TIF Neutralization for Monroe County Approved for 2012

Aerial View of Printpack Factory in Westside Economic Development Area (TIF District)

Monroe County just received notification that its annual TIF Neutralization calculations were accepted by the Department of Local Government Finance, the final step before the certification of our county’s net assessed value (NAV) — the value of all real and personal property in the county, after all deductions, abatements, and exemptions. The forms and calculations are available here: 2012Pay2013 TIF Neutralization.

But what is TIF neutralization and why does it matter?

To answer this question, remember what Tax Increment Financing (TIF) is. TIF is a technique for spurring economic development in a particular defined area (the TIF district) by investing in infrastructure that serves that area, and then using the additional property taxes generated by the new development as a result of that infrastructural investment (called the “increment”) to pay for that investment. The infrastructural investment is frequently primarily in roads, trails, and sewers — but can also be in the form of parks or other amenities that serve the TIF district — and can even be  in the form of training assistance and other intangibles.

This increment — the additional property taxes owed on new assessed value in a TIF district as a result in the infrastructural investment — is revenue that does NOT go to the other units of local government that serve the TIF district (e.g. the county, the public library, the township, the city or town, the school corporation, etc.). This is the source of the greatest controversy associated with tax increment financing — the development that occurs in TIF districts may result in an additional burden on the units of government that serve the TIF district, yet the revenue from the TIF district is siphoned off to support new infrastructure and development in the TIF district.

A related concern with tax increment financing is that a TIF district will capture (and siphon off from other units of government) the increment from increased property values — even from property values that are and would be increasing anyway. Why would they be increasing anyway? Maybe the real estate market is hot in the area. Maybe the area has become much more desirable for any one of a number of reasons. In any case, the annual TIF neutralization process attempts to address this concern by identifying the total increase in assessed value in a TIF district in a given year and then determining whether or not it is:

  1. an increase that would have occurred anyway, due to increasing property values in the area; or
  2. an increase that is beyond that of the surrounding area, and therefore attributable to the investment in the TIF district.

The increased assessed value from (1) — the increase that would have happened regardless of the investment — belongs to the units of government that serve the TIF district. The increased assessed value from (2) — the increase that occurred due to the infrastructural investment, i.e.,the increment — belongs to the TIF district.

Although you can read the TIF neutralization forms in detail if you want, the following table summarizes the property taxes that each TIF district will receive in 2013 (actually, the maximum possible property taxes that each TIF district will receive). Again, in principle, this is the increment that is attributable to the investment in infrastructure in the TIF district (but is therefore not available to the other units of government that serve the TIF district).

2012 Pay 2013 Monroe County TIF Neutralization Summary

Jurisdiction TIF District Potential Tax Increment for the TIF District
City of Bloomington
Thompson Original  $897,051.00
Thompson Expanded  $210,286.00
Walnut-Winslow  $86,887.00
Original Downtown  $2,040,770.00
Expanded Downtown  $373,043.00
Adams Crossing  $596,531.00
Kinser-Prow  $91,094.00
Whitehall/Gates  $1,162,094.00
Tapp Road  $248,226.00
Monroe County
Westside  $1,634,763.00
State Road 46 (North Park)  $160,017.00
Fullerton Pike  $297,560.00

Proposed Cost of Living Increase for County Employees

Probably the single most significant budgetary decision made by any unit of government is about raises or cost of living adjustments for employees. Most government operating budgets are driven by personnel costs; personnel represent over 75% of the general fund budget of Monroe County Government, for example.

In principle, Monroe County Government’s compensation policy states that it will “consider” giving employees a cost of living increase each year, which has been traditionally defined by Monroe County Government as the December to December change in the Midwest Consumer Price Index (http://www.bls.gov/ro5/cpimid.htm). Unfortunately, revenue shortfalls have forced the county to fall short of this goal in most years. What this means in practice is that the wages of county employees erode each year against the forces of inflation.

The following table illustrates the cost of living adjustments and the actual CPI change for the past 5 budget years.

Year Cost of Living Raise CPI Change
2008 3% (*)


2009 $1000 per FTE


2010 None


2011 1.5%


2012 None


2013 Proposed: $1000 per FTE


* In 2008, the County chose to start paying the employee’s own mandatory 3% contribution to their own Public Employees Retirement Fund (PERF) account, in lieu of a cost of living raise.

