Determining the Need for Financial Assistance
To determine if a project warrants financial assistance PAR generally has four questions it asks when assessing the project.
- Is the planned development feasible?
- Is there a financing gap?
- Is there a reasonable expectation that the marketplace could affect an appropriate redevelopment on its own?
- Are the incremental taxes that are expected to be generated by the site sufficient to close the identified financial gap?
The "But for..." Analysis
It is important that for PAR to ensure that a project requires financial assistance prior to providing TIF even if the proposed project of a blighted property is desirable. Determining if the project needs financial assistance is sometimes call the "but for" analysis, as in "But for PAR's assistance the project would not happen". The "but for" analysis helps insure that the use of public funds is minimized while still allowing the project to move forward.
In analyzing the "but for", PAR looks at the ability of private financing institutions to loan money for the project, to understand whether or not there is a financial gap that the private sector cannot reasonably expected to cover. Generally there are three types of situations where PAR and the Town assist in closing the financial gap:
When conditions on the site make private market rate redevelopment impossible.
- When the cost of needed environmental remediation far exceeds the value of the remediated property.
- When the perceived risk of investing the blighted area is so that the redevelopment cannot be privately financed.
- When a large parcel lacks the major infrastructure necessary for redevelopment consistent with the Town's plans for the area.
When conditions on the site make the timing of market rate redevelopment uncertain.
- When redevelopment/revitalization of an area is critical to the health of the Town but market uncertainty limits pioneering private investors' willingness to invest.
- When failure to redevelop an area is harmful to the health of the Town or surrounding area and waiting for the market will exacerbate the situation.
When conditions on the site are such that the likely market rate redevelopment outcome is not desirable.
- When the cost of rehabilitating an historic structure exceeds the cost/benefits associated with demolishing it and building a new structure
- When land prices in critical areas are so high that the inclusion of valued land uses are prohibitive.
- When the land uses that the market can support are contrary to the vision and goals of the Town plans.
When the of TIF is limited to situations like these, the public an be assured that the its investment is something that will reap tangible, sustainable benefits in the long run. And in the short run, it helps to insure that these projects pay their own way, because of the "but for" analysis. But for the TIF investment the projects would not happen, then but for the investment the new/incremental taxes generated by the redeveloped site would not exist either.
Ability of TIF to close the Identified Financial Gap
Once it has been determined that a project has demonstrated the need for assistance and the financial gap has been identified, the next step is to determine if TIF is available to close the gap. By statute TIF can only be used to pay for certain costs associated with a public purpose.