What are TIF’s? (Potential diversion of EMS’s money to support development)

In 1982 the General Assembly enacted the Real Property Tax Increment Allocation Redevelopment Act (99.800-99.865 RSMo).  Unlike tax abatement incentives, the taxes continue on the development project but get captured to pay for various costs of the project. 

1. What are TIF’s? (Potential diversion of EMS’s money to support development)

In 1982 the General Assembly enacted the Real Property Tax Increment Allocation Redevelopment Act (99.800-99.865 RSMo).  Unlike tax abatement incentives, the taxes continue on the development project but get captured to pay for various costs of the project.  

Originally this legislation captured only Payments in Lieu of Taxes (PILOTS), but later sales taxes Economic Activity Taxes (EATS) were added a 50% rate.  Both PILOTS and EATS are supposed to be only on the increases in property valuations or increased economic activity resulting from the actual Project.  Although counties can have TIF’s, my only experience has been with municipal TIF’s.

2. Who serves on TIF’s? (Appointees are made by the municipality)

The TIF Commissions are appointed and not elected, a source of concern in some quarters (see J. Goshorn 77:919 -946 Washington University Law Quarterly, “IN A TIF: WHY MISSOURI NEEDS TAX INCREMENT FINANCING REFORM”). Two appointees come from the schools, one from all other political subdivisions, and the remaining six from the Mayor/City Council.  Guess who controls the TIF Commission for purposes of its “objective” findings?

3. How long can a TIF last? (Up to 23 years)

Implementing Ordinances have to be adopted within ten years of adoption of the Plan, and the bond pay off period can be as long as 23 years.

B. SOME PROCEDURAL QUESTIONS THAT MIGHT BE A BASIS FOR CHALLENGING A TIF   

4. Must the nature of the Project be compatible with the municipality’s Comprehensive Plan? (Yes)

The Project must be compatible with the municipalities Redevelopment Plan.
This compatibility with the Comprehensive Plan requirement is in 99.810.1(2) RSMo.   The courts will examine this requirement, City of St Charles v. DeVault, 959 S.W.2d 815, 822-23 (Mo. App. E.D. 1997).  Also no Ordinance amending a Project can be adopted beyond ten years after the date of adoption of the Comprehensive Plan per 99.810(3) RSMo.  If nothing happens on the Project for the ten years, then all funds captured to date are mandated to be refunded to the taxing entities per 99.850.1 RSMo and the “Fund” is to be dissolved per 99.850.2 RSMo.

5. If there are significant changes to the TIF Project must the TIF Commission be reconvened? (Yes)

If significant changes are made to the Project, then it is a new Project and all of the procedural requirements for a TIF formation including reconvening the TIF Commission must be accomplished (see Ste. Genevieve School District v. Board of Aldermen of the City of Ste Genevieve et al., 66 S.W.3d 6, at 11-12 (Mo. en banc 2002)).  What is a phase in change or minor change to a Project versus a substantial amendment to the Project has logically been a rich source for litigation.    

6. Must the Project really be in a blighted, or conservation, or economic development area? (Yes)

Although there is some authority for multiple designations, the courts have generally ruled that it must be ONE of these designations.  Also in response to the United States Supreme Court decision in Kelo v.City of New London, 545 U.S. 469 (2005), Missouri’s legislature added to section 523.261 that blight findings must be supported by “substantial” evidence, which is more than the usual civil procedure standard of mere  preponderance of the evidence.  Also the Supreme Court of Missouri has concluded that mere speculations about goals and improvements is not a sufficient basis for finding  “blight” for purposes of condemnation proceedings (see Centene Plaza Redevelopment Corporation v. Mint Properties, (Mo en banc 2007), case # SC88487).  This case was decided under 353.020 RSMo even without having to apply the new section 523.261 statute retroactively.  I take these developments in condemnation law also as a basis for potentially challenging TIF Commission and Municipal Council findings of “blight” under 99.805(1) RSMo of the TIF statute.    

