The Innovation and Development Economy Act (Illinois Public Act 96-0939), signed into law by the Governor on June 24, 2010, is designed to assist in the development and redevelopment of major tourism, entertainment, retail and related destination projects within eligible areas of the state by authorizing municipalities and counties to issue sales tax and revenue (STAR) Bonds to finance certain projects.  The narrowly tailored qualification provisions provide that a STAR Bond district could only be established in an area that is between 250 and 500 contiguous acres, adjacent to a federal highway, within one mile of two state highways, within one mile of an entertainment user or a major or minor league sports stadium or other similar entertainment venue with an initial capital investment of at least $20,000,000 and includes land that was previously surface or strip mined.  Additionally, the area would have to qualify as blighted under the Illinois TIF law, the Business District law, or the municipality would be required to make certain other findings.

If an area were to qualify, a municipality or a county could issue STAR Bonds, which would be secured by 100% of the State sales tax increment generated by certain users within the STAR Bond district and 25% of the sales tax increment generated by all other users within the district.  Bond proceeds could be used to pay for both public and private improvements including costs of private buildings owned by certain users.  For retail projects, STAR Bond proceeds could be used to pay for private building costs if the retail user were to have a 150,000 square foot retail sales area, no other Illinois location within a 70 mile radius and an annual average of at least 30% of customers who travel from at least 75 miles away or from a different state.  The Act does limit the amount of traditional retail space that can be included in a STAR Bond district to 900,000 square feet.

California has adopted a new measure to bolster the State’s struggling economy.  In July 2009, the State adopted Budget Bill AB 26, which, among other things, requires Redevelopment Agencies (RDAs) to send a portion of their TIF funds to the State to help pay for certain State budget shortfalls.

On May 4, 2010, the Sacramento Superior Court upheld the constitutionality of AB 26 requiring California RDAs to transfer $1.7 billion in redevelopment funds to county Supplemental Educational Revenue Augmentation Funds to offset reductions in primary and secondary education funding.  RDAs were required to remit these funds by May 10, 2010 and pay an additional $350 million by May 10, 2011.  

This is not the first time that California attempted to use redevelopment funds to solve its budget problems.  In 2008, the State adopted a bill requesting the State RDAs to transfer $350 million in redevelopment funds to the Educational Revenue Augmentation Fund in each respective county. This was invalidated in 2009 because it was determined that the State could not apply an RDA’s tax increment revenues outside the RDA project area.

In its recent ruling, the Court found that AB 26 provided procedures designed to distribute redevelopment funds only to the school(s) serving redevelopment projects of the RDAs, thereby avoiding the legal and constitutional issues that affected the earlier legislation.

AB 26 provides that although the $2.05 billion is an indebtedness of the redevelopment projects, payable from tax increment revenues allocated to each RDA until paid in full, it is subordinate to payment of the principal and interest on any outstanding bonds of the RDA, including bonds secured by a pledge of tax increment revenues.

Although the RDAs were required to transfer their redevelopment funds to the State by May 10^th, the California Redevelopment Association has started an appeal process, challenging the Superior Court’s May 4^th ruling.