduciaries may invest funds. In addition, it provides that the bonds and notes would be at all times be free from taxation within the state. Each tax increment area would remain in existence until all bonded obligations for a project in the area cease to be outstanding except that the tax increment area could be terminated if sufficient moneys have been deposited in the tax increment bond fund for the full payment of the principal of and interest on the bonds at maturity. Upon repayment the tax increment area would be dissolved. The bill also requires every municipality in which a project plan is in effect to make a report to the Commissioner of the Division of Housing and Community Renewal concerning the activities financed by tax increment financing and the taxable valuation of the property within the tax increment area, and the amount used or set aside for the purposes of the plan.

Finally, the Division of Housing and Community Renewal is authorized to provide technical services and assistance to municipalities with regard to site selection, financial packaging, and engineering and architectural services necessary for the preparation of project plans.

Existing law

The bill adds a new Article 21-A to the Private Housing Finance Law.

Justification

Tax increment financing represents a method of local public finance which captures the expected gains or increments in property tax revenues generated by new housing development to fund the construction or rehabilitation of that housing or the public improvements required by that development. It is based upon a belief that new development creates higher property tax values in the developed area and, thus, collections from that area. To the extent that a community attaches a high priority to the development of affordable housing, the use of tax increment financing represents an

acceptable method of reducing the housing costs imposed on developers and home buyers.

To initiate a tax increment financing program, the bill provides that the municipality establish a base line for the proposed project area's current tax base. Thus, the tax base for the development is frozen at the base line. The revenues above the frozen base line which accrue from the new development represent the tax increments collected by the municipality and, when bonds are utilized to finance residential housing and any necessary infrastructure improvements, are legally dedicated to debt service. One can consider tax increment bonds as a self-supporting financing mechanism, since ultimate security is provided by the tax base growth they encourage rather than drawing on the existing tax base. Currently, at least 15 states have enacted tax increment financing statutes, including California whose municipalities have been the largest issuers of tax increment bonds in the nation.

Legislative history

2009-2010: S.3414/A.5863 Referred to Housing, Construction and Community Development 2007-2008: S.369/A.7075 Referred to Housing, Construction and Community Development 2006: S.6233 Referred to Housing, Construction and Community Development 2005: A.5699/S.6233 Referred to Housing 2003-2004: A.4512 Referred to Housing

Fiscal implications

None to the State; however, the bill does authorize municipalities to issue special obligation bonds.

Effective date

This act shall take effect on the one hundred eightieth day after it shall have become a law.