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Illinois Appellate Court Defeats TIF District for Lack of Parcel Contiguity and City’s ‘Casual Approach’ to Procedural Obligations

Property Tax Publications

Last Friday the Illinois Appellate Court for the Third District shot down a tax increment financing (TIF) district created by the City of Crest Hill finding that the parcels within the proposed TIF area were not contiguous and stating that the City had taken a ‘casual approach’ to meeting its procedural obligations in creating this TIF district.  This case is illustrative of why school districts, as members of the joint review board (JRB), need to conduct their own independent due diligence in evaluating TIF district proposals as mistakes and misinterpretations of the law in TIF formation are not uncommon. 

In the summer of 2017, the City of Crest Hill initiated the process of creating what it called the Weber Road Corridor TIF District.  The TIF area consisted of 444 acres across 74 tax parcels with both improved and vacant land areas, and a budget of $180.0 million. The vast majority of the budget ($150.0 million) was allocated for public works and improvements.  The City qualified the improved portion of the area as a ‘conservation area’ relying on six of the 13 eligibility factors, meaning that the area was not yet blighted, but was threatened with becoming blighted. The City qualified the vacant land portion of the redevelopment area as suffering from obsolete platting, lagging EAV, and chronic flooding.

The elementary school district, as a member of the JRB, challenged the creation of this TIF district.  The TIF Act requires that the parcels included in a redevelopment area be ‘contiguous’, such that the tracts of land ‘touch or adjoin one another in a reasonably substantial physical sense.’  As designed by the City, approximately the northern fifth of the TIF area was separated from the larger portion of the TIF area by a 235-foot natural gas right-of-way which right-of-way was not included in the TIF boundaries.  The City attempted to secure contiguity by ‘jumping’ the 235-foot portion of the right-of-way.  The City relied on language in the Municipal Code applicable to annexations which allows such jumping of public utility rights-of-way.  The Court rejected that interpretation finding that the TIF Act does not contain a similar provision allowing parcels separated by a public utility right-of-way to achieve contiguity and the Court was not going to read that provision into the TIF Act.

Of further interest in this decision is the Court’s rebuke of the City for its ‘casual approach’ to procedural obligations under the TIF Act and how it treated the JRB process.  The school district alleged that 1) the City failed to provide administrative support to the JRB such as publishing agendas or providing meeting space, 2) the City improperly adjourned a JRB meeting, 3) the City failed to meet and confer with the JRB after an initial determination that the TIF area was not eligible, and 4) the City improperly approved the TIF ordinances before meeting and conferring with the JRB.

The Court found the issue of lack of contiguity to be dispositive, and thus did not consider these alleged procedural flaws, but it wrapped the City’s knuckles in stating that ‘a more deliberate “come to the table” approach by the City under the [TIF] Act could have avoided many of the issues presented in this appeal.’

School districts have the most at stake with any TIF district since it is the school district’s tax rate that will fund the TIF district and pay for the budgeted improvements. The lesson from this decision is that it is incumbent on school districts to conduct careful, independent due diligence in evaluating proposals for the establishment of a TIF district.  Districts need to examine the factors the municipality is relying on for eligibility, take a careful look at the TIF map, examine if all taxing districts have been included in the JRB process who should be included, and generally take a hard look at the proposal. TIF districts can last for up to 23 years. That is a long time to live with an incentive that perhaps did not meet the statutory requirements or was not necessary to incentivize development.

With COVID-19 upsetting local real estate markets, especially in the hospitality, retail and office sectors, we expect that more municipalities will reach for tax increment financing to attract developers and rebuild their tax bases. Some of these proposals will be meritorious but all should be carefully examined and treated like the 23-year imposition on the school district’s tax rate that they are.

We will continue to monitor developments as they affect Illinois school districts and the property tax assessment, appeal, collection, and incentive process and bring you more information as it becomes available. For more information on this topic contact the author of this alert or any other Franczek attorney.