The tools available to the City of Philadelphia to finance community and economic development projects have been enhanced under a new law that authorizes the imposition of special assessments to support tax increment finance (TIF) bonds.

On May 24, 2016, Pennsylvania Governor Tom Wolf signed into law amendments to the Community and Economic Improvement Act (CEI Act), which authorizes the establishment of Philadelphia's neighborhood improvement districts (NIDs) and business improvement districts (BIDs). The CEI Act authorizes NIDs and BIDs to fund—and finance—streetscape and other public improvements payable from special assessments imposed on non-exempt properties within the designated NID/BID boundaries. The amendments to the CEI expressly authorize the imposition of special assessments to secure the repayment of TIF bonds issued under the Pennsylvania Tax Increment Financing law when the TIF district and the NID district are co-terminus.

TIFs are one of the most powerful value-capture economic development tools available to municipalities. NID special assessments are routinely pledged as security for TIF bonds to finance larger scale developments in other states, and lenders will now look more favorably on these transactions in Philadelphia due to the security afforded by enhanced judicial priority enjoyed by municipal liens resulting from nonpayment of special assessments. To date, a handful of similar transactions have successfully closed in other parts of the Commonwealth of Pennsylvania under the TIF Law and the Neighborhood Improvement District Law, which is nearly identical to the CEI Law but applies to all Pennsylvania municipalities except Philadelphia. With these amendments, Philadelphia now enjoys the strongest statutory authority in the Commonwealth to undertake TIF transactions supported by special assessments enforceable as municipal liens.

The special assessments imposed to secure TIF bonds are typically conditional, and are only imposed and collected if and to the extent that anticipated tax increments fall short of amounts necessary to pay debt service, usually as a result of under-development.

The CEI amendment eliminated several burdensome procedural redundancies that arose from attempts to comply with both the CEI Act and the TIF Law and permits a broader, and more consistent, scope of improvements to be funded.

The amendments to the CEI Act apply only to Philadelphia. The CEI Act, however, is procedurally and substantively identical to the Pennsylvania NID law which governs NIDs and BIDs in every other jurisdiction. Amendments to the statewide NID law would similarly unlock opportunities for more expansive use of TIF transaction across the Commonwealth in the same way the CEI amendment has done so in Philadelphia.

The ability to finance economic development projects in Pennsylvania on a scale necessary to capture maximum potential value depends on acceptance by the municipal bond market of debt financing the developments. For larger developments including new construction, TIF bonds sold in the Commonwealth prior to completion of construction and re-assessment need the backing of special assessments to compete with similar TIF offerings from other states, and thereby maintain competitive, and affordable, market access.

Attorneys from Ballard Spahr's Public Finance Department conceived and drafted the amendments to the CEI Act facilitating the use of assessments to support TIF transactions, which passed the Pennsylvania House unanimously on April 6, 2016, and passed the Pennsylvania Senate (again, unanimously) on May 11, 2016. The amendments are effective immediately and apply to TIF districts and NID/BID districts already in existence.


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