Tax Increment Financing Bonds as "debt" under state constitutional debt limitations

Urban Lawyer

Volumn 41, Issue 4, 2009, Pages 725-753

  Geheb, Phillip J F ^a  

^a Real Estate Development Department   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

DEBT; ECONOMIC DEVELOPMENT; FINANCIAL CRISIS; LEGISLATION; LOCAL GOVERNMENT;

EID: 77649280499     PISSN: 00420905     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (259)

1. See Alan Woolever, Tax Increment Financing, Government Grants, and Developer Tax Consequences: An Analysis of Statutes, Regulations, Case Law and Related Policy Considerations, 40 URB. LAW. 299, 299 (2008).
2. J. Drew Klacik & Samuel Nunn, A Primer on Tax Increment Financing, in TAX INCREMENT FINANCING AND ECONOMIC DEVELOPMENT: USES, STRUCTURES, AND IMPACT 15 (Craig L. Johnson & Joyce L. Man eds., 2001);
3. see also Alyson Tomme, Note, Tax Increment Financing: Public Use or Private Abuse, 90 MINN. L. REV. 213, 216 (2005). TIF allows a local government to induce hesitant developers to infuse capital and resources into a redevelopment district by offering a subsidy consisting of direct grants, low interest debt, as well as the powers of eminent domain. In return, the local government may increase their tax base, attract new jobs and businesses, and do so without incurring a present expense.
4. See generally, Rachel Weber, Tax Incremental Financing in Theory and Practice, in FINANCING ECONOMIC DEVELOPMENT IN THE 21ST CENTURY 54 (Sammis B. White et al. eds., 2003). The developer may also receive significant tax advantages from the TIF transaction. See Woolever, supra note 1.
5. Klacik & Nunn, supra note 2, at 15-16.
6. Id. at 17.
7. See id. at 16. In this context, constitutional debt can operationally be defined as: (1) an undertaking by a constitutionally limited local government to pay money or its equivalent, (2) voluntarily undertaken, (3) in a sum certain amount, (4) that is an absolute undertaking with no conditions precedent, and (5) which is enforceable by a creditor against me local government or its assets.
8. See City of Hartford v. Kirley, 493 N.W.2d 45, 52 n.13 (Wis. 1992) (citing William J. Keirnan, Jr., Wisconsin Municipal Indebtedness: Part 1 - The Power to Become Indebted and Its Limits, 1964 WIS. L. REV. 173, 197 (1964));
9. see also Clayton P. Gillette, Direct Democracy and Debt, 13 J. CONTEMP. LEGAL ISSUES 365, 368 (2004).
10. See Klacik & Nunn, supra note 2, at 15.
11. See Craig L. Johnson, The Use of Debt in Tax Increment Financing, in TAX INCREMENT FINANCING AND ECONOMIC DEVELOPMENT: USES, STRUCTURES, AND IMPACT 71 (Craig L. Johnson & Joyce L. Man eds., 2001).
12. Id.
13. Woolever, supra note 1, at 301.
14. See Weber, supra note 2, at 53 (noting the federal cuts in urban redevelopment, restrictions on tax-exempt bonds, administrative devolution of urban policy to the local level, and state taxpayer revolts in the 1970s all contributed to the modern popularity of TIF);
15. see also Richard Briffault, The Law and Economics of Federalism: The Rise of Sublocal Structures of Urban Governance, 82 MINN. L. REV. 503 (1997).
16. COUNCIL OF DEVELOPMENT FINANCE AGENCIES, TAX INCREMENT FINANCING BEST PRACTICES REFERENCE GUIDE 1 (2007), http://www.mrsc.org/artdocmisc/CDFA.pdf [hereinafter TIFBest Practices Reference Guide] (last visited Oct. 15, 2009) (Arizona authorizes only the state to award TIF);
17. see also Craig L. Johnson, Tax Increment Debt Finance: An Analysis of the Mainstreaming of Fringe Sector, 19 PUB. BUDGETING & FIN. 47, 47 (1999).
18. See Greg LeRoy, TIF, Greenfields, and Sprawl: How an Incentive Created to Alleviate Slums Has Come to Subsidize Upscale Malls and New Urbanist Development, 60 PLAN. & ENVTL. L. 3 (2008), available at http://www.goodjobsfirst.org/pdf/apa.pdf.
19. TIF Best Practices Reference Guide, supra note 11, at 1, 3.
20. Id. at 8.
21. Id. Several commentators suggest that the public hearing portion of the TIF process checks much of the abuse that occurs under TIF because of public involvement. The affected taxing districts often have seats on the TIF commission and if they do not, most state TIF statutes require written notice to them. In addition, landowners, businesses, and tenants within the TIF district are required to be given written notice prior to the hearing and the general public receives notice through publication in a paper of general circulation. For examples of different state procedures regarding notice,
22. see Amy F. Cerciello, Comment, The Use of PILOT Financing to Develop Manhattan's Far West Side, 32 FORDHAM URB. L.J. 795, 800 (2005) (New York);
23. Frank S. London, Note, The Use of Tax Increment Financing to Attract Private Investment and Generate Redevelopment in Virginia, 20 VA. TAX REV. 777, 780 (2001) (Virginia);
24. Julie A. Goshorn, In a TIF: Why Missouri Needs Tax Increment Financing Reform, 11 WASH. U. L.Q. 919, 927 (1999) (Missouri);
25. Catherine Michel, Note, Brother, Can You Spare a Dime: Tax Increment Financing in Indiana, 71 IND. L.J. 457, 460 (1996) (Indiana).
