Counties Need Security When Issuing TIFs

MACo Associate Director Barbara Zektick testified in support of Senate Bill 925, “Property Tax – Liability for Payment of Tax on Leased Property”, before the Senate Budget and Taxation Committee on March 13, 2018.

This bill allows for the attachment of tax liens in special circumstances where the government leases property for private development, and they utilize tax increment financing (TIF) bonds to finance the project or development. When businesses lease government property and perform taxable activity but fail to pay property taxes, governments have been unable to place a tax lien on the property because government property is typically non-taxable. This legislation closes that loophole.

From MACo Testimony:

For traditional transit-oriented development projects and other economic development public-private partnership development projects, a government entity will frequently make its property available under a long-term ground lease to a developer, who will build taxable development on the property. The local government creates a TIF district, pledging the new property tax revenues from the development to repay TIF bonds issued to pay for roads, water and sewer pipes, and other needed public infrastructure.

This bond is usually guaranteed by revenues from a special taxing district, created on the same property as the TIF district. However, if the county cannot establish a tax lien on the property if those new property taxes go unpaid – as is the case under current law – the TIF bond is less valuable, because it is less assured it will get repaid.

This bill closes that loophole. It ensures that in specific cases where a government owns the land and ground leases it for economic development, the county can create tax liens on the development in order to collect the property taxes owed – ensuring that the TIF bond has the value it is intended to have.

For more on this and other legislation, follow MACo’s advocacy efforts during the 2018 legislative session here.