July 21, 2026
By Caitlyn R. Culbertson and Hart M. Passman
Business district and tax increment financing are potent economic development tools for Illinois municipalities, allowing certain development costs to be financed with incremental sales, hotel, and property taxes. The General Assembly and courts have been busy amending and interpreting the statutes that authorize these tools – the Business District Development and Redevelopment Law, 65 ILCS 5/11-74.3-1 et seq. (“Business District Law”), and the Tax Increment Allocation Redevelopment Act, 65 ILCS 5/11-74.4-1 et seq. (“TIF Act”). In this Client Alert, we review some recent legislation and court opinions that will affect how municipalities can foster economic development.
Recent Legislation
Historically, the Business District Law has not allowed incremental sales and hotel taxes in one business district fund to be transferred to another business district fund within the same municipality. The General Assembly recently approved Senate Bill 2769, which amends Section 6(a) of the Business District Law to authorize such transfers by a two-thirds vote of the municipality’s corporate authorities. The transferred funds remain restricted to payment of qualifying business district project costs. Transfers must be “documented and reported annually to the corporate authorities” and the documentation must be publicly available.
Interestingly, unlike Section 4(q) of the TIF Act, which restricts transfers of incremental property taxes between TIF districts which are contiguous or only separated by public right-of-way or forest preserve property, Senate Bill 2769 does not require the transferor and transferee business districts to be contiguous as a precondition to transfers of business district funds. In other words, a municipality with multiple business districts can transfer funds between them, even if they are on opposite sides of town.
As in years past, at the completion of the spring 2026 legislative session, the General Assembly approved a group of TIF district term extensions in House Bill 1441. An extension of a TIF district term beyond 23 years, whether to 35 years or 47 years, requires an amendment to the TIF Act. Since creation of the TIF Act, the General Assembly has authorized nearly 300 35-year extensions and several dozen 47-year extensions. Though not required in the TIF Act, before approving a term extension, the General Assembly typically requires the municipality to present letters of support from the taxing bodies substantially affected by TIF, including school districts and park districts. House Bill 1441 extends the terms of 15 TIF districts in several different municipalities, including the Village of Lisle, the Village of Hoffman Estates, and the Town of Cicero.
A number of bills proposing amendments to the Business District Law and TIF Act were introduced in the General Assembly in the spring session but did not advance. Among them were:
• House Bill 4712, which would have limited distribution of TIF district surplus funds to 5% of the fund balance, limited surplus distributions to not more than once every 10 years, and prohibited surplus distribution during the extended term of a TIF district extended beyond 23 years until the TIF district is terminated.
• Senate Bill 1432, which would have required all surplus TIF district funds to be distributed as soon as possible after calculation, rather than within 180 days after the close of the municipality’s fiscal year. We reported on this Bill in last year’s update; it did not advance this year either.
Recent Court Decisions
In Board of Education of Winfield School District 34 and Board of Education of Community High School District 94 v. Village of Winfield, 2026 IL App (3d) 250182, the Illinois Appellate Court addressed a variety of issues commonly raised during the creation of TIF districts. The Village of Winfield created a TIF district which included some parcels that were not previously in a TIF district, and other parcels that were once within another Village TIF district. The new TIF district was created to facilitate development of privately-owned property with commercial uses.
Two local school districts filed a wide-ranging lawsuit against the Village, advancing four arguments: (1) the Village did not establish that but for the creation of the TIF district, the desired development would not occur, (2) the properties in the TIF district were not contiguous, (3) the TIF Act qualification criteria for a conservation area were not met, and (4) the TIF Act did not permit the Village to include properties that were previously within one TIF district in a second, which has also been referred to as “de-TIF/re-TIF.”
But-For Test
The TIF Act requires that a municipality find that the property to be designated as a TIF district “on the whole has not been subject to growth and development through investment by private enterprise and would not reasonably be anticipated to be developed without the adoption of the redevelopment plan.” 65 ILCS 5/11-74.4-3(j)(1). This is commonly referred to as the “but-for” test. The school districts argued that the Village did not satisfy this test because the property already had development interest without the new TIF district, as evidenced by a development agreement entered into prior to creation of the TIF district.
The Appellate Court rejected this argument and held that the development agreement established that the but-for test was satisfied, as it specifically contemplated that successful development required either an extension of the existing TIF district or removal of certain parcels from the existing TIF district and placement in a new one.
Contiguity
The TIF Act provides a TIF district may only include “contiguous parcels of real property and improvements thereon substantially benefited by the proposed redevelopment project improvements.” 65 ILCS 5/11-74.4-4(a). The school districts argued that 11 of the 51 parcels in the TIF district did not substantially benefit from being included in the TIF district because they were vacant green space without blight, and no development was proposed to occur on them. The school districts claimed that those parcels could not be included in analysis of contiguity, and that without those parcels, the proposed district was not contiguous.
The Appellate Court held that the TIF Act does not require that each and every parcel within a TIF district substantially benefit from the TIF plan and, instead, “it merely requires that the property as a whole must benefit.” Board of Education of Winfield School District 34 v. Village of Winfield, 2026 IL App (3d) 250182, ¶ 45. The Appellate Court also noted that the 11 green space parcels could be improved during the life of the TIF district with roadways, water and sewer improvements, stormwater management facilities, public parking facilities, and so on. For these reasons, the Appellate Court rejected the school districts’ argument.
Conservation Area Criteria
The TIF Act requires that a municipality find the proposed properties are either a blighted area or an area in need of conservation. 65 ILCS 5/11-74.4-3. For blighted areas, the TIF Act includes separate criteria for vacant parcels and for improved parcels. For conservation areas, the TIF Act does not have separate criteria for vacant and improved parcels. The school districts argued that the Village’s conservation area findings for the TIF district were in error because 42 of the 51 parcels were vacant at the time the TIF district was designated.
The Appellate Court rejected this argument as well, noting the TIF Act distinguishes between vacant and improved properties in blighted areas but not conservation areas, and the Appellate Court would not create “implicit” qualification criteria for vacant parcels in conservation areas. The Appellate Court also noted that the TIF Act provides that surface improvements may be considered when determining if a parcel meets the conservation area criteria for deterioration, which further undercut the districts’ argument. 65 ILCS 5/11-74.4-3(b)(1)(C).
De-TIF / Re-TIF
The districts’ last argument was that removing properties from an existing TIF district and adding them to the new TIF district impermissibly created a TIF district with a term longer than the maximum 23 years allowed in the TIF Act without an extension being granted by an amendment to the TIF Act. The Village noted that it first removed parcels from the existing TIF district before adding them to the new TIF district.
The Appellate Court agreed with the Village, holding that the “TIF Act does not expressly prohibit parcels from being included in a TIF district if they were once already included in another one” and the “Village’s de-TIF/re-TIF action established a new [base] EAV for the parcels and indicates that an entirely new TIF district was created, which does not create an improper extension under the statute.” Board of Education of Winfield School District 34 v. Village of Winfield, 2026 IL App (3d) 250182, ¶¶ 65, 67. In late May 2026, the Illinois Supreme Court declined to hear an appeal filed by the school districts, making the Appellate Court’s decision final.
Our Firm will continue to track legislation and court decisions affecting business district financing and tax increment financing. Meanwhile, please contact Caitlyn Culbertson, Hart Passman, or any Elrod Friedman attorney with questions.