26. TIF Best Practices Reference Guide, supra note 11, at 8.
27. The "but-for" test is meant to ensure that but for tax increment financing, the project would be economically unfeasible. Local governments' loose adherence to traditional concepts of blight have caused courts and commentators to argue that the definition needs to be more concrete. See, e.g., Centene Plaza Redevelopment Corp. v. Mint Props., 225 S.W3d 431 (Mo. 2007) (finding City of Clayton made inadequate findings of "social liability" for blight determination);
28. David N. Farwell, Comment, A Modest Proposal: Eliminating Blight, Abolishing But-For, and Putting New Purpose in Wisconsin's Tax Increment Financing Law, 89 MARQ. L. REV. 407 (2005);
29. Colin Gordon, Blighting the Way: Urban Renewal, Economic Development, and the Elusive Definition of Blight, 31 FORDHAM URB. L.J. 205 (2004);
30. Josh Reinert, Comment, Tax Increment Financing in Missouri: Is It Time for Blight and But-For to Go?, 45 ST. LOUIS U. L.J. 1019 (2001). Some commentators have also suggested that the "but-for" test is speculative and often abused by local governments who end up granting TIF to developers who would have developed the property without the subsidy.
31. See Rachel Weber, Extracting Value from the City: Neoliberalism and Urban Redevelopment, in SPACES IN NEOLIBERALISM: URBAN RESTRUCTURING IN NORTH AMERICA AND WESTERN EUROPE 63 (Neil Brenner & Nik Theodore eds., 2002) (citing studies suggesting that it is difficult to determine the efficacy of TIF because of the speculative nature of the "but-for" test). For a discussion proposing empowering property owners and school districts in lieu of ineffectual blight tests,
32. see George Lefcoe, After Kelo, Curbing Opportunistic TIF-Driven Economic Development: Forgoing Ineffectual Blight Tests; Empowering Property Owners and School Districts (Univ. S. Cal. Law School Law and Econ., Working Paper Series No. 75, 2008), available at http://law.bepress.com/cgi/ viewcontent.cgi?article=1079&context=usclwps.
33. See supra note 17.
34. See Johnson, supra note 11, at 47.
35. Id.
36. See, e.g., Mo. REV. STAT. §§ 99.805(4), 99.845 (2004) (defining "economic activity taxes" as sales, use, hotel, and other non-property taxes, allowing 100% capture). The applicability of debt limitation provisions to nonproperty tax revenue capture is discussed in another article published in this issue of The Urban Lawyer.
37. See Lauren Ashley Smith, Alternatives to Property Tax Increment Finance Programs: Sales, Income, and Nonproperty Tax Increment Financing, 41 URB. LAW. 705 (Fall 2009).
38. Mo. REV. STAT. § 99.845 (2004).
39. Arrangements for project costs vary. Some jurisdictions use TIF bond revenues to pay the project's preliminary development costs. Other local governments front the preliminary costs to the developer in the form of a municipal loan and repay themselves with the tax increments. Alternatively, a city may use a "pay as you go" approach under which developers obtain their own financing and pay for initial costs, and the city later uses TIF bonds to reimburse the developer.
40. See Tomme, supra note 2, at 217-18. Per state statutes, reimbursable costs can include infrastructure improvements, property acquisition, demolition and removal of outdated structures, and miscellaneous costs associated with project development.
41. See Sam Casella, What is TIF?, in TAX INCREMENT FINANCING 1, 1 (James Hecimovich ed., 1985). TIF bonds provide significant savings to developers because interest rates are much lower when obtained through government assistance and the bonds are more marketable as they are tax exempt. CRAIG L. JOHNSON, NAT'L ASS'N OF REALTOR, TAX INCREMENT FINANCING 4 (2002).
42. See Jeffrey I. Chapman, Tax Increment Financing as a Tool of Redevelopment, in LOCAL GOVERNMENT AND LAND USE POLICIES IN THE U.S. 182 (Helen F. Ladd ed., 1998).
43. See Gillette, supra note 5, at 368;
44. see also Johnson, supra note 11, at 44 (noting similarities between revenue bonds and general obligation bonds).
45. See, e.g., CAL. CONST, art. 16, § 16(b) (TIF revenues payable into "special fund" for debt service on bonds);
46. A. CODE ANN. § 58.1-3245.4 (West 2008) (TIF obligations are subject to limitations of Virginia Public Finance Act, § 15.2).
47. See Part IV of this article.
48. 992 So. 2d 150 (Fla. 2008).
49. Id. at 153.
50. Id. at 153-54. FLA. CONST, art. VII, § 12 states, in relevant part, that "counties ... may issue bonds ... payable from ad valorem taxation and maturing more than twelve months after issuance only... to finance or refinance capital projects authorized by law and only when approved by vote of the electors who are owners of freeholds therein."