As part of another tradition (I have been unable to find this documented in any policy), the County has tried to alternate percentage-based cost of living adjustments with flat per-employee cost of living adjustments. The former has the effect of spreading out the distribution of salaries (i.e., highly compensated employees receive a larger pay increase than lower-compensated employees). A flat adjustment (say, $1000 per full-time employee) disproportionally benefits employees at the lower end of the pay scale. By alternating these two forms of compensation, the theory goes, the distribution of salaries remains relatively constant.

I am proposing for the FY2013 budget that County employees receive a flat $1000 raise, for full-time employees (part-time employees will receive a prorated increase). I will discuss the budgetary impact of this proposal in a future posting. However, the net effect is approximately equivalent to a 2.5% increase in overall salary. This is still less than the 2.82% increase in the actual cost of living (as measured by the CPI change from December-December) — but close. During these difficult economic times, this raise would boost the compensation of lower-paid employees by a higher percent. Any employee making less than $28,000 per year, for example, would receive a raise greater than the CPI change; employees making more than $28,000 per year would receive less.

Note that this is different from what the City of Bloomington is proposing for their 2013 budget. The City is proposing giving employees a one-time $1000 increase in their 2013 compensation — sort of a like a bonus — but not increasing their base pay for subsequent years. In comparison, I am proposing that the County give employees a true $1000 cost of living increase, that will adjust their base pay for subsequent years.

Budgetary Reserves for County vs. City

The City of Bloomington has just begun their budget hearings for 2013. The City’s proposed 2013 budget can be found here: 2013 Proposed Budget.

Monroe County will begin ours in mid-September. Both the City and the County will likely be running some sort of deficit, at least on paper (there are many reasons why what looks like a projected deficit does not, by the end of the year, wind up actually being a real deficit). Any time deficit spending is contemplated, the level of reserves rises to paramount importance: once the reserves are expended, obviously, deficit spending becomes impossible.

There are many ways to represent budgetary reserves, but since the City of Bloomington chose to represent their reserves in a particular way (the projected cash balance in the General Fund at the end of 2013 plus the Rainy Day Fund), I thought it would be illustrative to calculate the County’s is the same manner, by way of comparison.

Here are the results:

City County
2013 EOY Projected Cash Balance  $    2,522,943.00  $  11,283,937.92
Rainy Day  $    4,637,930.00  $    5,570,550.00
Total Reserves  $    7,160,873.00  $  16,854,487.92
Projected General Fund Budget  $  34,786,808.00  $  29,202,961.00
Reserves as % of Gen Fund 21% 58%
Projected 2013 Deficit  $       781,157.00  $            713,546
2013 Deficit as % of Reserves 10.9% 4.2%

Of course, there are a lot of what-ifs in this analysis. My projected general fund budget includes a 2% employee COLA increase that I am proposing, while basically remaining flat in other areas — and also makes some assumptions about revenues (which I will post in a different entry). But the upshot is that even under a projected deficit scenario, Monroe County Government, through years of prudent fiscal management clearly has reserves that are very healthy, compared to the proposed level of deficit spending during these difficult economic times. This is exactly why we build up reserves during good times — so we don’t have to slash basic public services when times are tighter.

Appropriations vs. Cash: A Crucial Distinction

The distinction between having cash in a particular fund and having an appropriation in a fund is a crucial distinction that is often confused. Both are needed before money can be spent from a fund. Neither is enough by itself.  Let’s consider the distinction:

Having cash in a fund is just like having money in a bank account. Cash can come into a fund from various sources — taxes, sales of government services, fees, etc. Once it is deposited into a fund, it sits there in a fund until it is spent, just like money in a bank account.

Example: A county could create a Dog License Fund and designate all fees from mandatory dog licenses to to into the Dog License Fund. As dog license fees are received by the county, they would be deposited into the Dog License Fund, and its balance would grow over time, until the money was spent.

Appropriation, on the other hand, is simply official permission to spend money out of a fund. In Indiana, each unit of government has a designated fiscal body which is required to provide that permission to spend; for cities, it is the city council, for counties the county council, for townships the township board, etc.  Appropriations are most typically performed during the annual budget process; however, from time to time fiscal bodies will find it necessary to appropriate additional funds after a budget year has begun (e.g., for unexpected expenses). These appropriations are called additional appropriations. In most cases, appropriations only last until the end of the budget year (the calendar year), after which they expire.

