RE: Passing Through Tax Increment or Incremental Valuation
<br />Recent amendments to I.C. 36- 7- 14 -39(b) and I.C. 36 -7- 15.1- 26(b), require
<br />redevelopment commissions to notify the County Auditor annually of the
<br />amount, if any, by which property taxes payable to the allocation fund in the
<br />following year exceed the amount of property taxes necessary to pay all
<br />obligations payable from the fund. That excess amount would be paid to the
<br />respective taxing units in which the allocation area is located. The
<br />amendments in this law also provide that the commission may not authorize a
<br />payment to the respective taxing units if to do so would endanger the
<br />interests of the holders of bonds payable solely or partially from allocation
<br />area taxes.
<br />The tax increment revenue bonds issued by the City of South Bend
<br />Redevelopment District in 1985, 1986 and 1988, are bonds payable solely from
<br />allocation area taxes. The holders of these bonds can look only to the tax
<br />increment revenue stream as security for their investment, since it is not
<br />permitted to levy any general obligation or special tax to support these
<br />issues. The holders of such pure revenue bonds have traditionally looked to
<br />a demonstrated annual excess of revenue over debt service, designated reserve
<br />funds, and the ability to accumulate funds from year to year as security
<br />against the risk that some unknown circumstance in the future may drastically
<br />reduce or eliminate their source of payment.
<br />Annual coverage ratios of 150% for tax increment revenue bonds are not
<br />uncommon, to guard against annual fluctuations in tax rates or tax
<br />delinquency patterns. A debt service reserve equal to the maximum annual
<br />debt service is very common to provide security in the event of major delays
<br />in collection, such as a breakdown in the county's computer system, resulting
<br />in a several month delay in producing and /or mailing tax statements. The
<br />ability to accumulate excess funds from year to year is looked upon as an
<br />additional security to protect against a more protracted revenue problem,
<br />such as a major decline in the number of taxpayers within the district. In
<br />such a case, the revenue shortfalls may not have been foreseen when the bonds
<br />were issued, but may begin, for example, ten years after issuance, and
<br />persist for several years thereafter, or throughout the remaining term of the
<br />bonds.
<br />Home Office: Wisconsin Office:
<br />85 East Seventh Place, Suite 100 500 Elm Grove Road, Suite 101
<br />Saint Paul, Minnesota 55101-2143 Elm Grove, Wisconsin 531220037
<br />612.223.3000 414.782.8222
<br />Fax: 612.2233002 Fax: 414.782.2904
<br />SPRINGSTED
<br />PUBLIC FINANCE ADVISORS
<br />251 North Illinois Street, Suite 1510
<br />Indianapolis, Indiana 46204.1942
<br />317.237.3636
<br />Fax: 317.237.3639
<br />7 July 1988
<br />Mr. F. Jay Nimtz, President
<br />Members, Redevelopment Commission
<br />Mr. Jon R. Hunt, Executive Director
<br />Department of Economic Development
<br />City of South Bend
<br />1200 County -City Building
<br />South Bend, Indiana 46601
<br />RE: Passing Through Tax Increment or Incremental Valuation
<br />Recent amendments to I.C. 36- 7- 14 -39(b) and I.C. 36 -7- 15.1- 26(b), require
<br />redevelopment commissions to notify the County Auditor annually of the
<br />amount, if any, by which property taxes payable to the allocation fund in the
<br />following year exceed the amount of property taxes necessary to pay all
<br />obligations payable from the fund. That excess amount would be paid to the
<br />respective taxing units in which the allocation area is located. The
<br />amendments in this law also provide that the commission may not authorize a
<br />payment to the respective taxing units if to do so would endanger the
<br />interests of the holders of bonds payable solely or partially from allocation
<br />area taxes.
<br />The tax increment revenue bonds issued by the City of South Bend
<br />Redevelopment District in 1985, 1986 and 1988, are bonds payable solely from
<br />allocation area taxes. The holders of these bonds can look only to the tax
<br />increment revenue stream as security for their investment, since it is not
<br />permitted to levy any general obligation or special tax to support these
<br />issues. The holders of such pure revenue bonds have traditionally looked to
<br />a demonstrated annual excess of revenue over debt service, designated reserve
<br />funds, and the ability to accumulate funds from year to year as security
<br />against the risk that some unknown circumstance in the future may drastically
<br />reduce or eliminate their source of payment.
<br />Annual coverage ratios of 150% for tax increment revenue bonds are not
<br />uncommon, to guard against annual fluctuations in tax rates or tax
<br />delinquency patterns. A debt service reserve equal to the maximum annual
<br />debt service is very common to provide security in the event of major delays
<br />in collection, such as a breakdown in the county's computer system, resulting
<br />in a several month delay in producing and /or mailing tax statements. The
<br />ability to accumulate excess funds from year to year is looked upon as an
<br />additional security to protect against a more protracted revenue problem,
<br />such as a major decline in the number of taxpayers within the district. In
<br />such a case, the revenue shortfalls may not have been foreseen when the bonds
<br />were issued, but may begin, for example, ten years after issuance, and
<br />persist for several years thereafter, or throughout the remaining term of the
<br />bonds.
<br />Home Office: Wisconsin Office:
<br />85 East Seventh Place, Suite 100 500 Elm Grove Road, Suite 101
<br />Saint Paul, Minnesota 55101-2143 Elm Grove, Wisconsin 531220037
<br />612.223.3000 414.782.8222
<br />Fax: 612.2233002 Fax: 414.782.2904
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