7. Is it mandatory that the 30 and 10 day published notices to the public and the 45 day advance notice by certified mail to all special taxing districts (schools, water, fire, ambulance etc.) and the Director Department of Economic Development be made? (Yes, the notices are mandatory and not just directory)

These notice requirements appear in 99.830.1, 2. & 3. RSMo. The two published notices to the public can not be greater than thirty and ten days respectively. The notice to the political subdivisions can not be less than 45 days and must be by certified mail.   The notice to Economic Development is important.  Prior approval by the Director of Economic Development is required if any of the added economic development taxes (EATS (sales taxes) are to be captured.

C. MORE QUESTIONS ON WHAT LOCAL TAXES ARE AFFECTED BY TIF’S AND HOW SPECIAL CIRCUIT BREAKER PROVISIONS FOR AMBULANCE DISTRICTS AND FIRE PROTECTION DISTRICTS SHOULD WORK

 

 

8.  Do TIF’s hit both sales taxes and property taxes? (Yes, both)

The 1982 TIF legislation originally targeted only increases in property tax revenues resulting from “The TIF Project” and these revenues went under the acronym of PILOTS.  Somewhere along the line the Statute got amended to include also up to 50% of the increases in economic activity taxes generated by the project, which go under the acronym of EATS.  Thirty seven ambulance districts, eight fire protection districts, and many of my 911 center clients have adopted some form of sales tax.  Even certain state level sales taxes can now be captured as well by TIF’s.

9. Is there any chance of getting the TIF statute declared unconstitutional as unapproved by voter taxes (Hancock Amendment theory) or as not applicable to tax enabling statutes created after the TIF Statute? (No)

There have been attempted court challenges to the TIF legislation.  One attempt argued the theory that the TIF assessments were new taxes that were not voter approved as required under Article X s 22 of the Missouri Constitution (the Hancock Amendment) (see County of Jefferson v. Quicktrip Corporation, 912 S.W.2d 487, 491 (Mo banc 1995).  Another court challenge was based on the theory that the TIF statute does or could not affect later enacted enabling tax statutes enactments (see State ex rel. Bel-Ridge, 996 S.W.2d 356 at 358 (Mo. App. E.D. 1998))  As these cited cases indicate all of these court challenges to the TIF legislation have been regrettably unsuccessful.

10. Is there not a circuit breaker for Chapter 190 and Chapter 321 entities? (Yes)  

A TIF circuit breaker for fire protection districts and ambulance districts only of up to 50 to 100% refund was put into S.B. 1107 for TIF’s formed after July 1, 2003.  Because S.B. 1107 got caught up in an Article III s 23 multiple subjects violation challenge, the legislature separately reenacted this provision into a new section 99.848 RSMo.  The effective date of 99.847 RSMo is July 1, 2003 and 99.848 RSMo which reenacted 99.847.1 RSMo out of an abundance of caution has an effective date of August 28, 2004.  Actually 99.847.1 was left untouched by the Cole County Circuit Court decision.  For any TIF created after those dates the participation of the districts should be optional with the district boards.  For districts funded only or even partially by sales taxes, the 50% of the EATS rule in 99.845.3 RSMo applies for pre 2003 created TIF’s (see discussion of the base year for TIF’s created before July 01, 2003 but where a district’s sales tax has been adopted thereafter).  

11. There is a range of degree of circuit breaker stated in 99.847 & 99.848 RSMo; who sets that range and when? (Yes, and fire and ambulance districts set the range)

Yes, there is a clear circuit breaker range in these statutes.  Also, some municipal and TIF specialist attorneys are saying we the Ambulance District or Fire Protection District set the refund rate as to 50 to 100% range and in advance of the TIF bond issue!  Although the statute is somewhat ambiguous on who sets the range of participation, for obvious reasons I prefer this interpretation of the statute over alternative interpretations.  Furthermore, it makes a great deal of sense administratively to apply the circuit breakers in advance of any TIF assessment. Than to hope that the requisite refund will be made later.