51. See State v. Miami Beach Redevelopment Agency, 392 So. 2d 875 (Fla. 1980) (holding that TIF is not subject to the referendum requirements of the FLA. CONST, art. VII, § 12).
52. 992 So. 2d at 154.
53. See Strand v. Escambia County, No. SC06-1894,2007 WL 2492294 (Fla. Sept. 6, 2007, amended Sept. 28, 2007). A certificate of participation ("COP") is "[f]inancing in which an individual buys a share of the lease revenues of an agreement made by a municipal or governmental entity, rather than the bond being secured by those revenues." Certificate of Participation Definition, http://www.investorwords.com/810/Certificate-of- Participation.html (last visited Nov. 15, 2008). Typically, because bond validation litigation is expensive and time-consuming, local governments pattern TIF and COP issues after existing case law and statutes, Thus presumably allowing the obligations to withstand legal challenges.
54. See Community Redevelopment Act of 1969, FLA. REV. STAT. §§ 163.330 to 163.463 (2004).
55. The Sept. 6, 2007 opinion had several negative consequences. First, ratings agencies, such as Standard & Poor's and Fitch's, placed Florida TIFs and COPs on ratings watch "negative," thus raising the cost of such bonds. Second, because the Internal Revenue Service takes the position that invalid state or local government securities never constituted "state or local bonds" for the purpose of federal tax exemption, the income derived from such securities would be taxable. Bondholders would thus not only lose their investment but also be subject to federal tax liability for prior tax years. Finally, state and local government projects financed by TIF and COPs, totaling almost $13 billion, were brought to a halt or substantially delayed by uncertainty about the validity of their financing securities. See Edwards, Angell, Palmer, & Dodge, Client Advisory September 2008: Strand v. Escambia County Victory, available at http://www.eapdlaw.com/ newsstand/detail.aspx?news=1362 (last visited Oct. 16, 2009).
56. See Strand v. Escambia County, No. SC06-1894, 2007 WL 2492294 (Fla. Sept. 6, 2007).
57. Strand v. Escambia County, 992 So. 2d 150, 159-60 (Fla. 2008). Two additional decisions validating TIF bonds were also decided on the same day. See City of Parker v. State of Florida, 992 So. 2d 171 (Fla. 2008); Bay County v. Town of Cedar Grove, 992 So. 2d 164 (Fla. 2008). The odd split among the Florida Supreme Court justices reflects Justice Bell's retirement. However, Justice Bell authored a dissenting opinion in City of Parker critiquing the majority in their Strand rationale and filed a dissent in Bay County.
58. M. DAVID GELFAND, STATE & LOCAL GOVERNMENT DEBT FINANCING § 9:01 (2002) [hereinafter GELFAND, STATE & LOCAL GOVERNMENT DEBT FINANCING].
59. Id.;
60. see also Stewart E. Sterk & Elizabeth S. Goldman, Controlling Legislative Shortsightedness: The Effectiveness of Constitutional Debt Limitations, 1991 WISC. L. REV. 1301, 1306 (1991).
61. Sterk & Goldman, supra note 39, at 1308. In the later part of the nineteenth century, ravaged by the toll of the Civil War on its infrastructure and costs of waging war with the North, Reconstruction legislatures in the South, controlled by corrupt "carpetbagger" governments, authorized large bond issues to repair railroads with revenue inevitably ending up in the pockets of corrupt state officials and private development companies.
62. See generally, Susan F. Fino, A Cure Worse than the Disease? Taxation and Finance Provisions in State Constitutions, 34 RUTGERS L.J. 959, 959 (2003);
63. Sterk & Goldman, supra note 39, at 1321;
64. Richard Briffault, Forward: The Disfavored Constitution: State Fiscal Limits and State Constitutional Law, 34 RUTGERS L.J. 907, 917-18 (2003);
65. Brain E. Wheeler, Note, Highway Robbery: In re Oklahoma Capitol Improvement Authority: The Eulogy for Oklahoma Constitutional Debt Limitations, 53 OKLA. L. REV. 319 (2000).
66. David A. Super notes the following concerning the timing of the decision to incur debt as it relates to the fiscal health of a local government in the long-run: The timing of many of these projects is essentially discretionary, and a state's borrowing to build a stadium or expand its highway system shifts irreducible costs into future periods of economic crisis when the state can ill-afford mem. Requiring states to fund these projects out of their operating budgets will push states to concentrate them during periods of fiscal health, when the projects are more affordable. David A. Super, Rethinking Fiscal Federalism, 118 HARV. L. REV. 2544, 2644 (2005).
67. Other state constitutional provisions such as the prohibition of "special legislation," the "single subject rule," uniform taxation, the gubernatorial line-item veto for appropriations, the "public purpose doctrine," and balanced budget amendments all originate from this period and were designed to protect against corruptive practices of state and local elected officials. Sterk & Goldman, supra note 39, at 1308.
