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Evaluating the TIF impacts of delayed or reduced property tax payments

As a result of the COVID-19 pandemic, several states have delayed their property tax installment payment deadlines, or waived penalties for late payments. These actions, while beneficial to the taxpayers, can create unique challenges for local governments, in particular those that utilize property tax-based tax increment financing (TIF) to secure debt issues.

If your state has altered its property tax payment deadline and your community has tax increment-secured debt or other obligations, then it is essential to evaluate the potential impacts of property tax collection delays on your community’s ability to pay on those outstanding obligations. The following are important steps to take to ensure you capture all the information needed to assess the sensitivity of your TIF areas:

1. Summarize key statistics for your TIF-secured debt and other obligations, including:

  • Upcoming payment dates
  • Upcoming payment amounts
  • Security on the obligations (e.g., Are they payable from TIF only, or are other revenues pledged as well?)
  • Reserve features and disclosure requirements related to their utilization
  • Covenants addressing revenue coverage requirements, or late- or non-payment of interest/principal

2. Estimate tax increment revenues based on current information for the upcoming year

3. Utilize parcel-level information to assess the makeup of each TIF area

  • Analyze the TIF parcels to determine those taxpayers that are driving your captured assessed value. The analysis of your major taxpayers should include: a) evaluating the likelihood of property tax payment delays; b) gauging the possibility of taxpayers ceasing business operations (through public knowledge or direct conversations); and c) if personal property taxes are involved, assessing the risk of equipment being retired on an accelerated timeline or declared obsolete due to economic conditions
  • If developments are currently under construction, determine whether or not construction is continuing, and if construction has stopped, determine if the stoppage is temporary or permanent
  • Assessment appeals can have a significant impact on TIF areas and your general government operations. Maintain communication with the applicable assessing officials to determine the impacts of COVID-19 on assessment appeal filings

Using the information gained from following the above steps:

  • Compare estimated revenues, broken down by estimated distribution dates, to upcoming payments on outstanding obligations
  • Determine the amount of revenue reductions that can be absorbed without jeopardizing the ability to make payments on obligations
  • Determine the impact of known or likely taxpayer payment delays on revenue coverage levels
  • Identify funds available to fill any payment “gaps” that may emerge due to revenue shortfalls
  • Communicate with the appropriate officials to determine if delayed property tax receipts can or will be distributed when received

For more information on this topic, or to learn how Baker Tilly Municipal Advisors can help, contact our team.

Matt Eckerle
Principal, CIPMA