Ohio House Bill 501 Expands the Possibilities for Townships Use of TIF and PILOT Incentives

May 22, 2023

Recently enacted Ohio House Bill 501 (HB 501) expands options for townships desiring to create a tax increment financing (TIF) incentives agreement. Under the HB 501, a township may create a TIF and use payments in lieu of taxes (PILOTs) received through the TIF for any redevelopment project described by the township in the resolution authorizing the use of PILOTs. The enacted changes bring some parity between townships and municipalities when it comes to reaping the benefits of economic development.

What is a TIF?

TIF is a public financing tool that allows local governments to capture and convert the increased property tax revenue that would be generated by new development or improvement projects within a designated area into PILOTs used to support economic development. The PILOTs are generally used to fund public infrastructure or other improvements that benefit the TIF area. TIF is intended to stimulate economic development and increase the generation of taxes from economic activity. TIFs are commonly used to help create development that generates jobs and related tax benefits in areas that otherwise would not attract private investment. TIFs can be placed on most property for commercial development purposes, as well as for residential purposes if the property is located in a blighted area or an area otherwise meeting statutory criteria.

What is a PILOT?

In Ohio, TIF PILOTs are generally charged and collected in the same manner and in the same amount as the real property taxes that would have been charged and payable against the exempted improvement as if it were not exempt from taxation pursuant to R.C. 5709.74 (for townships). But for the exemption and the PILOT, property taxes would be collected and distributed in the normal course. Simply speaking, the PILOT is the vehicle by which funds that are charged and collected in the normal course are distributed for the purposes outlined in each TIF.

PILOTs may be subject to negotiation in consideration of various factors dependent on circumstances. PILOTs can be modified to provide additional funding for public improvements or distribute funds for public improvement purposes according to negotiated terms.

TIFs represent a powerful tool in a local government’s toolbox to stimulate economic growth and additional taxes while funding improvements and expansions of public services. For example, if a developer wishes to develop or redevelop a plot of land into an office building, shopping center, or residential subdivision, such use often requires a significant expansion of local public infrastructure or services. HB 501 permits townships to use PILOTs for any project described in the PILOT resolution. New construction or renovated development may require new sewer lines, water mains, public road improvements, environmental remediation, and other public infrastructure improvements that did not previously exist. Following is a non-inclusive listing of public infrastructure improvements described in R.C. 5709.40.

Public roads and highways Water and sewer lines
Public road, highway and water and sewer line maintenance Environmental remediation
Land acquisition, including acquisition in aid of industry, commerce, distribution, or research Demolition, including demolition on private property when determined to be necessary for economic development purposes
Stormwater and flood remediation projects, including such projects on private property when determined to be necessary for public health, safety, and welfare Provision of gas, electric, and communications service facilities, including the provision of gas or electric service facilities owned by nongovernmental entities when such improvements are determined to be necessary for economic development purposes
Enhancement of public waterways through improvements that allow for greater public access Off-street parking facilities, including those in which all or a portion of the parking spaces are reserved for specific uses when determined to be necessary for economic development purposes

Changes Implemented by HB 501

Ohio municipalities have long been able to use TIF funds for various purposes beyond public improvements that benefit the TIF area, as long as they are specified in the PILOT resolution. For example, municipalities can use TIFs to finance operating expenses, debt service, or grants to other entities. However, townships have been restricted from using PILOTs in the same way. Until now, townships could only use TIF funds for public infrastructure or other improvements that directly benefit the TIF area.

HB 501 changes this restriction and allows townships to use TIF funds for any public purpose adopted in the PILOT resolution, as long as it is consistent with the township’s statutory powers and duties. This means that townships can now use TIF monies in the same way as municipalities have been able to.

Impact for Townships and Local School Districts

The changes HB 501 makes may have a significant impact on townships’ use of TIF and potentially the revenue to local school districts. Townships may be able to use TIF to fund more types of projects that benefit their communities, such as parks, recreation facilities, fire stations, or social services. However, depending on the choices a township makes in the TIF resolution, this may also reduce the amount of TIF funds available for public infrastructure or other improvements that directly benefit the TIF area. Moreover, this may affect the revenue-sharing agreements between townships and school districts, as school districts may receive less funding from PILOTs than they would have received from property taxes. In such instances, school districts and townships may negotiate replacement revenues from other sources. No two TIFs are exactly alike, and the impact each will have on development, local communities, and school districts will inevitably be determined on a case-by-case basis.

Questions & Challenges

HB 501 expands the flexibility and authority of townships to use TIF incentives for various public purposes. However, it also raises some questions and challenges regarding the allocation and distribution of PILOT funds among different stakeholders and interests. Townships now have the task of carefully evaluating the potential benefits and costs of using PILOTs for different purposes before adopting or modifying their PILOT resolutions to take advantage of these new possibilities.

KJK can help navigate these latest changes to an important incentive program in Ohio. To learn more about how you can benefit from these developments, contact KJK’s Economic Development & Incentives attorneys Rich Morehouse (RAM@kjk.com; 216.736.7292) or Jim Scherer (JJS@kjk.com; 216.736.7296).