Uses of Fees or Alternatives to Fund Transit (2008)

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22 In light of Russ I, the San Francisco Planning De- partment has made the following recommendation: Any impact fee ordinance [should] be airtight: perform plenty of studies before adopting legislation, involve the public in hearings, and write the language of the ordi- nance to stand up against class action suits. San Fran- cisco spent six years in court before it began to collect the funds. It is paramount that localities consider possible court challenges when designing an impact fee ordi- nance.176 V. ALTERNATIVES Local governments may take advantage of other al- ternative mechanisms for funding the local share of transit projects in addition to or in lieu of impact fees. The use of tax increment financing (TIF) districts and special taxing districts is discussed in this section.177 To take advantage of TIF districts and special taxing dis- tricts, a local governmental authority must enact ena- bling legislation that authorizes the creation of taxing districts and either the imposition of special taxes and assessments or the use of a portion of the general taxes. Furthermore, a resolution or ordinance must be adopted approving the creation of the specific district and, potentially, the issuance of municipal bonds on behalf of such district. Both TIF districts and special taxing districts can be used as an alternative to the general revenues of a local jurisdiction to encourage development activities by the private sector.178 A. Tax Increment Financing Currently, 49 states and the District of Columbia have adopted authorizing legislation for the creation of local TIF districts. A table that summarizes the state authorizing legislation is attached hereto as Appendix C. Direct local funding of transit improvements can be found in local redevelopment districts through the use of TIF. The underlying purpose of TIF is to revitalize commercial, industrial, or residential areas. A redevel- opment agency tool that serves to reduce the costs of development that the private sector would otherwise bear, TIF uses future gains in taxes to finance the cur- rent improvements that will create those gains through increased site value and investment that creates more taxable properties and thus tax revenue. The incre- 176 Transit Impact Development Fee: San Francisco Munici- pal Railway, San Francisco, California, in FUNDING STRATEGIES FOR PUBLIC TRANSPORTATION (Part B), at 64 (TCRP Report No. 31, 1998), available at http://onlinepubs.trb.org/onlinepubs/tcrp/tcrp_rpt_31-2-b.pdf. 177 To the extent alternatives were not strictly a subject ad- dressed in the national survey that was sent to approximately 300 transit agencies, this section on funding alternatives is not intended to be comprehensive, but simply illustrative. 178 See JOHN J. DELANEY, STANLEY D. ABRAMS & FRANK SCHNIDMAN, HANDLING THE LAND USE CASE: LAND USE LAW, PRACTICE & FORMS, pt. III, app. N1 (3d ed. 2005, Jan. 2008 supplement). Overview: Special Taxing Districts and Tax In- crement Financing Districts (Westlaw 2007 and updates). mental increased revenue from the general tax base over and above the existing tax base, may, depending upon the authorizing statute, utilize real property taxes, sales taxes, personal property taxes, or other general taxes. Since the local jurisdiction is surrender- ing, at least temporarily, the additional tax revenue generated by new development, TIF districts are gener- ally utilized only where the properties are subject to economic depression, or blight, such that new develop- ment would not ordinarily occur. The local enabling legislation that authorizes the creation of TIF districts generally authorizes a public entity, or some local authority with designated power, such as a redevelopment authority, to adopt a resolu- tion designating a defined area as a TIF district and authorizing the capturing of a portion of the general tax revenues, whether they be real property, sales, or other general taxes, to be applied towards a redevelopment or other public purpose. The enabling legislation generally provides that the base value for the real estate located within the designated TIF area for the tax year preced- ing the date of adoption of a resolution or ordinance creating a special tax incentive district will serve as the floor, with all future taxes assessed against such prop- erties above the base rate designated as the tax incre- ment to be utilized to fund the public improvements through the district.179 Two TIF methodologies have been described as the “up front” method and the “pay as you go” or “rebate” method.180 In the case of up front TIF, a developer may receive grants from a municipality to pay for a portion of or specified development costs. The municipality is- sues debt and arranges for a loan or a bond to the de- veloper, up front, either before the project begins or by the time it is substantially completed. The bond will amortize over the life of the tax increment financing district. The developer agrees to pay a minimum tax assessment per year on the overall project, whether the project is developed or not. Because this method ex- poses the municipality to development risks, the up- front method is best used when a developer’s other fi- nancing is known to be in place and collateral is avail- able to guarantee repayment. The developer is responsible for providing all up- front financing when a municipality chooses the “pay as you go” or “rebate” method. Aid comes to the developer in the form of an annual rebate of tax paid only on the new increment on parcels that are actually developed. This method is best used when the municipality wants to take a lesser role in the project, when the municipal- ity needs to lessen the impact on its constitutional debt limit, or when collateral is not available.181 179 Id. 180 See City of Maquoketa, Iowa, Economic Development, discussion of Tax Increment Financing or TIF at http://www.maquoketaia.com/econdev/econdev_tif.htm. 181 Id. Of the responses to the survey that were received, the Transit Authority of River City, Louisville, Kentucky, reported that a TIF district was considered as a funding mechanism for