12. Sections 99.847 and 99.848 RSMo apply only to Chapter 190 & 321 entities; would Chapter 190 RSMo 911 Centers also be able to avail themselves of the TIF Circuit breaker?(Yes, any Chapter 190 or Chapter 321 RSMo entity, including 911 Centers)

Sections 99.847-1 RSMo and 99.848 RSMo apply only to Chapter 190 RSMo entities and 321 RSMo entities.  There is an axiom of statutory construction known as the expression of the specific excludes the general “unius est alterio exclusio” (see 37B Missouri Digest2d “Statutes” Key # 195, and the many cases cited therein).  Sales tax funded 911 Centers are clearly Chapter 190 RSMo entities and these two sections 99.847 and 99.848 RSMo did not specifically limit their benefits of TIF relief to ambulance districts or fire protection districts.  Therefore, it is my conclusion the sales tax funded 911 centers are entitled to the same relief as the ambulance districts and fire protection districts. (Telephone fee supported 911 centers are also Chapter 190 RSMo entities but have no PILOTS or EATS to assess).  Chapter 67 RSMo funded 911 centers are not named in these two circuit breaker statutes.  However, there are a few Chapter 321 RSMo funded communication centers, and they also would be eligible.  If the General Assembly had wanted to limit these protections to districts, it could have done so.   

13. Should sections 99.847.1 RSMo & 99.848 RSMo should be read in paria materiae with section 99.805(h) RSMo), the capital cost recovery provision? (No)

Some pro TIF development attorneys have argued the case that 99.847.1 RSMo and 99.848 RSMo should be read in paria materiae with section 99.805(h) RSMo which enables special districts to retrieve those added capital costs directly associated with and/or incurred as a result of an impact of the TIF project itself.  Their reason for reading the statutes this way is that they then claim section 99.805(h) RSMo is where the references in 99.847 RSMo and 99.848 RSMo to a 50% to 100% range actually comes from.  Therefore this interpretation would mean that the amount of “relief” would either be much smaller or non-existent.

This author can find no basis for reading the two emergency services (and 911 centers) exemption statutes (99.847 & 9.848 RSMo) in paria materiae with the capital cost impact statute.  The Plain Meaning Rule axiom of statutory construction provides that absent contrary language in a statute, the courts must follow the plain and ordinary meaning of the words themselves (see Ports Petroleum Co. Inc. of Ohio v. Nixon, 37 S.W.3d 237, 240 (Mo. Banc 2001)).  There is no cross reference in 99.847 RSMo or in 99.848 RSMo to section 99.805(h) and the words “costs” or “capital costs” do not appear any where in section 99.847 RSMo or in section 99.848 RSMo.

Second, it is useful to apply the axiom of statutory construction known as legislative intent.  Unlike the United States Constitution wherein the separation of powers principle is merely implicit, under the Missouri Constitution the separation of powers is explicit (see Art II s. 1 Mo. Const.).  Therefore, under Missouri law, the axiom that the judicial branch must give deference to the intent of the legislative branch is more than just an aid to interpreting statutory language, but is also a substantive rule of law and a constitutional mandate.  Consequently, when interpreting a statute the courts must give effect to the legislative intent (see Murray v. Missouri Highway & Transportation Commission, 37 S.W.3d 228, 233 (Mo. en banc 2001)).   Based on communications with lobbyists from ADAM (the Ambulance District Association of Missouri) and MAA (the Missouri Ambulance Association), it is clear that the intent of these two sections (99.847 & 99.848 RSMo0was to carve out an exemption to TIF’s for EMS agency’s in order to insure that that these agencies were on a sound financial footing.
 
14. Is the carved out exception for Chapter 190 and 321 RSMo entities violative of any equal protection principles? (No)

Some pro TIF development attorneys have argued that these statutes carve out an “unfair” exception implying that some sort of equal protection principle is involved.  No suspect criteria or fundamental rights are involved with these two statutes (99.847 & 99.848 RSMo).  So this differentiation for EMS agencies need meet only the rational basis test.  It was rational for the General Assembly during the post 911 era (99.847 was passed in the fall of 2002) to conclude that while they were creating new funding mechanisms for EMS agencies they would also immunize EMS agencies from the impact of TIF’s.  No doubt the General Assembly took notice of the importance of EMS agencies to the public health and safety and also did not want to dilute some of the new funding mechanisms that the General Assembly was creating.


