“How are we going to pay for it?” asks a concerned resident as visions of high property taxes dance through her head. “Don’t worry. The money won’t come from tax payers. We’re going to use TIF!” replies an optimistic growth proponent….
If you’ve been listening to city council meetings (or stalking people diligently on Facebook) these days you’ve probably seen the acronym “TIF” being used quite a lot around Charlestown. With recent expansions of the town’s Tax Increment Financing (TIF) districts in anticipation of growth inspired by the opening of the east end bridge and development in River Ridge, it is important that we all know how a TIF district impacts us.
If you already know what a TIF is then feel free to scroll past this next paragraph. But if you don’t, then read on…
When a community designates a TIF district they freeze the assessed value of all non-residential property in the area for a specific amount of time (20 years is a popular number). It’s that assessed value that that determines how much property tax a business pays. As new businesses enter the area more property taxes are collected, which are intended to be used to fund development within the district. In order to entice developers to take the risk in the first place, cities take on bond debt under the belief that,
as businesses come…
and money comes in…
they’ll be able to pay off the debt later.
TIF districts began in California in the 1950s as a way for cities to participate in urban renewal projects. They arrived in Indiana in the 1970s and were originally limited to areas defined as
Since 2005, Indiana towns have been able to establish TIF districts more broadly anywhere they determine
“an area in need of redevelopment.”
These new standards have prompted several cases of TIF abuse as communities apply the financing strategy to otherwise healthy areas to make up for state enforced caps on yearly tax spending.
Here are some things to note about TIFs:
- TIFs create opportunity for cities to self-finance redevelopment
- TIFs are highly flexible – they are not capped the way regular tax revenue is capped
- TIFs shift the risk to bondholders
- TIFs freeze tax bases and overlook services needed to manage additional growth. If you build it…
and they come…your city and county governments,
schools, police and fire departments, libraries,
parks, township trustees, road crews,
and sanitation departments,
all have to continue to function without the additional property taxes generated in the TIF districts. To meet the needs of their growing communities, these entities are forced to cut services or raise taxes on all of us.
- TIFs assume that all monetary increases come from the redevelopment they inspire. They don’t take into account other market forces that increase property value.
- TIF bonds are attached to higher interest rates than standard loans because their risk of repayment is based on the success of the development. So cities that take out bonds for TIF repayment end up paying more on that money later.
Now you might be asking…
Why does all this matter?!?
Redevelopment in Charlestown is being funded by TIF.
Springville Manor, Pleasant Ridge Redevelopment , and the proposed Sports Complex (courtesy of a public/private partnership with Klipsch-Card Athletics) would all be supported by TIFs.
Let’s look at the Sports Complex as an example. The facility built by Klipsch-Card in Noblesville has been used as an example of the company’s success. The city of Noblesville pays
$800,000 annually for 20 years (that’s $16 million)
in order to hold that facility.
- $300,000 is paid to the facility from a TIF on the building itself
- $300,000 is paid to the facility from user fees
- $200,000 is paid to the facility from a TIF on businesses in a second TIF district
This is Klipsch-Card’s go-to sales model. In Bargersville, the group asked the city to pay $950,000 per year for 20 years ($19 million). Bargersville examined their budget, found the money lacking, and
decided to meet their needs rather than their wants,
and rejected the proposal.
We can also turn to Springville Manor. On Tuesday, September 5, the City Council of Charlestown adopted Ordinance 2017-OR-12 granting permission for the City to acquire bonds in the amount of $2.5 million for Springville Manor, LLC (see my blog from that day). Let me say, nobody wants to deny the elderly a place to live. That’s not the critique here. The rub is in how the process is happening.
Although Mayor Hall said the bond money is allocated for the homes at Springville Manor in the Council Meeting on 09/05/2017, the Ordinance suggests room for modification. The Ordinance mentions funding for an
“economic development facility”
without defining what an “economic development facility” is. It also mentions that repayment can happen from “certain other revenues of the city” without fully explaining what these revenues are.
This is an expensive project. Look at the numbers in the amortization chart. In the end, the City will pay
for that $2.5 million bond. We should not take such expenditures lightly when they are shrouded in speculation and uncertainty.
Are TIFs ever a good idea?
In order for a TIF to be successful, academic literature shows that it must…
- be targeted and temporary
- hold developers accountable for the money they receive
- be fully transparent
Studies show that TIFs work quite well in industrial areas, among non-minority communities, and in their early years while the building boom is fresh. BUT…studies also show no evidence that TIFs bring higher employment.
Employment increases in a TIF district come at the cost of lower employment from outside the district because they don’t attract new people, they just shuffle the existing people around.
Also, they don’t always attract high-paying jobs that would improve average household income.
TIFs also shuffle the financial burden around. Because TIFs divert money from the City’s General Fund, they fail to decrease your tax burden.
Think of it like a gift. If five people are going to buy a gift for their boss that costs $100, then each one contributes $20 and all is fair. Now imagine that the company grows and there are 10 people who could contribute to the gift – except that they weren’t grandfathered in so they don’t.
You still have five people paying $20 when you could have 10 people paying $10 each instead!
Meanwhile…the cost of the gift rises a little each year…
TIFs take money away and enable the city to use it in potentially abusive ways
(more to come on that).
- If a city masks its use of TIF districts to fund projects
- If a city lacks total transparency in planning and financing
- If a city promises you that TIF redevelopment will bring jobs
You should think very carefully about what is happening.
When Bargersville’s town council turned down Klipsch-Card last year, the athletic management group moved on to other cities. Andy Card quipped,
“If you’re not interested, then others are.”
And he might be right…because now they’re knocking on Charlestown’s door. How will we answer?
Sources for this post:
Annie Goeller, “Sports complex owners asking for $950,000 a year from town,” in Daily Journal, September 9, 2016.
Baker & Daniels, LLP, “Tax Increment Financing in Indiana” (undated).
Charlestown City Ordinance 2017-OR-12
Chris Sikich, “$15 Million Sports Facility to be Built in Noblesville,” in IndyStar, November 29, 2016.
Martina Webster, personal communication from August 31, 2017.
Paul F. Byrne, “Determinants of Property Value Growth for Tax Increment Financing Districts,” in Economic Development Quarterly, vol 20.4, November 2006, pp 317-329.
Paul F. Byrne, “Does Tax Increment Financing Deliver on its Promise of Jobs? The Impact of Tax Increment Financing on Municipal Employment Growth,” in Economic Development Quarterly, vol 24.1, 2010, pp 13-32.
Rob Kerth and Phineas Baxandall, PhD, “Tax-Increment Financing: The Need for Increased Transparency and Accountability in Local Economic Development Subsidies,” U.S. PIRG Education Fund, Fall 2011.
Tom Heller, “Economic Development: Indiana’s Wobbly TIF Law,” in Indiana Policy Review, August 10, 2013: http://inpolicy.org/2013/08/2245/.