68. GELFAND, STATE & LOCAL GOVERNMENT DEBT FINANCING § 9:01, supra note 38.
69. Id.
70. Id.;
71. see also ROBERT S. AMDURSKY & CLAYTON P. GILLETTE, MUNICIPAL DEBT FINANCE LAW: THEORY AND PRACTICE § 4.1.1, at 161 (1992 & Supp. 2008) [hereinafter, AMDURSKY & GILLETTE, MUNICIPAL DEBT FINANCE] (Referendum requirements allow voters to return the official to office but disapprove of a debt issuance.).
72. See DANIEL MANDELKER ET AL., STATE AND LOCAL GOVERNMENT IN A FEDERAL SYSTEM 392 (6th ed. 2006).
73. Id.;
74. see also M. David Gelfand, Seeking Local Government Financial Integrity Through Debt Ceilings, Tax Limitations and Expenditure Limits: The New York City Fiscal Crisis, the Taxpayer's Revolt, and Beyond, 63 MINN. L. REV. 545 (1979) [hereinafter Gelfand, Seeking Local Government Financial Integrity].
75. See generally, Gelfand, Seeking Local Government Financial Integrity, supra note 46 (describing the New York City fiscal crisis of the Boss Tweed era in the 1870s and the resulting twenty years it took for the City to extricate itself from the debts it incurred as a result of corruption and special interest capture).
76. Id. at 568.
77. GELFAND, STATE & LOCAL GOVERNMENT DEBT FINANCING § 9:02, supra note 38;
78. see also AMDURSKY & GILLETTE, MUNICIPAL DEBT FINANCE § 4.1.1, supra note 44 ("The demise of [publicly funded private transportation projects] led to increased property taxes to pay bonds, or to default and subsequent loss of access to credit markets, while constituents of the issuer received nothing of commensurate value in return.").
79. GELFAND, STATE & LOCAL GOVERNMENT DEBT FINANCING § 9:02, supra note 38;
80. see also Gelfand, Seeking Local Government Financial Integrity, supra note 46, at 568-88;
81. Sterk & Goldman, supra note 39, at 1308;
82. AMDURSKY & GILLETTE, MUNICIPAL DEBT FINANCE § 4.1.1, supra note 44.
83. GELFAND, STATE & LOCAL GOVERNMENT DEBT FINANCING § 9:02, supra note 38 (citing Musgrave & Musgrave, Public Finance in Theory and Practice, 585-91 (1973)).
84. Id. This principle can also be violated when the full cost of capital improvements is borne on the present generation, thus giving future generations the ability to enjoy the benefits without paying for them. However, as Gelfand points out, debt limitation provisions are designed to prevent the present generation from burdening future generations with too much debt.
85. See supra note 41 and accompanying text.
86. GELFAND, STATE & LOCAL DEBT FINANCING § 9:02, supra note 38;
87. see also Gelfand, Seeking Local Government Financial Integrity, supra note 31, at 568-88;
88. Tracy Nichols Eddy, The Referendum Requirement: a Constitutional Limitation on Local Government Debt in Florida, 38 U. MIAMI L. REV. 677, 694 (1984).
89. GELFAND, STATE AND LOCAL DEBT FINANCING § 9:06, supra note 38;
90. Eddy, supra note 54, at 678 (noting the need for local governments to maintain fiscal flexibility for emergent capital projects).
91. See Eddy, supra note 54, at 701.
92. See AMDURSKY & GILLETTE, MUNICIPAL DEBT FINANCE § 4.15, supra note 44, at 220. Pennsylvania, for example, has redrafted its constitutional debt limitation to consider revenue of the locality rather man just the assessed value of property in the locality.
93. See PA. CONST, art. IX, § 10.
94. See Sterk & Goldman, supra note 39, at 1358.
95. See CLAYTON P. GILLETTE, 2008 CUMULATIVE SUPPLEMENT: MUNICIPAL DEBT FINANCE LAW § 4.1.1, at 63 (2008) (arguing that without supermajority requirements mat "pre-commitment" referendum often fall short of providing the necessary check against legislative shortsightedness).
96. See Fino, supra note 41, at 1012.
97. See AMDURSKY & GILLETTE, MUNICIPAL DEBT FINANCE § 4.15, supra note 44, at 220-21;
98. see also Joseph F. Luther, Tax Increment Financing: Avoiding Voter Accountability, 1987 DETROIT C.L. REV. 89, 90-91 (1987).
99. AMDURSKY & GILLETTE, MUNICIPAL DEBT FINANCE § 4.15, supra note 44, at 220.
100. Id.
101. See generally, MANDELKER ET AL., supra note 45, at 393-415;
102. GELFAND, STATE & LOCAL GOVERNMENT DEBT FINANCING §§ 9:11 to 9:24, supra note 38;
103. AMDURSKY & GIL-LETTE, MUNICIPAL DEBT FINANCE §§ 4.1 to 4.15, supra note 44.
104. AMDURSKY & GILLETTE, MUNICIPAL DEBT FINANCE § 4.1.1, supra note 44.
105. [T]hese opinions reveal a recurrent, if not immutable, theme in which the existence of a "debt" depends on whether the issuer or the bondholders bear the risk mat the project financed with bond proceeds will fail. If the issuer bears the risk, if the obliga-tion to pay the bonds exists independent of the consideration received by the issuer's constituents, then the transaction properly falls within the scope of debt as the term is used for debt limitations or requiring a bond election. If, on the other hand, the risk of failure is borne on the bondholders who have no recourse against the general assets of the issuer, the transaction falls outside the scope of debt restrictions.
