Client Alert: What Role Can Municipal Tax Increment Financing (TIF) Play in ME’s Response to COVID-19?

By: Shana Cook Mueller

Revolving Loan/Investment Funds and Grant Programs for Businesses

Municipalities are starting to search for ways to help local businesses through what will undoubtedly be a tough time through and following the COVID-19 health crisis. One of the statutorily authorized uses of TIF revenues is to fund permanent economic development revolving loan funds, investment funds and grants to promote economic development. Several municipalities have already established such programs, funded in part or entirely from TIF revenues. The loan and grant eligibility rules and awards can be determined by the municipalities themselves, so long as the borrowers and recipients are for-profit businesses. In order to use this option, a municipality would need to meet the following requirements;

1. TIF revenues must have accumulated and be available in a development program fund for an established TIF district or districts (or such TIF revenue must be expected to be generated soon), and;
2. The existing approved development program project cost list for such district or districts must include loans and grants to businesses.

To the extent a municipality has a TIF district or districts in place generating available TIF revenue, but has not identified business loans and grants in the project cost list for such district(s), the municipality could undertake a TIF amendment process to add this project to the list. An amendment requires holding a public hearing and positive vote of the legislative body. While these steps may be more difficult due to restrictions on gathering people under the Governor’s declaration of emergency, the Legislature passed emergency legislation that allows municipalities to hold remote meetings under the Freedom of Access Act. To the extent a municipality is obligated to make payments of TIF revenue pursuant to an existing credit enhancement agreement or for debt service obligations on outstanding debt, those dedicated TIF revenues would not be eligible for use to fund loan and grant programs.

Potential to Adjust TIF Revenue Capture to Alleviate General Fund Budget Pressure

To the extent a municipality anticipates significant general fund budget pressures for the coming fiscal year, and anticipates TIF revenues to be generated in one or more designated TIF districts that are not contractually obligated to be paid out pursuant to a credit enhancement agreement or bond debt service obligation, then the municipality may want to consider the following option to help temporarily alleviate some financial pressures under certain circumstances.

Under ME Revised Statutes Title 30-A, Section 5227(D), a municipality may, at any time during the term of the district and by vote of the municipal officers,

“return to the municipal or plantation general fund any tax increment revenues remaining in the project cost account… in excess of those estimated to be required to satisfy the obligations of the development project cost account…”.

The statutory language continues to state that,

“the corresponding amount of local valuation may not be included as part of the captured assessed value as specified by the municipality…”.

The ME Department of Economic and Community Development has accepted a vote of the municipal officers at budget time, or prior to commitment time, to undertake this action prospectively for the coming fiscal year, effectively reducing the captured value of a TIF district for such fiscal year. It is important to note, however, that to the extent the municipality reduces the capture, there will be no tax shift benefit. As such, to the extent the capture is reduced there will not be any future benefits associated with General Purpose Aid to Education, County Taxes and Municipal Revenue Sharing.

Please contact us with any further questions regarding the use of the municipal tax increment financing program in responding to the COVID 19 pandemic.