MCL 125.1661 authorizes the financing methods that may be used by a DDA. A DDA may levy an ad valorem tax of up to two mills on property within the downtown district—or in plain English, a value based tax of up to two tenths of a cent. The DDA may also borrow money, issue tax-exempt revenue bonds to finance property purchases or construction costs. In addition, a special assessment district may be created to assist in streetscape projects, as well as to establish adequate parking to serve the downtown development area.
Perhaps the most useful financing tool, as well as the most complex, is the Tax Increment Financing (“TIF”) scheme. The TIF plan allows a DDA to “capture” the difference in property value growth between that collected in the previous year and the revenue of the current year. For example, If the "initial" year (same as "base" year) value for the plan equals $1,000,000. If, during the second year, the value increases to $1,250,000 then the authority may "capture" the property taxes on the increase in value, i.e., the "tax increment", of $250,000. This means the authority gets to keep a portion of the property taxes on the $250,000 to pay for the plan projects. The taxing units receive the taxes on the $1,000,000. If the DDA did not capture these taxes the money would go to other governmental entities and the money probably would not be spent on the community. To implement Tax Increment Financing a DDA must first prepare a development plan and a TIF plan—but these need not be separate documents—which details where the tax money will go (see MCL 125.1667 for details). This plan must be created by ordinance and is subject to the notice and public hearing requirements of the DDA Act. See MCL 125.1668.
A financing strategy is crucial to the success of a DDA. A DDA should look carefully at the DDA Act regarding financing in order to fully and properly fund its operations. There are, however, some funding options to consider which are not mentioned in the Act. For instance, a DDA should analyze whether any MDOT grants are available. If certain conditions are met, MDOT may provide Enhancement grants to partially pay for improvements to sidewalks, tree plantings, and, of course, road work. In addition, a DDA should find out if it is eligible for a Community Development Block Grant (CDBG) administered by the Michigan Economic Development Corporation (MEDC). Some communities may also be eligible to receive money from the DNR or DEQ as well as the Main Street Program or possibly Historic District tax credits. The key is to research these matters and inquire as to eligibility. No matter what financing steps are taken, it should be remembered that DDAs are required to keep detailed financial records. A DDA must submit annual budgets and is audited annually. If the DDA is utilizing a TIF it must report on the status of the TIF account each year as well.
For more information, please visit the State of Michigan's Department of Treasury website on Tax Increment Financing or by clicking here.