106. See Part IV of this article.
107. See generally, Johnson, supra note 11 (describes how historically TIF was used to fund projects considered on the margins, but has been transformed in modern prac-tice to finance a variety of common, and controversial, developments).
108. Goshorn, supra note 15, at 938.
109. See Denver Urban Renewal Auth. v. Byrne, 618 P.2d 1374, 1382 (Colo. 1980);
110. Miami Beach Redevelopment Agency, 392 So. 2d at 899 (Fla. 1980), aff'd in Strand, 992 So. 2d at 56;
111. S. Bend Pub. Transp. Corp. v. City of S. Bend, 428 N.E.2d 217, 220 (Ind. 1981);
112. In re Request for Advisory Opinion on Constitutionality of 1986 P.A. 281, 422 N.W.2d 186 (Mich. 1988);
113. Tax Increment Fin. Comm'n of Kansas City v. J.E. Dunn Constr. Co., 781 S.W.2d 70, 77 (Mo. 1989);
114. Wolper v. City Council of City of Charles-ton, 336 S.E.2d 871, 874 (S.C. 1985);
115. Tribe v. Salt Lake City Corp., 540 P.2d 499,503 (Utah 1975). Connecticut and Kansas have upheld TIF challenges based on city charter and statutory debt limits respectively. See Sadlowski v. Town of Manchester, 538. A.2d 1052 (Conn. 1988) (TIF bonds not debt under city charter with debt limitations; not a constitutional challenge);
116. State ex rel. Tomasic v. Unified Gov't of Wyandotte County/ Kansas City, 962 P.2d 543, 547-48 (1998) (TIF program does not violate Cash Basis Law that statutorily sets a debt limitation for municipalities);
117. see also Cerciello, supra note 15, at 805 (noting that New York's TIF law was passed pursuant to a constitutional amendment excepting TIF bonds from state debt limits).
118. As previously stated in note 12, Arizona currently does not have a TIF statute. In City of Tuscon v. Corbin, 623 P.2d 1239 (Ariz. Ct. App. 1980), section 36-1488.01 of me Arizona Revised Statutes was held unconstitutional and subsequent amendments modified the statute to allow compliance with the Arizona Constitution's public refer-endum requirements. See ARIZ. CONST, art. VII, § 13. The Arizona Legislature repealed section 36-1488.01 in 1999. Laws 1999, Ch. 165, § 4, eff. Aug. 6, 1999, retroactively effective to January 1, 1999.
119. Richards v. City of Muscatine, 237 N.W.2d 48, 63-66 (Iowa 1975);
120. Miller v. Covington Dev. Auth., 539 S.W.2d 1, 5 (Ky. 1976);
121. Oklahoma City Urban Renewal Auth. v. Med. Tech. and Research Auth. of Okla., 4 P.3d 677, 684 (Okla. 2000);
122. Meier-henry v. City of Huron, 354 N.W.2d 171, 179 (S.D. 1984);
123. State ex rel. County Comm'n of Boone County v. Cooke, 475 S.E.2d 483, 493 (W. Va. 1996); City of Hartford, 493 N.W.2d at 55;
124. see also London, supra note 15 (Virginia state statute requires TIF debt to be subject to state constitutional debt limitations).
125. See Fults v. City of Coralville, 666 N.W2d 548 (Iowa 2003) (holding TIF notes do not constitute a constitutional debt because they are not subject to fiscal appropria-tion in any given fiscal year);
126. Harvey v. City of Oklahoma City, 111 P.3d 239 (Okla. 2005) (holding bonds secured by TIF revenues were the sole obligation of a legally sep-arate entity than the affected municipality);
127. City of Guymon v. Butler, 92 P.3d 80 (Okla. 2004);
128. In re Application of Okla. Dev. Fin. Auth., 94 P.3d 87 (Okla. 2004) (holding that since the TIF program does not require any affected taxing district to appropriate money to the TIF fund, it is not constitutional debt).
129. AMDURSKY & GILLETTE, MUNICIPAL DEBT FINANCE § 4.12, supra note 44.
130. Id.
131. Id.
132. Id. (Generally, this means that me public authority has its own revenue streams, can issue its own bonds, and depends upon the geographically overlapping general pur-pose government to repay its obligations.).
133. Id.
134. See AMDURSKY & GILLETTE, MUNICIPAL DEBT FINANCE § 4.12, supra note 44; MANDELKER ET AL., supra note 45, at 406-07.
135. See Tribe, 540 P.2d at 503; S. Bend Pub. Transp. Corp., 428 N.E.2d at 220;
136. Denver Urban Renewal Auth., 618 P.2d at 1382;
137. see also City of Guymon, 92 P.3d at 87 (TIF district is a separate entity).
138. 540 P.2d at 503.
139. Id. ("A quasi-municipal corporation is an arm of the state government separate and distinct from any local government, with powers and rules of its own, and the mere fact that its territorial boundaries may encompass or impinge upon the territorial boundaries of a local government does not make it a part of me city, for its powers are distinct and separate.").