15. For TIF’s which are subject to the circuit breaker statute, could a Board nonetheless optionally participate in the TIF? (Yes)

As previously stated, the effective date of 99.847 RSMo is July 1, 2003.  Section 99.848 RSMo which reenacted 99.847.1 RSMo out of an abundance of caution, has an effective date of August 28, 2004.  For any TIF created after those dates the participation of a District can be optional but in no event in the case of EATS exceed the 50% of the EATS rule in 99.845.3 RSMo.  The Board can always entertain entreaties for optional participation.  Such optional participation could rationally be defended on the worthiness of the Project.  Such a decision could also be based on a desire to politically not to appear obstructing local economic progress.  Additionally, there is a sound argument here that 50% of something is better than 100% of nothing if the project were in fact not to go forward as a result of the lack of any EMS entity participation in the TIF Project.  As I read the statute, the optional participation could have a tentative sunset time period on it or set lower than the 50% of the EATS statute level, or lower than the 100% of the PILOTS level.  Such partial participations are exactly what some districts have done.  Political subdivisions are like administrative agencies, not bound by their administrative precedents.  So a case by case analysis does no harm as to future options not to participate.

16. What if we are dealing with a TIF created prior to the effective dates for 99.847 & 99.848 RSMo, but the District has implemented a sales tax subsequent to the establishment of the TIF?  What is the base amount or base year for calculating the amount of increase to which the 50% assessment will be assessed against? (Use the year prior to the enactment of the TIF Ordinance)

The circuit breaker of section 99.847 and 99.848 RSMo is not available if the ordinance adopting the Project predates the effective date of both statutes.  Therefore any EATS would be subject to a 50% rule per section 99.845.3 RSMo.  

However, in such cases how do you calculate the base year amount?  Actually, there are two ways to determine the base year amount for calculation of the EATS when no sales tax existed in the year of enactment of the TIF.  One way is to assume the base amount is zero because no District sales tax existed in the base year.  This method of determining the base year would mean that the entire sales tax generated in the Project area would be subject to the 50% assessment.

A preferable way to determine the base year and its sales tax revenue is to calculate the estimated sales tax revenue in the year prior to enactment (once again see 99.845.3 RSMo) and pay only the 50% of the incremental increases resulting from the Project from that year.  Since both PILOTS and EATS are to be based on the increases in revenues resulting from the Project, I have concluded that this latter approach is the more accurate interpretation of the statute.  Section 99.845.3 RSMo clearly says the TIF is to use the calendar year prior to enactment of the Ordinance as the base year, and it is the additional economic activity from the project and NOT ALL sales revenue generated from the project area that should be subject to the 50% EATS formula in again 99.845.3 RSMo.

Conclusion: (TIF’s are bad, but EMS has options for post 07-01-03 created TIF’s)

If you have not guessed it, I am not a big advocate for TIF’s.  I understand the principle of tax incentives and abatements to stimulate economic activity, and such other mechanisms to stimulate economic activity are available to local government.   However, to divert tax funds from their originally intended purpose as approved by the voters appears to fly in the face of the State’s motto that the people are the supreme law of the land.  The voters voted to tax themselves for a particular purpose when these special districts were formed.  Now the TIF District imposes a mandatory diversion from that very purpose for a quasi-public or even quasi-private benefit.  Perhaps this TIF concept would be more palatable if the TIF Commissions were elected and not appointed.  

However, there are other conceptual problems with TIF’s as well.  They look awfully like a tax by one governmental entity on another, thereby raising an issue under the Privileges and Immunities clauses of the Constitution.  Additionally the funds go to benefit directly or indirectly one set of private entity producers over others, thereby raising issues under the Public Purpose Doctrine (Article X s 3 of the Missouri Constitution) and potential violations of the prohibition of lending of public credit to private entities under Article VI s 23 & 25 of the Missouri Constitution.  

However, for TIF’s created after July 01, 2003, we in the public sector EMS community are in an enviable situation when compared to other special districts.  Because of the special circuit breakers for Chapter 190 RSMo and Chapter 321 RSMo entities in sections 99.847 & 99.848 RSMo, any participation by these entities in TIF’s created after July 1, 2003 is Optional.  Based on the value that we are from the land of the home of the free and brave, it is always nice to have options in lieu of mandates.