www.illinois-tif.com/PDFfiles/Make_Whole_Agreements.pdf
re: make whole agreements
September 24, 2003
Dear ITIA member: (Illinois Tax Increment Association)
Local taxing bodies and ITIA members have frequently raised questions about
how overlapping local taxing bodies can legally be assisted using tax increment
funds. In addition many questions have been raised about the legality of
municipalities entering into "make whole" agreements that provide financial
assistance to one overlapping taxing body without providing comparable
assistance to the other overlapping local governments.
The persistence of these unanswered questions prompted ITIA's Board of
Directors to ask the law firm of Bell Boyd & Lloyd to research Illinois' tax
increment statutes in order to provide our members with a definitive legal
analysis of these issues. A copy of Bell Boyd's research report "Illinois Authority
on Tax Increment Financing ("TIF") Make-Whole Agreements" is enclosed.
We hope you find the report useful. If you have any questions about its contents
or its application to your situation, please call Greg Hummel of Bell Boyd & Lloyd
at (312) 807-4253.
Sincerely,
Greg Sparrow
President
One Illinois state court has interpreted these provisions and concluded that the Act
prohibits selective payments in lieu of taxes and requires pro rata distribution of funds to all local taxing districts. Henry County Board v. Village of Orion, 278 Ill.App.3d 1058, 663 N.E.2d 1076 (Ill. 3d Dist., 1996). In Henry, the Village of Orion (the “Village—) had inserted a provision in the ordinance creating the TIF district that required the Village to make payments to the local school district for the duration of the TIF district. Id. at 1079. The Village intended to reimburse
the school district for property taxes it would have received had the TIF plan not been adopted. Id. at 1084. The Henry County Board and various other local taxing districts sought to enjoin the TIF project, alleging that the agreement between the Village and the school district violated the Act's pro rata distribution requirement. Id. at 1079. The Village asserted that the school district payment agreement was valid because the “capital costs— provision allowed for payments to only one local taxing district.4 Id. at 1084. Therefore, the Village argued, the payment in lieu of taxes provision must likewise allow payments to only one local taxing district. Id. The court flatly rejected this argument, stating that the Act's “mandate to provide payments in lieu of taxes to all affected taxing districts— could not be “circumvented by the legislature's grammar in a separate statutory section.— Id. Continuing,
the court reasoned that the capital cost provision was intended to repay capital expenditures made by a local taxing district, while the payment in lieu of taxes provision was intended to repay all affected local taxing districts for lost property tax revenue. Id. at 1084-85. The court concluded that there was “no basis in the Act or in the arguments presented to hold that a municipality may make payments to a single taxing district in lieu of taxes cloaked as an intergovernmental agreement.— Id. at 1085. Thus, the court held that every payment in lieu of taxes made by a municipality must be made on a pro rata basis to all affected local taxing districts.
Conclusion
Payments to a taxing district as contemplated by make-whole agreements are not allowed
under the Act. The Act permits payments in lieu of taxes, but only during the period that a municipality owns property that will later be used for private development, and such payments must be made to all taxing districts. The Act permits reimbursement to schools districts for increased costs attributable to assisted housing units within the TIF, and permits payments to a taxing district for training costs for employees within a TIF. Finally, the Act permits a municipality to provide significant benefits to a specific taxing district via its powers to renovate and construct new buildings within a TIF.