TIF Controversies

Aerial of the Extension of the Westside Economic Development Area TIF District
Aerial of the Extension of the Westside Economic Development Area TIF District (photo by Geoff McKim)

In several other posts (such as this one), I have mentioned that there many who are skeptical of tax increment financing (TIF) as an economic development tool. In general, I would summarize the various criticisms as follows:

  1. TIF activities can cause a loss of revenue to other taxing units (cities and towns, counties, townships, school districts, etc.) through circuit breaker (“tax cap”) losses.
  2. Extensive development in a TIF district causes the tax rates in the taxing district containing the TIF district to be higher than they would otherwise (because the assessed value in the TIF district is captured by the TIF, not the surrounding taxing district).
  3. TIF districts encourage “green field” development, rather than redevelopment of blighted areas. This development can reduce greenspace, eliminate farmland, and encourage urban sprawl.
  4. Development in TIF districts may cause increases in costs for the units of government that serve the TIF districts (i.e., schools, libraries, fire and police protection, etc.) without providing these units of government with any additional revenue to provide that service.
  5. Areas that are already poised to develop may be hurriedly placed into a TIF district, which would increase the return on investment to the private investors in the TIF district, to the detriment of taxpayers and other local units of government.
  6. Assessed value is moved from the base of the TIF district (i.e. the pre-TIF assessed value) to the TIF, in order to ensure that bond payments can be made. This reduces the assessed value available to other units of government, and thereby increases tax rates for other taxpayers (and with the circuit breaker tax caps, could even reduce the revenue to other units of government).
  7. Development encouraged by TIF districts benefit may primarily the private investors in the properties in the TIF district, and do not benefit the existing residents of the town, city, or county.
  8. Decision-making about TIF districts and expenditures are made by appointed, rather than elected, officials, and generally are made with significantly less public scrutiny or transparency than other local government budgetary decisions.

These are the general criticisms I see about TIF districts. Of course, with any individual TIF district, there is always the question of sustainability — will the district generate the necessary tax increment to pay the bond for the infrastructure. And of course, while most of these criticisms are valid, there are also legitimate responses to each of them. If you think that I have missed a major criticism of tax increment finance in general, though, please let me know!

Here are a couple of recent news stories or blogs with criticism about TIF in Indiana:

  • The Indy Star on 2012-09-01 published this: “Behind Closed Doors: Top Democrats are mum on this tiff“, about a controversy in Indianapolis about whether to proceed on a couple of planned TIF district proposals immediately vs. waiting for a more systematic and structural change to the TIF decision-making processes.
  • A blogger, Pat Andrews, who goes by the name Had Enough Indy? is a frequent critic of TIF districts in Indianapolis, and lately has been calling attention to the drop in the TIF base (the amount of assessed value in the district that is allocated to other units of government, rather than the TIF district itself) in several Indy TIF districts. Although I don’t agree with all of the conclusions here, Andrews raises some important questions and puts out a number of original documents to support the claims.
  • I’ve posted before on the City of Carmel bailout of the Carmel Redevelopment Commission, where the Carmel City Center TIF district became overextended to the point where it could only barely make bond payments.

If you see any other stories on TIF controversies in Indiana, please send them to me!

Two Carmel Tax Abatements May be Revoked

The IndyStar reported this morning that two Carmel corporate tax abatements may be at risk of being revoked.

Both companies, Dormir (AKA Sleep LLC) and Pharmakon Long Term Care Pharmacy, Inc. were given personal property tax abatements by the City of Carmel in 2008 for moving their facilities to Carmel. The tax abatements were on the value of information technology (IT) equipment installed at the facilities for use in manufacturing and distribution activities.

When a company applies for a tax abatement in Indiana, it is required to file a Statement of Benefits stating the amount of the investment the company is requesting a tax abatement on, as well as the number of jobs and salaries that it estimates will be created by the investment. The company is then required to file annually, for the length of the abatement, a Form CF-1 Compliance with Statement of Benefits – Real Property (for tax abatements on improvements to real property), or a Form CF-1 Compliance with Statement of Benefits – Personal Property (for tax abatements on personal property, i.e., manufacturing and logistical equipment). This form requires the company to report the actual salaries and jobs created as a result of the investment. These forms are then reviewed annually by the body that granted the tax abatement (in this case, the Carmel City Council) for compliance with the terms of the tax abatement.

According to the draft resolutions in the Carmel City Council meeting packet for 2012-09-04, neither company submitted their CF-1 forms this year for review (the form was due on May 15).  Also according to the resolutions, Dormir submitted a letter of explanation on August 8. This letter is referred to as Exhibit A in the draft resolution, but unfortunately has not been included in the meeting packet.

I have included the relevant portions of the meeting packet here: Tax Abatement Revocation Carmel 2012-09-04 Meeting.

Note: in the time I have been on the Monroe County Council, although we have occasionally had to chase down the information or follow up for more details,  we have not had a company with a tax abatement decline to provide a CF-1 compliance form.