140. 428 N.E.2d at 220.
141. Id. at 221 (Redevelopment authorities could exercise "the power to establish al-location areas and to freeze the assessed value of taxable property therein, the power to identify blighted areas, and the power to acquire property and issue tax allocation bonds payable from incremental taxes.").
142. 618 P.2d at 1382.
143. See Part IV(B) of this article.
144. AMDURSKY & GILLETTE, MUNICIPAL DEBT FINANCE § 4.12, supra note 44.
145. Id.
146. Id.; see also Robert H. Bowmar, The Anachronism Called Debt Limitations, 52 IOWA L. REV. 863 (1967);
147. Robert Morris, Jr., Evading Debt Limitations with Public Building Authorities: The Costly Subversion of State Constitutions, 68 YALE L.J. 234 (1958).
148. AMDURSKY & GILLETTE, MUNICIPAL DEBT FINANCE § 4.12, supra note 44.
149. 539 S.W.2d 1 (Ky. 1976).
150. Id. at 3.
151. Id. at 4.
152. Id. The Miller decision is an outlier among TIF constitutional challenges. Most TIF statutes require municipalities to create TIF commissions and authorize the cre-ation of TIF districts and delineate specific criteria for determining "blight" and "but-for" tests. See Luther, supra note 61, at 115-16.
153. Id.
154. GELFAND, STATE & LOCAL DEBT FINANCING § 9:11, supra note 38.
155. Id.
156. Id.
157. Id. at § 9:12.
158. Id. at § 9:11.
159. GELFAND, STATE & LOCAL DEBT FINANCING § 9:11, supra note 38. The only significant limitation that some state courts have placed on the special fund doctrine is mat the revenue source financing the special fund must be "related to a good or service that makes the improvement necessary." AMDURSKY & GILLETTE, MUNICIPAL DEBT FINANCE § 4.5, supra note 44. This limitation forces state and local governments to minimize the risk of a local government paying for a facility that fails to return any benefit because it has not pledged revenue that could have been used for other purposes. Id. However, Amdursky & Gillette note that this limitation has not been followed by all state courts. Many have followed the formalistic legislative earmarking of funds that would have been available for general purposes. Id.;
160. see, e.g., Naftalin v. King, 90 N.W.2d 185 (Minn. 1958) (upholds ad valorem tax imposed by state government for the purpose of constructing and repairing public buildings on the grounds of the special fund doctrine).
161. Denver Urban Renewal Auth., 618 P.2d at 1382. But see Miller, 539 S.W2d at 5 (rejecting the special fund theory by arguing that any pledge of ad valorem property taxes is a constitutional debt).
162. See Tax Increment Fin. Comm'n of Kansas City, 781 S.W.2d at 77 ("The fact that the [tax increment revenues] are measured by the assessed value of the property does not change their character as special assessments").
163. Miami Beach Redevelopment Agency, 392 So. 2d at 898-99 (holding TIF bonds are payable from a trust fund, part of which is funded by intermingled revenue and not any specific source of government revenue).
164. See Denver Urban Renewal Auth., 618 P.2d at 1382 (TIF authority fund will be the sole source of funding for the bonds); Wolper, 336 S.E.2d at 874-75 (same);
165. S. Bend Pub. Transp. Corp., 428 N.E.2d at 222 (TIF authority fund constitutes a sepa-rate governmental body against whom bondholders have recourse).
166. See Corbin, 623 P.2d at 1243; Richards, 237 N.W.2d at 64;
167. City of Hartford, 493 N.W2d at 52;
168. Cooke, 475 S.E.2d at 489;
169. Okla. City Urban Renewal Auth., 4 P.3d at 687;
170. Meierhenry, 354 N.W2d at 179.
171. City of Hartford, 493 N.W2d.
172. Id. at 49-50.
173. Id. at 52.
174. Id.
175. Id. at 55.
176. City of Hartford, 493 N.W.2d at 55.
177. Id.
178. Id. at 52.
179. Id. at 55-56.
180. Id. at 56. Critics of the special fund doctrine have echoed this and asserted that the special fund doctrine diverts general revenue for special purposes, thereby leaving a local government with few options but to either raise taxes or cut services in times of financial distress without any reduction in the financial burden of residents.
181. See AM-DURSKY & GILLETTE, MUNICIPAL DEBT FINANCE § 4.6, supra note 44.
182. Corbin, 623 P.2d at 1244-45;
183. see also AMDURSKY & GILLETTE, MUNICIPAL DEBT FINANCE § 4.6, supra note 44.
184. See, e.g., Cooke, 475 S.E.2d at 493;
185. Okla. City Urban Renewal Auth., 4 P.3d at 684;
186. see also Strand, 992 So. 2d at 164 (Lewis, J., dissenting);
187. City of Parker, 992 So. 2d at 180-89 (Bell, J., dissenting).
188. Goshorn, supra note 15, at 943;
189. see also Cerciello, supra note 15, at 804-05;
190. Luther, supra note 61, at 97-100. See GILLETTE § 4.11, supra note 59, at 98. Gillette criticizes the City of Hart-ford decision as not following Dieck v. Unified Sch. Dist. of Antigo, 477 N.W.2d 613 (Wis. 1991) that, in the case of non-appropriation debt, it would not look beyond the legal formalities to investigate the economical realities of the transaction. The City of Hartford court explicitly stated that it was required to look beyond the form into the substance of the transaction. 493 N.W.2d at 50. The court even indicated in a footnote mat if the city was not obligated to keep the TIF district, then it may have been consid-ered non-appropriation debt under Dieck. Id. at 56 n.20.
