Under the current tax incremental financing program, a city or village may
create a tax incremental district (TID) in part of its territory to foster development
if at least 50 percent of the area to be included in the TID is blighted, in need of
rehabilitation or conservation, suitable for industrial sites, or suitable for mixed-use
development. Currently, towns and counties also have a limited ability to create a
TID under certain circumstances. Before a city or village may create a TID, several
steps and plans are required. These steps and plans include public hearings on the
proposed TID within specified time frames, preparation and adoption by the local
planning commission of a proposed project plan for the TID, approval of the proposed
project plan by the common council or village board, approval of the city's or village's
proposed TID by a joint review board that consists of members who represent the
overlying taxation districts, and adoption of a resolution by the common council or
village board that creates the TID as of a date provided in the resolution.

Also under current law, once a TID has been created, the Department of
Revenue (DOR) calculates the "tax incremental base" value of the TID, which is the
equalized value of all taxable property within the TID at the time of its creation. If
the development in the TID increases the value of the property in the TID above the
base value, a "value increment" is created. That portion of taxes collected on the

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value increment in excess of the base value is called a "tax increment." The tax
increment is placed in a special fund that may be used only to pay back the project
costs of the TID.

The project costs of a TID, which are initially incurred by the creating city or
village, include public works such as sewers, streets, and lighting systems; financing
costs; site preparation costs; and professional service costs. DOR authorizes the
allocation of the tax increments until the TID terminates or, generally, 20 years, 23
years, or 27 years after the TID is created, depending on the type of TID and the year
in which it was created. Also under current law, a city or village may not generally
make expenditures for project costs later than five years before the unextended
termination date of the TID. Under certain circumstances, the life of the TID, the
expenditure period, and the allocation period may be extended.

Currently, before a TID may be created or its project plan amended, the city or
village must adopt a resolution containing a finding that the equalized value of
taxable property of the TID plus the value increment of all existing TIDs does not
exceed 12 percent of the total equalized value of taxable property in the city or village
(the "12 percent test"), subject to one exception. Under the exception, a city or village
may simultaneously create a new TID and subtract territory from an existing TID
without adopting a resolution containing the 12 percent test if the city or village
demonstrates to DOR that the value of the territory that is subtracted at least equals
the amount that DOR believes is necessary to ensure that, when the new TID is
created, the 12 percent test is met. The city or village must also certify to DOR that
no other district created under this exception currently exists in the city or village.

Under this bill, subject to certain limitations and conditions, a city may create
a TID in territory that it has recently annexed from a town. The following provisions
apply to a TID that is created in former town territory:

1. The TID must terminate in seven years or when its project costs are paid off,
whichever comes first.

2. The TID may not share increments with another TID created by that city.

3. Until 2016, the 12 percent limit does not apply to a city that creates such a
TID.

4. The TID may make expenditures until October 1, 2016.