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Tax Increment Financing (TIF)

An alternative financing tool that enables local taxing bodies to establish a district in a blighted area within which increases in taxes resulting from development of the district can be applied to project costs in the district or to project-related debt service.

BACKGROUND

The Commonwealth of Pennsylvania has approved the Tax Increment Financing Act that authorizes the taxing bodies of the City of Philadelphia (the City and School District) to create geographic areas (“TIF Districts”), where certain increases in tax revenue may be used to finance improvements in the TIF District. The TIF loan is usually funded by a private lender, i.e. bank, and is paid by the incremental taxes from Real Estate, Use and Occupancy, City Sales and Business Privilege.

ELIGIBILITY

PIDC, acting on behalf of Philadelphia Authority for Industrial Development (PAID), can propose any area of the City to City Council and the School District for approval as a TIF District under the terms of the Act. Any new improvements can be funded by the TIF loan.

USES

New Construction

Building Rehabilitation

Site Improvements

Machinery and Equipment Acquisition

Limited Settlement and Processing Fees

FINANCING

The amount of the TIF funding or loan is determined by the present value of the incremental tax revenue discounted according to the lender’s underwriting criteria. The term of the TIF District and, therefore, the financing cannot exceed 20 years. The interest rate of the TIF Note will depend on the lender’s criteria. Repayment is secured among the TIF Developer, City, School District, PAID and TIF Lender by the TIF Agreement.

TIMING AND PROCEDURE

PIDC must determine if it will propose the TIF District for specific funding of improvements. PIDC prepares City Council legislation, a Project Plan which describes the TIF District as it exists and the improvements to occur, taxes that exist and to be generated, as well as costs and funding of the proposed improvements, including the TIF revenue and loan amortization. The legislation must be introduced and a public hearing must be conducted by City Council. The hearing must be advertised for 30 days in advance, and the entire process requires three to four months to complete.

FEES

A $25,000 structuring fee is earned and due upon submission of PIDC standard financing application. An origination fee of 1.5% of the TIF Loan is earned and due upon approval of the TIF District by City Council and the School District. A processing fee of 1.0% of each TIF loan repayment is due upon the repayment date.

Fees are subject to change. Please confirm all transaction fees with PIDC prior to application.



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