On May 6, 2016, Governor Kasich signed Am. Sub. House Bill 233 (“H.B. 233”) authorizing Ohio municipalities to create Downtown Redevelopment Districts (“DRDs”) to encourage the rehabilitation of historic buildings and economic development in commercial and mixed-use areas. DRDs are very similar to tax increment financing (“TIF”) areas, but the use of the proceeds generated within DRDs is broader than what is currently available for TIFs. The most significant portions of H.B. 233 are described in this Alert.
Establishment of a DRD:
DRDs are established through the passage of municipal legislation and must include an area enclosed by a continuous boundary and consisting of no more than 10 acres. DRDs must include at least one historic building that is in the process of being rehabilitated or that will be rehabilitated after designation of the DRD. DRDs may not include any areas used exclusively for residential purposes or any areas exempted from taxation under an existing TIF.
The same general notice requirements applicable to TIFs also apply to DRDs. In addition, at least 30 days prior to the date on which the municipality votes to approve the DRD, the municipality is required to hold a public hearing and provide property owners located within the DRD with at least 30 days’ notice of the public hearing. The legislation establishing the DRD also must be accompanied by an economic development plan.
Scope of a DRD Exemption:
In general, a DRD exemption may be for up to 10 years, 70% without approval of the affected local school district. With school district approval or with the inclusion of “non-school” language in the municipal legislation, the exemption may be for up to 30 years, 100%. There are other requirements applicable to certain TIFs that also apply to DRDs (e.g., levy carve-outs, county sharing requirements).
Municipalities also may designate an Innovation District within a DRD, the purpose of which is to attract and facilitate growth of technology-oriented businesses and to support the economic development efforts of business incubators and accelerators. The life of the Innovation District and the exemption terms are identical to those of a DRD.
Service Payments in Lieu of Taxes:
As with TIFs, the DRD exemption is not a true real property tax exemption. Rather, property owners within the DRD make service payments in lieu of taxes on the increase in the assessed value of real property within the DRD in the same amount and at the same time as the real property taxes that otherwise would be due on that increase in assessed value. Those service payments are deposited into a special municipal fund and used for designated purposes. In general, the eligible uses of service payments within a DRD are broader than the eligible uses for TIFs, and include the following:
- To make loans or grants to owners of historic buildings located within the DRD
- To make loans or grants to owners of buildings located within the DRD not qualified as historic buildings
- To finance public infrastructure improvements
- To make contributions to a special improvement district, community improvement corporation or a nonprofit corporation in connection with the redevelopment of an historic building located within the DRD
- To make loans or grants to qualified businesses or to incubators and accelerators that provide services to qualified businesses within an Innovation District
In addition to service payments, owners of property within a DRD may enter into agreements with the municipality to impose a redevelopment charge on the property. This redevelopment charge may be a fixed dollar amount or a variable amount based on the assessed value of the property or all or part of the profits, gross receipts or other revenues of a business operating on the property. The terms regarding the establishment and operation of the community development charge are similar to the terms for charges levied within a new community authority under current Ohio law. The redevelopment charge revenues are used in the same manner as the payments in lieu of taxes generated within the DRD.
H.B. 233 goes into effect August 5, 2016.