July 30, 2025
Tax increment financing is a potent economic development tool for Illinois municipalities. The General Assembly and courts have been busy amending and interpreting the Tax Increment Allocation Redevelopment Act (“TIF Act”), which authorizes and regulates tax increment financing.
Recent Legislation
In response to the Illinois Supreme Court’s decision in Board of Education of Richland School District No. 88A v. City of Crest Hill, which is discussed below, the TIF Act and other economic development statutes with contiguity requirements were amended in 2022 to align contiguity requirements for annexations in the Illinois Municipal Code with their economic development counterparts. As a result, if properties are contiguous for municipal annexation purposes, then they are sufficiently contiguous for TIF Act purposes. Public Act 102-818. The legislation applies retroactively to TIF districts created prior to the amendments of the TIF Act, except for the one struck down in the Richland School District case.
In the recently-ended spring 2025 legislative session, the General Assembly approved another package of TIF district term extensions. 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 286 extensions to 35 years and 24 extensions to 47 years. 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 3662 extends the terms of 10 TIF districts in eight different municipalities, including the City of Carbondale, the City of Elgin, and the Village of Lyons.
A number of bills proposing TIF Act amendments were introduced in the General Assembly in the spring session but did not advance. Among them were:
- 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.
- House Bill 3266, which would have applied the Prevailing Wage Act’s wage requirements to all private projects located in a TIF district and paid for in whole or part with public funds, with exceptions for projects less than $25,000 and for projects in designated historic districts requiring specialty contractors because of an historic designation.
- House Bill 3693, which would have reduced the term of TIF districts established on or after July 1, 2025 from 23 years to 15 years.
Recent Court Decisions
The Illinois Supreme Court interpreted the contiguity requirements in the TIF Act in Board of Education of Richland School District No. 88A v. City of Crest Hill, 2021 IL 126444. The City of Crest Hill created a TIF district which included properties that only touched at corners and were not actually contiguous. Richland School District 88A filed suit, arguing that properties within the TIF district lacked contiguity as required by Section 4 of the TIF Act. The City responded by arguing that the TIF Act implicitly (but not explicitly) incorporated exceptions to actual contiguity from the annexation provisions of the Illinois Municipal Code. The City argued that using an unincorporated public utility right-of-way exception to actual contiguity from the Municipal Code, which the Municipal Code allows to establish contiguity for purposes of municipal annexations, meant that properties within the challenged TIF district were also sufficiently contiguous under the TIF Act.
The Illinois Supreme Court agreed with the School District, noting that the TIF Act did not expressly incorporate exceptions to actual contiguity from the Illinois Municipal Code. The Court held that because the properties in the TIF district were not adequately contiguous, the TIF district was not created in conformity with the TIF Act. As discussed above, the General Assembly amended the TIF Act to now expressly incorporate the annexation contiguity provisions from the Illinois Municipal Code.
In a more recent case, the Illinois Appellate Court confirmed that the TIF Act authorizes TIF districts to allocate incremental property taxes for up to 23 full calendar years beginning the January 1 after the TIF district was created. Village of Shiloh v. County of St. Clair, 2023 IL App (5th) 220459. The Village of Shiloh established two TIF districts in 1998. At the end of the life of the districts, St. Clair County and the County Clerk refused to pay the final year of annual incremental property taxes owed to the Village, claiming that the TIF Act only permitted 23 annual payments to be made. The Village filed suit, arguing that it was owed 24 annual increment payments, because the TIF districts in question lasted for 23 full years after the year in which they were created, based on the plain language of Section 3.5 of TIF Act.
The Illinois Appellate Court reviewed the TIF Act and agreed with the Village. The Court held that a TIF district may have a term for 23 full years after the year it was created. The Court found that because the Village created its TIF districts with 23 full year terms, the Village was entitled to 24 annual increment payments from the County for each of its TIF districts – one for the first partial year, and 23 for each full year thereafter.
Our Firm will continue to track legislation and court decisions affecting tax increment financing. Meanwhile, please contact Greg Smith or any Elrod Friedman attorney with any questions.