191. See Fults, 666 N.W.2d at 558;
192. City of Guymon, 92 P.3d at 84; In re Application of the Okla. Dev. Fin. Auth., 94 P.3d at 94;
193. Harvey, 111 P.3d at 241;
194. Strand, 992 So. 2d at 157-58;
195. see also City of Hartford, 493 N.W2d at 56 n.20 (noting that under Dieck, if the city could avoid a TIF obligation by not appropriating or disbanding me district, it may satisfy constitutional debt limit provisions).
196. See AMDURSKY & GILLETTE, MUNICIPAL DEBT FINANCE § 4.10, supra note 38, at 200.
197. Id. at 201.
198. GILLETTE § 4.14.1, supra note 59, at 107.
199. GELFAND, STATE & LOCAL DEBT FINANCING § 9:14, supra note 38.
200. Id.
201. See footnote 73 of this article and the accompanying citations.
202. GILLETTE § 4.14.1, supra note 59, at 107.
203. Harvey, 111 P.3d at 241 (summarizing previous rulings).
204. Fults, 666 N.W.2d at 558 (internal citations omitted);
205. see also Cerciello, supra note 15, at 815 (noting that, in practice, a local government will likely appropriate funds to avoid a drop in its credit rating).
206. Strand, 992 So. 2d 950;
207. City of Parker, 992 So. 2d 171;
208. Bay County, 992 So. 2d 164.
209. Miami Beach Redevelopment Agency, 392 So. 2d at 898.
210. GELFAND, STATE & LOCAL DEBT FINANCING § 9:14, supra note 38, at 50.
211. GELFAND, STATE & LOCAL DEBT FINANCING § 9:14, supra note 38, at 49. Gel-fand points to three inquiries to determine the validity of such clauses:
212. the formal legal authority of the legislature to exercise the non-appropriation clause (i.e., to refuse to make an appropriation when the project is no longer need-ed or desired);
213. the probability that the legislature will continue to make appropriations even for a project that is no longer useful (usually to protect the government's credit rat-ing); and/or
214. the expectation of the bondholders that the state will continue to make appropria-tions, despite disclosure of the non-appropriation clause.
215. Id.;
216. see Winkler v. State School Bldg. Auth., 434 S.E.2d 420 (W.Va. 1993).
217. AMDURSKY & GILLETTE, MUNICIPAL DEBT FINANCE § 4.10, supra note 44;
218. see, e.g., Brown v. City of Stuttgart, 847 S.W.2d 710 (Ark. 1993) (city would lose both equity and interest in the operation of a garbage truck if it were to terminate the lease under its non-appropriation clause); Montano v. Gabaldon, 766 P.2d 1328 (N.M. 1989) (it was impracticable for county to exercise its non-appropriation authority because failure to make future appropriations would result in loss of equity in prison facility that the county had built through its cumulative payments on lease-purchase agree-ment); Winkler, 434 S.E.2d at 435 (state would likely continue to make appropriations to school facilities fund, despite non-appropriation clause, in order to protect state's credit rating).
219. See Cerciello, supra note 15, at 810-11.
220. A recent study of Wisconsin TIF districts reports that TIF is typically used in areas where there is "little potential for property value growth without the incentives provided by TIF policy." Deborah A. Carroll, Tax Increment Financing and Property Value: An Examination of Business Property Using Panel Data, 43 URBAN AFF. REV. 520, 546 (2008).
221. See Weber, supra note 17, at 189-90;
222. see also Johnson, supra note 11, at 47 (even in the bull market of the late 1990s, several TIF bonds failed and for every one that failed there were "a hundred close calls").
223. Johnson, supra note 7, at 81 (discussing the effect of the Englewood Urban Re-newal Authority of Englewood, Colorado's default on a $27 million TIF bond issue and the resulting downgrade of Englewood's general obligation bonds);
224. see also Reinert, supra note 17, at 1028 (default is "the option of last resort").
225. See Part IV of this article.
226. Id.
227. See Goshorn, supra note 15, at 938.
228. See footnote 14 of this article and the accompanying text.
229. See Part IV(C) of this article.
230. See AMDURSKY & GILLETTE, MUNICIPAL DEBT FINANCE § 4.12, supra note 44.
231. See footnote 15 of this article and the accompanying text.
232. Id.
233. See Part IV(B) of this article.
234. See Part III of this article.
235. See generally GELFAND, STATE & LOCAL GOVERNMENT DEBT FINANCING § 9:02, supra note 38.
236. See Part IV(B) of this article.
237. See Part III of this article.
238. See Sterk & Goldman, supra note 39, at 1314 (noting that debt limitation provi-sions may be too harsh of a remedy against legislative shortsightedness).
