TAX INCREMENT FINANCING AUTHORITY

FOR RESIDENTIAL NEIGHBORHOODS

Senate Bill 69

Sponsor:  Sen. Tupac Hunter

Senate Committee:  Commerce and Tourism

House Committee:  Intergovernmental, Urban, and Regional Affairs

Complete to 5-8-07

A SUMMARY OF SENATE BILL 69 AS PASSED BY THE SENATE

The bill would create the Neighborhood Improvement Authority Act.  The act creates a new kind of tax increment financing authority that cities and villages could use to address property value deterioration in residential districts; that is, in a district where 75 percent or more of the area is zoned for residential housing. 

Generally speaking, tax increment finance authorities, or TIFAs, are authorized by statute to capture the growth in tax revenue in a designated development district for use in financing public improvement projects within the district.  Typically, they cannot capture school taxes or debt millages.

The new act would mirror the existing Downtown Development Act, which applies to business districts, and it contains similar notice and public hearing requirements.  (The act's provisions are also similar to the recently enacted Historic Neighborhood Tax Increment Finance Authority Act—Public Act 530 of 2004—which applies to historic districts.  A residential district or development area created under Senate Bill 69 could not include an area already covered by a historic neighborhood authority.)

The bill would, generally, do the following:

o                   Authorize a city or village to create one or more neighborhood improvement authorities by passing an ordinance after providing notice and holding a public hearing.  The local unit would also designate the development area boundaries by ordinance.

o                   Provide for the supervision and control of an authority by a board that included the city's or village's chief executive officer and five to nine members appointed by the chief executive, subject to the approval of the local governing body.  (The local governing body would decide the size of the authority board.)  A majority of the board would have to be individuals with an ownership or business interest in property in the development area.  At least one member would have to be a resident of the development area or of an area within one-half mile of a development area. 

o                   Allow a board to hire a director to serve as chief executive officer of the authority, subject to the approval of the city's or village's governing body.  The board could also employ other officers and personnel.

o                   Make the board subject to the Open Meetings Act and the Freedom of Information Act.

o                   Allow an authority to prepare and submit to the city or village governing body a tax increment financing plan, which would have to include a development plan for the authority's development area.  Tax increment financing plans and development plans would be subject to public hearings and affected local taxing jurisdictions would have to be notified.

o                   Protect separate millages for public libraries against capture by a TIF at the request of the local library board.

o                   Specify an authority board's powers, as described later.

o                   Provide for the financing of authority activities, including borrowing money and issuing bonds.  The authority could issue negotiable revenue bonds under the Revenue Bond Act and could, with local unit approval, issue revenue bonds or notes to finance all or part of the costs of acquiring or constructing property, as delineated in the bill.  The local unit would not be liable on such debt.

o                   Allow an authority also to authorize, issue, and sell bonds to finance a TIF plan's development program.  A city or village could make a limited tax pledge to support the authority's TIF bonds or notes with governing body approval but would need voter approval to pledge its unlimited tax full faith and credit for authority bonds or notes.

o                   Establish criteria for any development plan.

o                   Specify requirements for an authority's budget approval process.

o                   Require that a city or village dissolve an authority after it has completed its purpose, and provide that the authority's property and assets remaining after the satisfaction of its obligations would belong to the local unit.

o                   Authorize the State Tax Commission to institute proceedings to enforce the proposed act and permit the STC to promulgate rules for its administration.

Board powers.  An authority board could do any of the following:

-- Prepare an analysis of economic changes taking place in the development area.

-- Study and analyze the impact of metropolitan growth upon the development area.

-- Plan and propose the construction, renovation, repair, remodeling, rehabilitation, restoration, preservation, or reconstruction of a public facility, an existing building, or a multiple-family dwelling unit for a plan that the board believed aided in the development area's residential and economic growth.

-- Develop long-range plans, in cooperation with the city's planning agency, designed to halt the deterioration of property values and promote residential growth and economic growth in the development area and take steps to persuade property owners to implement the plans to the fullest extent possible.

-- Implement in the development area any plan of development, including low-income housing, that was necessary to achieve the purposes of the proposed act.

-- Make and enter into contracts to exercise its powers and the performance of its duties.

-- Acquire, own, convey, or otherwise dispose of, or lease land and other real or personal property necessary to achieve the purposes of the proposed act, and to grant or acquire licenses, easements, and options.

-- Improve land and construct, reconstruct, rehabilitate, restore and preserve, equip, clear, improve, maintain, repair, and operate any public facility, building (including multiple-family dwellings), and any necessary or desirable appurtenances, within the development are for a public or private use.

-- Fix, charge, and collect fees, rents, and charges for the use of any facility, building, or property it controlled and pledge the collections for the payment of revenue bonds issued under by the authority.

-- Accept from public and private sources, grants and donations of property, labor, or other things of value.

-- Acquire and construct public facilities.

("Public facility" would mean housing; a street, plaza, or pedestrian mall, and any improvements to them; park; parking facility; recreational facility; right of way; structure; waterway; bridge; lake; pond; canal; utility line or pipe; or building, including access routes designed and dedicated to public use or used by a public agency.)

FISCAL IMPACT:

Initially, this bill would increase local unit of government expenses to create a Neighborhood Improvement Tax Increment Finance Authority. However, this amount is not determinable, nor is the number of local units that would choose to create such authorities. The impact on the State of Michigan government is negligible in the short run.

In the future, this bill allows local units to use taxes arising from increased property values to pay for improvements to the residential neighborhood. These improvements, which would include housing, streets, pedestrian malls, and many other public facilities, could be financed initially through bonding, which would be repaid from the enhanced property tax revenue stream.  Although the concept of tax increment financing is well established for the development of commercial and industrial areas, the expansion of this concept to residential neighborhoods is new. Therefore, the long term fiscal impact on both local units of government and the State of Michigan government is not determinable.

                                                                                           Legislative Analyst:   Chris Couch

                                                                                                  Fiscal Analyst:   Richard Child

■ This analysis was prepared by nonpartisan House staff for use by House members in their deliberations, and does not constitute an official statement of legislative intent.