23 In jurisdictions such as Illinois and Pennsylvania, which authorize impact fees for road improvements only, and Oregon and Georgia, which do not authorize impact fees for transit, municipalities have utilized tax increment financing to add local funding for transit improvements. B. Special Taxing Districts Special taxing districts (also referred to as community development authority districts, commu- nity facilities districts, or community management dis- tricts) may finance the construction of public infrastruc- ture or services by imposing special taxes on those taxpayers owning the property who directly benefit through the provision of the new infrastructure or ser- vice. To implement a special taxing district, the govern- ing body must designate, by resolution or ordinance, an area that defines the special taxing district. The ordi- nance must authorize the creation of a special fund into which the special tax revenues are to be deposited and authorize the imposition of special taxes through a de- fined methodology. To address issues of due process, equal protection, and taking without just compensation, a methodology will generally assess ad valorem prop- erty taxes on a uniform basis against all property within the district. Where a special benefit is conferred, the tax rate on properties receiving such benefit must likewise bear a uniform rate, but general classifications among property types may be recognized.182 1. Chicago, Illinois TIF has been used to fund transit improvements in Chicago, Illinois, in accordance with the County Eco- nomic Development Project Area Tax Increment Alloca- tion Act of 1991.183 In accordance with the Act, a county may by ordinance establish an economic development project area that “is suitable for siting by a commercial, manufacturing, industrial, research or transportation enterprise or facilities.”184 “Economic development pro- ject costs” are defined broadly to include, among other things, the “costs of installation or construction within an economic development project of any buildings, structures, works, streets, improvements, utilities or fixtures, whether publicly or privately owned or oper- ated.”185 TIF has been used in Chicago to fund transit in the downtown. Although the Chicago Transit Authority has the primary responsibility for train and bus service in the city, between 1990 and 2004, the city allocated $773 a 15-mi light rail transit line (LRT), but the LRT study was suspended. The city contemplated the establishment of a TIF district in Louisville for the project, with anticipated revenues of $30 million. 182 JOHN J. DELANEY, STANLEY D. ABRAMS & FRANK SCHNIDMAN, HANDLING THE LAND USE CASE: LAND USE LAW, PRACTICE & FORMS (3d ed. 2005, Jan. 2008 supplement). 183 55 ILL. COMP. STAT. § 90/1 et seq. 184 55 ILL. COMP. STAT. § 90/10(c). 185 55 ILL. COMP. STAT. § 90/10(d)(5). million for improvements to the public transportation infrastructure. The City of Chicago funded three public transportation projects with TIF revenue, all of which are located in the Loop as follows: Project Name Estimated Cost Randolph/Washington Station $13,500,000 Dearborn Subway—Lake Wells $1,200,000 Miscellaneous Transit $24,000,000 Projects—Central Loop In 2005, the City of Chicago agreed to provide $42.4 million in TIF funds specifically for expenses related to the track and tunnel connections for the development of a transit center under Block 37, also known as 108 North State Street.186 2. Pennsylvania Transit Revitalization Investment Districts In Pennsylvania, the legislature passed the Transit Revitalization Investment District Act187 in 2005, which provides municipalities, transit agencies, and develop- ers flexibility and options for planning and implement- ing transit-oriented developments (TODs). The Act al- lows a transit agency to work with a municipality to create and designate a Transit Revitalization Invest- ment District (TRID) and permits tax increment financ- ing to support TODs with the option of utilizing these tax revenues to support new transit capital investments within the TRID. The Borough of Marcus Hook, located southwest of Philadelphia, was one of the first munici- palities to receive TRID grant funds. The new funding was designed to build upon an initial TOD study com- pleted in 2003 and support a range of activities to for- mally establish the TRID, such as determining the dis- tribution of anticipated tax revenues, formulating a financial plan, preparing an agreement with Southeast- ern Pennsylvania Transportation Authority, and form- ing a TRID management authority.188 Another TRID planning study has been initiated in Rochester Borough, northwest of Pittsburgh. It will assess the opportunity for a TOD around the central bus terminal serving Beaver County residents with routes into neighboring Allegheny County and Pitts- burgh.189 186 Chicago Transit Authority (CTA) Press Releases, “CTA Reaches Agreement for Development of Block 37,” Apr. 13, 2005, available at http://www.transitchicago.com/news/archpress.wu?action=displ ayarticledetail&articleid=129385 (Last visited Apr. 1, 2008). 187 73 PA. STAT. ANN. § 850.101. 188 TRANSIT FRIENDLY DEVELOPMENT: NEWSLETTER OF TRANSIT-ORIENTED DEVELOPMENT AND LAND USE IN NEW JERSEY (NJ Transit, New Jersey), Nov. 2006, Vol. 2, No. 2, available at http://policy.rutgers.edu/vtc/tod/newsletter/vol2- num2/article_formbaseddesign.html (Last visited Apr. 1, 2008). 189 Id.