239. See AMDURSKY & GILLETTE, MUNICIPAL DEBT FINANCE § 4.15, supra note 38, at 220-21;
240. see also Luther, supra note 61, at 90-91;
241. Sheryll D. Cashin, Localism, Self-Interest, and the Tyranny of the Favored Quarter: Addressing Barriers to New Region-alism, 88 GEO. L.J. 1988, 1989 (2000).
242. See footnote 15 of this article and the accompanying text and citations.
243. See generally Jeff A. King, Institutional Approaches to Judicial Restraint, 28 OXFORD J. LEGAL STUD. 409, 410 (2008) (examining approaches to the level of judicial review and the expertise of the judiciary among co-equal branches of government).
244. See Sterk & Goldman, supra note 39, at 1358; GILLETTE § 4.1.1, supra note 59, at 63; Fino, supra note 41, at 1012.
245. See supra note 15 and accompanying text;
246. see also Sterk & Goldman, supra note 39, at 1310; but see Patience A. Crowder, "Ain't No Sunshine": Examining Infor-mality and State Open Meetings Acts as the Anti-Public Norm in Inner-City Redevelop-ment Deal Making, 74 TENN. L. REV. 623 (2007) (arguing that the urban redevelopment process, while nominally "open," has an anti-public norm that essentially makes the process private); Mark Fenster, The Opacity of Transparency, 91 IOWA L. REV. 885 (2006) (examines how open meeting laws often frustrate the political process).
247. Amdursky & Gillette argue that this may be an imperfect solution by itself, as voters will likely have other issues that are more important to them than how much debt the local government has incurred during the elected official's terms.
248. See AMDURSKY & GILLETTE, MUNICIPAL DEBT FINANCE § 4.12, supra note 44. However, this ultimate power works in concert with other procedural mechanisms, such as notice requirements, multiple public meetings, and other statutory mechanisms used to ensure that the public is aware of TIF districts. See note 15 and accompanying text. In addition, the use of TIF has attracted a lot of recent attention given the financial crisis, as municipalities struggle to balance their budgets but find a significant portion of their ad valorem property taxes are siphoned off to retire TIF obligations.
249. See infra note 163 and accompanying text (discussing Strand).
250. City of Hartford, 493 N.W2d at 52 n.3.
251. See Carroll, supra note 136.
252. Indeed, the other states in which TIF debt is currently subjected to constitu-tional debt limits without other mitigating factors, Kentucky, South Dakota, and West Virginia, are not states that have seen large-scale development. Arizona currently does not authorize TIF. Iowa and Oklahoma have exempted TIF bonds under the moral obli-gation and non-appropriation debt doctrine. See Part IV(C) of this article.
253. See Nanette Byrnes, Municipal Bonds Freeze Up, BUSINESS WEEK, Oct. 1, 2008, available at http://www.businessweek.com/bwdaily/ dnflash/content/oct2008/ db2008101-204511.htm; Michael A. Hiltzik, Credit Market Freeze May Claim Local Governments as Victims, LA. TIMES, NOV. 22, 2008, available at http://www.latimes. com/business/investing/la-fi-muni22-2008nov22,0,5700621 .story.
254. Strand, 992 So. 2d at 159-60.
255. See, e.g., Nomi Prins, The Risk Fallacy, FORTUNE MAGAZINE, Oct. 28, 2008 (examining roots of financial crisis in bad mortgages and the resulting decline in property values and credit market freeze) available at http://money.cnn.com/2008/10/27/magazines/fortune/ riskfallacy-prins.fortune/index.htm.
256. See note 132 and accompanying text.
257. See, e.g., Steve Vockrodt, TlF Bonds Take a Bite Out of KC's Skinny Budget, KANSAS CITY BUSINESS JOURNAL, Feb. 9, 2009 (Kansas City, Missouri has a $6.45 miUion bill to pay for TTF projects that have not generated enough increment to pay debt services on TTF bonds), available at http://www.bizjoumals.com/ kansascity/stories/2009/02/09/story3.html. Much of the TTF debt that Kansas City is liable for are securities which the city decided to directly back.
258. An excellent example of TTF problems for cities is currently being debated in Chicago. Chicago depends greatly on property taxes to fund general operations and currently over $500 million a year is siphoned off to pay for TIF obligations. Mayor Daley views TTF as an invaluable development finance tool mat has enabled the city to undertake large-scale redevelopments mat have revitalized communities. Detractors argue TIF dollars are "being held hostage" and that part of die budget shortfall for 20082009 has been caused by the city's use of TTF. Dan Mihalopoulos, Why do Chicago and Mayor Richard Daley face $420 million budget shortfall?, CHICAGO TRIBUNE, Oct. 8, 2008, available at http://archives. chicagotribune.com/2008/oct/06/local/chi-chicago-budget-analysis-06-oct06;
259. see also Adam Verywymeren, TIF Districts Flush as City Finances Strain, CHICAGO JOURNAL, Nov. 12, 2008, available at http://www. commissionerquigley.com/mq/index.php?option=com- content&view=article&id =582:tifs-are-flush-as-rest-of-chicagos- finances-strain&catid=67:medill-reportschicago.