Tax Increment Financing in Missouri

By: Dick King
King Hershey, PC
Kansas City, Missouri

Tax increment financing is the most widely used and the most often misunderstood development tool in Missouri.

Originally passed by the General Assembly in 1982, the Real Property Tax Increment Allocation Redevelopment Act has been refined and amended on several subsequent occasions. As it exists today, tax increment financing, universally known as “TIF,” provides by far the most powerful tool for incentivizing economic development and competing with other states to attract jobs and tax base.

The concept behind tax increment financing is that some land is economically not feasible to develop. The lack of feasibility may be caused by blighted and deteriorated buildings requiring removal, inadequate streets and utilities, topographical conditions (such as the presence of subterranean rock or alluvial soil), or geographic remoteness that depresses rent and sales revenue available from development. When conditions make it unreasonable to develop property without tax increment financing, TIF allows a city or a county to approve a tax increment financing plan. The plan diverts all of the increase in property taxes that flows from development along with 50 percent of all other taxes generated by development to the construction of infrastructure and other expenses related to development of the property in question.

Using tax revenue diverted by tax increment financing enables developers to make property that otherwise could not compete for development competitive. In urban areas, tax increment financing revenue is often used to demolish deteriorated buildings and reconstruct crumbling infrastructure. In suburban and rural areas, TIF can be used to construct utilities, streets and other infrastructure necessary to make a development possible. Particularly in rural Missouri, tax increment financing is relied upon to pay for part of the infrastructure and other development costs. This results in a lower total cost of the project.

In suburban or rural communities, tax increment financing is virtually the only redevelopment tool available to compete against communities located in other states. Tax abatement and urban renewal programs are reserved for cities, and most other development tools do not lend themselves to the development of vacant ground.

The TIF act specifies criteria which are applied to projects presented for consideration by a city or county. The most important requirements are: 1. that tax increment financing can only be used if it would be unreasonable to expect property to develop without it and 2. that development of property will remove blight, prevent blight from occurring, or prevent the loss of jobs and economic development to other states.

Before a plan is approved, it must be considered by a tax increment financing commission that includes members from the sponsoring city (or county) and other taxing districts generating taxes within the proposed redevelopment area. After the commission holds a public hearing and makes a recommendation about the proposed TIF plan, the plan goes to the city council (or county commission) for further consideration and ultimate approval. The process involved in approving a TIF plan typically results in a consensus among all of the taxing districts with an interest in the project. This consensus may be reached by compromises that result in a plan being modified or critical needs of one or more of the districts being addressed from payments from the TIF plan.

Once a plan is approved, property owners and businesses within the redevelopment area involved pay taxes in the same manner as all other taxpayers. With tax increment financing, there is no abatement or forgiveness of taxes. Once taxes are paid, however, they are directed toward payment for those items which have been agreed to be necessary public expenses in order to ensure that property develops.

Across the state, projects that most certainly would not have been built without the assistance of TIF have been realized. These include the Dollar General Regional Warehouse in Fulton, the Bass Pro complex in Independence, the Kansas City Entertainment District, and the St. Louis Convention Hotel. None of these projects could have been completed without tax increment financing, and for the Dollar General distribution center and the Bass Pro project, no other tools existed for aggressively competing with offers from other states.

Although sometimes controversial, tax increment financing provides a legal framework that enables communities to solve development problems and to ensure continued growth and prosperity.