Example: The County Council could appropriate $1000 from the Dog License Fund to the Sheriff, to provide training to animal control officers. This appropriation would provide the Sheriff permission to spend $1000 out of the Dog License Fund, if the cash is available in the fund, to provide training to animal control officers.

It is probably clear by now that two things are required before a government official can spend money out of a fund: the cash must actually be there in the fund AND the official must have an appropriation from the fund. Neither is useful by itself. If cash is in a fund, it just sits there until it is appropriated and spent. But without the cash, an appropriation is worthless — although there is permission to spend, there may be no money in the fund to spend! Note that it is perfectly acceptable to appropriate more money than there actually is in a given fund — until the money is there, though, the appropriation is worthless; despite the appropriation (permission to spend) there is nothing there to spend!

Example: The County Council creates a new Dog License Fund, and designates all fees from dog licenses to go into the Dog License Fund. It also appropriates $1000 out of the fund to the Sheriff for training for animal control officers. At the beginning, before any dog license fees are deposited into the fund, the appropriation is essentially worthless. Although the Sheriff has permission to spend up to $1000 for training, until the fees are actually deposited into the fund, there is nothing to spend. After the fees start to build up in the fund, the Sheriff may start spending the money on training. Note that there may not be enough cash in the fund to support the entire appropriation. For example, let’s say dog license fees only generate $700. Even though the Sheriff has $1000 of appropriations in the fund, if there is only $700 available in the fund, she or he would only be able to spend $700 on training. Conversely, say the dog license fees generated $2000 in revenue that was deposited into the Dog License Fund. The Sheriff still only has $1000 in appropriations, and can therefore only spend up to $1000 on training.

A couple of other notes about appropriations and cash:

  • There are times in which the fiscal body may appropriate more than is available in a fund. This occurs particularly in funds that are supported by revenue sources that are uncertain — for example, fees, fines, building permits, planning fees, etc. The fiscal body may want to appropriate funds only once a year during the annual budget-setting process — but the official who has the appropriation can still only spend the appropriation when the cash is actually available in the fund. To reiterate — there is nothing wrong with this. This is NOT overspending or overdrafting, or anything like that; even with an appropriation an official can’t actually spend money that isn’t there to be spent.
  • An appropriation is permission to spend, it isn’t a requirement to spend. Just because a fiscal body appropriates money for a particular function does not mean that the official with the appropriation has to spend the appropriation (absent some other statutory requirement to spend the appropriation). For a particularly silly hypothetical example, let’s say that the County Council decides to appropriate $10,000 in a fund to the Sheriff for clown therapy in the jail. The Sheriff might decide that clown therapy is a waste of money and decline to spend the appropriation. An appropriation is not required to be spent.

Hopefully this helps clarify an important distinction that is often confused in media reporting and popular discussion about government finance.

Indy County Council TIF Study Commission Final Report

Back in March of 2012, the Indianapolis-Marion County Council created a commission to study the usage and impact of Tax Increment Financing (TIF) districts in the county. In particular, the commission was to review the status and performance of current TIF districts in Marion County, to review and make recommendations to make more transparent the process by which TIF districts are created and ended, and to study the impact of TIF districts on the other taxing units that provide services to the district (generally one of the biggest concerns about the use of tax increment financing).

The activities and meetings of the commission can be found here:


On June 28, the commission just came out with its final report, which is by far the best and most clearly-written exposition and analysis of tax increment financing I’ve ever seen. Although a lot of the data and some of the specific enabling ordinances are specific to Marion County (and to the use of TIF districts in an urban area), I highly recommend anyone interested in community and economic development to read this report. Among other things, it explains very clearly:

  • The life cycle of a TIF district
  • How TIF compares to other economic development tools
  • Fiscal analysis and impacts of tax increment financing
  • The role of TIF in overall economic development strategy
You can find the report here: TIF Commission Final Report 2012-06-28

I will be blogging further about this report and bringing in some comparisons to Monroe County’s 3 TIF districts and Bloomington’s 6.