Copyright 2013 Attracting Resources, LLC.
Joel A. Smiley, M.P.A., Principal.
Office: 314.827.9623 Fax: 314.469.1114
Joel A. Smiley, M.P.A., Principal
Government Incentives Prior to a Sale
Joel A. Smiley, M.P.A., Principal
The earlier you are in the real estate deal, the better your chances are to negotiate government incentives with a public or non-profit agency. Ideally you want to identify potential government incentives on a few locations in different communities. Depending upon the area and project, you can identify potential special taxing districts like Tax Incremental Finance zones, Neighborhood Improvement Districts, Community Improvement Districts, Transportation Development Districts, and others. This will assist you greatly in evaluating circumstance that “may” allow you to receive tax credits for improvements to the site.
As you identify potential sites within the special tax district, discuss the project with the City to determine if your project may qualify for incentives within the taxing district. Job creation, investment amount, impact to the area, infrastructure improvements, and other characteristics are keys to triggering tax incentives.
When looking at the potential for government incentives, it is crucial to lock-up the incentives before the project is under construction or an executed lease is signed. You also want to avoid a public announcement. The term “But-For” is a key determining factor a tax credit organization uses to determine the willingness to issue tax abatement or other tax credits. Think of a completed real estate transaction. The buyer and seller have agreed to all terms and signed an executed agreement. After the agreement is signed, the seller goes back to the buyer and asks for additional concessions. There is no reason the buyer would want to pay additional funding after the sale. Most governments think in this manner.
By identifying government incentives prior to a sale, you may discover that the building or site you selected is just outside of a taxing district. Perhaps there is a similar property within that zone which may be as close as a block away. If the special district is in an Enterprise Zone as is common throughout Illinois, you could be looking at ten years of property tax abatement, as well as sales tax exemptions for building materials and workforce credits. If you are looking in St. Louis, perhaps the site is adjacent to a Tax Incremental Financing (TIF) area. Amending a TIF boundary can be difficult especially since you need to get all of the taxing jurisdictions to grant additional incentives to the new area as well as qualify the new site. By selecting a site within the zone, you will still need to go through the approval process, but at least the governing bodies all approved the site for a potential TIF.
Many times the local governing agencies require incentives to be locked up before an executed agreement lease is signed or construction begins. State and federal programs may also have similar restrictions. Each program will have its own regulations.
There are two main types of government incentives: statutory and negotiated. For statutory tax credits, if the project meets certain eligibility requirements, you will probably be approved for the credits although a public hearing may be required. For negotiated credits, a policy may be set in place; however, it is up to the governing agency to issue credits for the project. The earlier you are in the process, the easier it is to negotiate potential tax credits.
Governing agencies mainly look at job creation, wages, total investment, infrastructure improvements, new investment to the property and personal property investment. The more details you have in these areas, the easier the process becomes. Governing agencies usually base their incentive decisions on these criteria.
Consulting firms can help to guide you through the process by asking the right questions and strategically setting-up the process. For more information, please contact Joel Smiley, Principal at Attracting Resources, LLC. His direct telephone number is (314) 827-9623. Their website is: www.attractingresouces.com.