Start Your Engines: Ohio’s Legislature Dramatically Expands the Breadth of Two Local Economic Development Programs

Reprinted from the Fall 2023 Columbus Bar Lawyers Quarterly
Download the complete Fall 2023 issue

With Google’s $3.7 billion investment, Amazon Web Services’ expected $7.8 billion investment, Honda and LG Electronics’ nearly $4.4 billion investment, and Intel’s expected $20 billion investment in Ohio (just to name a few), Ohio and its local communities find themselves at a once-in-a-generation economic inflection point. As outside investment flows into Ohio, the 135th General Assembly (GA) made clear its intention to turbocharge the economic development engines that help spawn major investments in Ohio. Amended Substitute House Bill 33 (HB 33), commonly known as Ohio’s Budget Bill, dramatically expanded both the breadth of and access to, two specific types of local economic development programs - Community Reinvestment Areas (CRA) and Tax Increment Financing (TIF). As a result, both of these incredibly powerful economic incentives are potentially available to more projects, and more project sites, than at any other time in Ohio’s history.

To ready our state for continued economic growth and investment, all of Ohio’s political subdivisions should be prepared to leverage these expanded programs and prepare their communities to capitalize on the opportunities now available. To help, we’ve put together a brief description of Ohio’s CRA and TIF programs along with a summary of the legal changes that were made to those programs pursuant to Amended Sub. Senate Bill 33 (effective April 3, 2023) and HB 33 (effective October 3, 2023).

CRA Basics (On Your Marks…)

The GA has historically granted Ohio counties and municipalities the authority to “abate” (remove) real property taxes that are attributable to new construction or remodeling improvements within certain areas of its jurisdiction if the area is exhibiting a decrease in investment.

Under law effective July 22, 1994, the GA bi-furcated local CRA programs into “Pre-1994” and “Post-1994” programs. Substantially different legal requirements underly each type of CRA program, and they are both still in effect—it’s possible your community could have an active Pre-1994 CRA in its list of ordinances:

2023 CRA Changes:

• Limited Home-Rule Townships now have the power to designate their unincorporated areas as CRAs, such authority was previously available to only municipalities, and counties.
• For Post-1994 CRAs, school district approval is now required for abatements that exceed 75%, previously it was 50%.
• Post-1994 CRAs previously had a new payroll threshold ($1 million/year, subject to statutory offsets) at which communities that levy income taxes must share the increase in payroll taxes generated by a CRA with affected local school districts. Now, that payroll threshold has increased to $2 million/year.
• Local governments no longer need to spend time and resources petitioning the State to designate an area as a CRA. Now, local governments must merely send a copy of the enabling legislation and a map of the CRA’s boundaries by certified mail to the Ohio Department of Development (ODOD).
• While all local governments are still required to submit annual reports regarding each CRA within their jurisdiction to the ODOD by March 31st, the underlying reporting obligations have been greatly reduced to place fewer reporting requirements on a local government’s staff.

The TIF Basics (Get Set...)

Whereas a CRA abates real property taxes, a TIF diverts real property taxes. TIFs allow counties, municipalities, and townships to exempt real property taxes that would otherwise be due with respect to improvements to real property, and replace them with service payments in lieu of taxes (“PILOTs”) in amounts equal to the exempted taxes. Rather than abating the real property taxes, a TIF operates as a property tax diversion mechanism in order to finance public infrastructure costs.

Just like real property taxes, PILOTs are collected by the county treasurer. Instead of being distributed by the auditor to whatever agency or local government levied the tax, the PILOTs are distributed instead to the local jurisdiction that authorized the TIF to be deposited into a specific fund that was created by the local government when it approved the TIF (the “TIF Fund”). From the TIF Fund, PILOTs may pay costs of public infrastructure directly benefitting the TIF parcels (which may include reimbursements to developers fronting such costs or as a pledge to secure bond issuances, among other financing structures).

While the above generally describes Ohio’s TIF programs, there are different types of TIF structures available to counties, municipalities, and townships for different types of projects, the exact structure of which can vary widely depending on the financing goals and costs for a project. TIF is not a one-size-fits-all tool, and the ultimate use of PILOTs for “public infrastructure” should be carefully analyzed.

2023 TIF Law Changes:

• The “Super-Long TIF FOR A LIMITED TIME ONLY” amendment is an act now or lose it forever opportunity. This amendment authorizes local communities to extend certain TIF structures for an additional (30) years, effectively authorizing (60) year TIFs (provided that affected school districts receive all real property tax revenue they would have received in years (31) through (60)). This program applies only to those TIFs for which the locality has received PILOTs, in any year, exceeding $1.5 million. The locality must utilize this program before January 1, 2024.
• The “Super-long TIF” amendment authorizes localities to extend certain TIF structures for an additional (30) years, effectively authorizing (60) year TIFs in the same manner as provided above, except that either (i) the locality must have received $1.5 million in PILOTs in the calendar year immediately preceding the adoption of the legislation authorizing the Super-long TIF (as a retrospective amendment to a prior program) or (ii) the community expects to receive $1.5 million in PILOTs in any future year (as a prospective determination in legislation authorizing the new program).
• The “Robin Hood TIF” amendment authorizes ODOD-listed “impacted cities” to “remotely” use PILOTs under certain TIF structures. Under traditional law, most TIF structures require that PILOTs are used to pay costs of public infrastructure that directly benefits the TIF’s parcels. Now, “impacted cities” may deploy PILOTs for “urban redevelopment” purposes elsewhere in the “impacted city” without regard to direct benefit.
• The “Restart the Clock” amendment alters municipal and township TIF programs, authorizing legislative authorities to remove “non-performing parcels” from prior TIF exemptions as if the parcels were never included. By following certain legal requirements, these “non-performing” parcels can be included in other types of TIF structures for the maximum statutory term, (i.e., the clock restarts).

Start Your Engines (…GO!)

Billions of dollars in economic development are flowing into Ohio. Communities with well-calibrated CRA and TIF programs have pole position in the race to foster growth and bring jobs to their constituents. With the updates to Ohio’s CRA and TIF laws, other communities can jump-start their own economic development engines and join the action!