The Importance of Tax Increment Financing and DDAs
About DDAs and TIF - Excerpts from the MEDC and the Michigan Downtown Association
Why Michigan Needs DDAs and TIF
After 40 years of hard work, and tens of millions dollars of investment, downtowns are making a come back across the state. This would have never happened if it were not for the diligent downtown management and ongoing programs of the Downtown Development Authorities (DDAs).
While downtowns are on the rise in popularity, our work is never done in ensuring the long-term prosperity of our historic downtowns and shopping districts as market conditions evolve.
Since 1975, the State of Michigan has enabled DDAs to utilize Tax Increment Financing (TIF) in downtowns large and small to invest in infrastructure improvements, redevelopment of blighted areas, job creation, and for events and promotions that make downtowns relevant, exciting and key reason why people choose to live in a community.
Who is Eligible to Establish a DDA?
Any city, village or township, that has an area in the downtown zoned and used principally for business, is eligible to create an authority.
How Does It Work?
Once established, the DDA is required to prepare a tax increment financing plan and may create a development plan to submit for approval to the local municipality. A development plan describes the costs, location and resources for the implementation of the public improvements that are projected to take place in the DDA district. A tax increment financing plan includes the development plan and details the tax increment procedure, the amount of bonded indebtedness to be incurred, and the duration of the program.
Why Would A Community Want to Establish a DDA?
The DDA tax increment financing mechanism allows for the capture of the incremental growth of local property taxes over a period of time to fund downtown development activities. A community can capture future tax increment and additional millage, and focus their investment in targeted areas. By borrowing against the future tax increments, the DDA is able to fund large-scale projects, which can lead to new development opportunities within the downtown. In addition to the financing mechanism, the DDA structure results in the creation of a public board dedicated solely to the improvement of the downtown.
What is TIF?
Tax Increment Financing or TIF, is the annual capture of the year-to-year growth in property values in a defined district. One of the purposes for creating a DDA is to permit a municipality to finance public improvements for supporting economic development in a designated area by capturing the property taxes levied on any increase in property value within the area. Provisions in Act 57 of 2018 allow the governing body of a taxing jurisdiction whose taxes would otherwise be subject to capture to exempted its taxes from capture by adopting a resolution to that effect. The Act also allows DDAs to enter into agreements with taxing jurisdictions and the municipality establishing the authority to share a portion of the captured assessed value of the district. The power of TIF is that it allows municipalities to direct funds to engage in specific, critical economic development activities without raising local property taxes. DDAs that use TIF are self-sustaining because, as a DDA invests is the district, property values increase above the "baseline." As property values increase, the DDA captures more funding and is able to do more projects.
What is a DDA?
Downtown Development Authorities (DDAs) are downtown management organizations that rely on TIF dollars for their operation. Most DDAs in Michigan started in the late 1970s and 1980s following PA 197 (now PA 57). DDAs were created to solve a "market failure", which was the decline of downtowns across the state that began after World War II due to suburban sprawl and residents patronizing newly developed malls and shopping centers instead of their downtowns. Stores closed, building became chronically vacant, and many became dilapidated. By the early 1970's in some cased, entire downtowns were vacant or abandoned.
DDAs were designed to counter this trend by investing dollars and management expertise in this districts. City planners and downtown managers began rebuilding public areas and investing in projects designed to bring people back to the downtowns.
What DDAs Do
DDAs comprehensive manage downtowns to maximize the local economy. In cities, townships and villages; large and small, DDAs help fund significant projects and on-going economic programming to improve the quality of life to retain residents, attract talent and private reinvestment, including:
- Infrastructure improvements to streets, sidewalks, lighting, sewer, and water
- Design of public gathering and park space
- Revitalization of vacant and underutilized properties
- Rehabilitation of historic buildings, assets, and facades
- Mixed-use and middle-housing infill developments
- Business recruitment and rention programs
- Safety, security and maintenance programs
- Marketing, special events and promotions
DDAs stimulated $15 of private sector investment for every $1 DDAs invest in downtown.
What Is The Process to Establish a DDA?
1. The governing body finds that it is necessary for the best interests of the public to do the following related to the defined business district:
• To halt property value deterioration
• Increase property tax valuation
• Eliminate the causes of deterioration
• Promote economic growth
• Create and provide for the operation of the DDA
2. The governing body sets a public hearing, based upon its resolution of intent, to create a DDA.
3. Notice is given of a public hearing by publication and mail to taxpayers within a proposed district and to the governing body of each taxing jurisdiction levying taxes that would be subject to capture of tax increment revenues.
4. The governing body takes comments at the public hearing.
5.Within 60 days, the governing body of another taxing jurisdiction may, by resolution, exempt its taxes from capture and file the resolution with the clerk of the municipality.
6. Not less than 60 days following the hearing, the governing body may adopt proposed ordinance creating the DDA and designating the boundaries of the DDA district.
7. The ordinance must be published at least once in a local newspaper and filed with the Secretary of State.
8. The governing board of the DDA shall be appointed or may, for municipalities of less than 5,000, be the same as the planning commission. Otherwise the authority will be supervised by a board that includes the municipality’s chief executive officer and 8–12 members appointed by the governing body. A majority of the board must be individuals with an ownership or business interest in property in the district and one member must reside in the district if there are more than 100 residents in the district.
If the DDA board anticipates the need for capturing tax increments or using revenue bonds to support a project, a development plan and a tax increment financing plan must also be adopted by the DDA board and the municipality.