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General Assembly Passes Emergency Act Regarding

03.21.2007

The 2007 General Assembly passed H.B. 549, which limits the application of the Tax Increment Financing Pilot Program of KRS 65.490 to KRS 65.499, inclusive and the Kentucky Increment Financing Act of KRS 65.680 to KRS 65.699, inclusive, to established development areas that are subject to a grant contract executed prior to the effective date of H.B. 549 and replaces the two programs with a new Tax Increment Financing (“TIF”) framework. See 2007 H.B. 549, §§ 1-22 (new framework), 23-24 (limiting existing TIF-type provisions).

The new TIF framework authorizes counties and cities to establish, generally for a period of 20 years, local development areas (eligible for local TIF funding) and development areas (eligible for state TIF funding). H.B. 549 also establishes criteria and procedures for establishing such areas. See 2007 H.B. 549, §§ 4-8. The new framework is quite different from the TIF programs that it replaces.

H.B. 549 provides for a local funding program and three state-level TIF funding programs. The local TIF funding program generally makes available incremental local real property ad valorem taxes (except for school and fire district taxes) and occupational license taxes generated in the local development area to finance a local project, and is implemented via a local participation agreement between the involved agencies and taxing districts. See 2007 H.B. 549, §§ 9-13.

To oversee the state-level TIF funding programs, H.B. 549 establishes the State Tax Increment Financing Commission comprised of the Secretary of the Finance and Administration Cabinet, the Budget Director, the Secretary of the Cabinet for Economic Development, the Secretary of the Commerce Cabinet, the Chair of the Kentucky Economic Development Finance Authority, the Dean of the University of Kentucky Gatton College of Business and Economics and the Dean of the University of Louisville College of Business and Public Administration. See 2007 H.B. 549, § 15-16. The Commission has the power to approve applications for participation in state TIF programs. H.B. 549 also establishes a new Division of Tax Increment Financing in the Department of Revenue to analyze and assist in implementing proposed state TIF projects. See 2007 H.B. 549, § 26. All three state programs require the execution of a project grant agreement. See 2007 H.B. 549, § 20.

H.B. 549 provides for a Commonwealth Participation Program for State Real Property Ad Valorem Tax Revenues, which is available to provide financial support derived from incremental state property tax revenue for approved public infrastructure costs for a mostly non-retail (no more than 20%) project with a minimum capital investment of $10 million.

Another available program created by H.B. 549 is the Signature Project Program, which provides financial support for approved public infrastructure, financing and signature project costs for a project with a minimum capital investment of $200 million. There are two separate initiatives under this program, one of which is limited to a mostly retail (no more than 20%) project and another, which is available only until January 1, 2008, and has no similar retail limitation. Under the Signature Project Program, up to 80% of incremental state tax revenue (from state real property, individual income, corporation income, limited liability entity and sales taxes) may be pledged for approved project costs. See 2007 H.B. 549, § 18.

H.B. 549 also creates the Commonwealth Participation Program for Mixed Use Redevelopment in Blighted Urban Areas. That program provides financial support for approved public infrastructure and land preparation, demolition and clearance costs for a project of between $20 and $200 million, which meets certain criteria including having at least two qualified uses (i.e., retail, residential, office, restaurant or hospitality). As with the Signature Project Program, up to 80% of incremental state tax revenue (from state real property, individual income, corporation income, limited liability entity and sales taxes) may be pledged for approved project costs. See 2007 H.B. 549, § 19.

H.B. 549 also makes available refunds of certain sales and use tax paid on tangible personal property used in the construction of a Signature Project, see 2007 H.B. 549, § 28.

H.B. 549 was delivered to Governor Ernie Fletcher for signature on March 12, 2007.

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