In March 2008, Indiana adopted HEA 1001 which would provide property tax relief and protection against future property tax increases beginning with the 2009 property tax, payable in 2010, by capping property tax at 1% of assessed value for residential property, 2% for apartments and agricultural land and 3% for commercial property.  To limit the ability of future legislatures to amend or revoke the property tax caps, the Indiana General Assembly adopted joint resolutions, SJR1 in 2008 and HJR1 in 2010, which, if approved by a referendum, would amend the Indiana Constitution to permanently cap the property tax.  Indiana electors will vote on this matter on November 2, 2010.

Although the property tax cap system has already taken effect in Indiana, it will not have any impact on TIF unless the property tax cap level is reached.  For example, if a TIF district that only includes commercial development is established in 2010 with a base EAV of $1,000,000 and in 2011 the TIF district EAV grows to $5,000,000, without the cap system, a 4% property tax rate could generate tax increment in an amount of $160,000 (4% x ($5,000,000 – $1,000,000) = $160,000) in 2011.  With the 3% property tax cap in place, the tax increment generated in 2011 would be reduced to $120,000 (3.0% x ($5,000,000 – $1,000,000) = $120,000), or $40,000 less in available increment.

Yesterday, the Illinois House of Representatives passed SB 2523, amending the Business District Development and Redevelopment Law, by a vote of 90 to 27 and today the Senate voted to approve the House version of the Bill.  SB 2523 would make significant changes to the Business District Law, including clarifying qualification criteria and delineating eligible Business District costs.  The Bill is now on its way to the Governor, who has a maximum of 60 days to sign it into law.

The Illinois legislature is currently considering SB 2523, which would amend the Business District Development and Redevelopment Law, 65 ILCS 5/11-74.3.  The proposed amendment was approved by the Illinois Senate in March 2010 and is currently being debated by the House of Representatives.

The Business District Law allows a municipality to establish a Business District and, if it is determined that the property within the Business District is blighted and certain conditions and procedures are met, enables a municipality to impose a Business District tax within the Business District and to use the funds generated to pay for Business District improvements.

SB 2523 proposes to change the definition of “blighted area” to an area “which, by reason of the predominance of defective, non-existent or inadequate street layout, unsanitary or unsafe conditions, deterioration of site improvements, improver subdivision or obsolete platting, or the existence of conditions which endanger life or property by fire or other causes, or any combination of those factors, retards the provision of housing accommodations or constitutes an economic or social liability, an economic underutilization of the area, or a menace to the public health, safety, morals or welfare.”  SB 2523 does not tie a blight finding to an area’s present condition and use since it deletes the words “in its present condition and use.”

Proposed SB 2523 may be in response to Geisler v. City of Wood River, 383 Ill. App.3d 828, 892 N.E.2d 543 (2008) in which the Circuit Court of Madison County decided that a blight finding in a Business District must be based on the area’s present condition and could not be based on the proposed future use of the area.  The court relied on the phrase “present condition and use” in the statutory language that defined a blighted area. The Fifth District Appellate Court upheld this decision.