As a result of our recent post on New York State’s recent changes to the statute authorizing Tax Increment Financing in the state, Chris Andreucci and Pat Malgieri were contacted by the Community Development Digest to explain the changes, and the Constitutional problems that remain notwithstanding the legislature’s actions. The Community Development Digest story appears below. While there is a small, but vocal, minority of practitioners touting TIFs, we think additional changes are necessary before this tool is more widely used in New York. In the meantime, PILOT Increment Financing is still a legally viable option for certain transactions and should be explored as an alternative to TIFs. – The Editorial Team
NY State Expands Tax Increment Financing Use
By Thomas Harman
Community Development Digest
New York municipalities and developers will have more leeway to use Tax Increment Financing (TIF) for development, but the new provisions passed in the state budget could present problems. TIFs have been available since 1984 to finance development projects by using increases in municipal, town, village or township property tax revenue. The legislature’s new budget law allows school districts to participate, because they tend to generate considerably more property tax revenue than the other eligible entities.
Christopher Andreucci and Patrick Malgieri, law partners at Harris Beach in Rochester, tell Community Development Digest that constitutional issues with existing law and the lack of revenue generated by eligible entities have kept TIF use in New York at a minimum. While making school districts TIF-eligible may solve some of the financial problems, Malgieri says the authority conflicts with the state constitution, which explicitly allows only municipalities to reallocate tax revenue for TIF projects.
Another legal issue arises over the outcome when a municipality cannot make the bond payments. Andreucci says. Those holding General Obligation bonds have the right to sue for future revenue, but the new law allows TIF bondholders to have first lien on incremental revenues generated from increased property values. Andreucci says this creates confusion about whether to attempt TIFs.
Andreucci and Malgieri say Payment In Lieu of Taxes (PILOT) Increment Financing (PIF) can serve as a potential alternative to avoid TIF legal issues and provide more security in financial markets because payments are at fixed levels.