Tax increment finance (TIF) districts are the subject of a lot of public misunderstanding. In order to increase transparency about TIF districts, redevelopment commissions in Indiana were recently given some requirements for increased public reporting on the impacts of tax increment finance (TIF) districts on other units of local government. In the short 2018 special session, the Indiana General Assembly passed House Enrolled Act 1242, which, among other things, required that:
Each redevelopment commission shall annually present information for the governing bodies of all taxing units that have territory within an allocation area of the redevelopment commission. The presentation shall be made at a meeting of the redevelopment commission and must include the following:
(1) The commission’s budget with respect to allocated property tax proceeds. (2) The long term plans for the allocation area. (3) The impact on each of the taxing units.
HEA 1242 of Special Session 1 of 2018
Remember that TIF districts “capture” any growth in the assessed value of real property within the district and use it to support infrastructure in the district, rather than being used to lower the tax rates of the underlying taxing units that serve the district. These taxing units refer to other units of government, such as cities and towns, county, township, public library, etc., that have territory that overlaps a TIF district, and may have to provide services to the development within the district.
Monroe County currently has 4 TIF districts: Westside, Fullerton Pike, State Road 46 (also sometimes referred to as North Park), and Curry-Profile (which consists of two parcels of the former GE plant purchased by Cook and moved out of the Westside district into a newly created TIF).
This past Wednesday, the Monroe County Redevelopment Commission hosted the first annual public presentation of this information, in fulfillment of the statute. All taxing units were invited to attend. I’m including a link to the presentation that was given (by Financial Solutions Group) here, because it provides a good overview of the status of current and future projects, debt, and overall cash flow of each of Monroe County’s TIF districts, as well as their impact on other taxing units. The presenter acknowledged that this was the first report for Monroe County of this kind, and that the data will be improved and presented in more detail in future years.
In brief, the presentation outlined the following types of (positive) impacts that the underlying units of government see from the TIF districts (in greatly varying degrees):
Personal Property: TIF districts typically capture only the grown of assessed value of real property (buildings and structures), not personal property (equipment used in producing income). However, factories and other businesses typically employ a lot of personal property as well (machines, IT equipment, etc.). So the assessed value of the personal property does accrue to the other taxing units, and thereby goes to reduce their tax rates
Circuit Breaker: Due to the aforementioned growth in personal property typically associated with growth in TIF districts, the tax rates are slightly lower than they would have been, and therefore the circuit breakers (constitutional tax caps) are slightly lower, leading to a bit more revenue for the other taxing units. Note that this effect, while positive, is generally quite small.
Income Tax: With employment associated with growth in TIF districts comes local income tax (LIT), which benefits all taxing districts. Note that this income tax only goes to Monroe County taxing units if the employee earning the wages lives in Monroe County.
The presentation to the Redevelopment Commission is also available on CATS.
I want to mention a big caveat, though. There is a big omission in this type of analysis, and that is the additional costs to the other units of government caused by development in the TIF districts. To understand the impact of these costs would require a case-by-case assessment. For example, the impact on the Monroe County Public Library by the industrial development in the Westside TIF is negligible/zero. On the other hand, the same development puts significant additional responsibilities on the Ellettsville Fire Department (which serves Richland Township, by contract). A more comprehensive understanding of the impact of TIF on other governmental units needs to take these additional costs into account.
Note: in the presentation above, the Curry-Profile Allocation Area is referred to as the Cook Allocation Area. While Cook is the sole property owner in the TIF district, the official name is Curry-Profile.
The Monroe County Council will be considering an application for a tax abatement at its work session tonight, 2015-12-22, the only item on the agenda. The packet is available here: Council_Work_Session_Packet_20151222
Tax Abatement Application Facts
Here are the basic facts about the tax abatement application:
The applicant is RSSJ Rentals, AKA Robert (Bobby) Scank, local restaurateur (Bobby’s Colorado Steakhouse), who plans to build a 3600 sf building. The application that the building will cost approximately $300,000 — however, Mr. Scank told the Economic Development Commission (EDC) that the cost will be closer to $425,000 (since the tax abatement is tied to the investment, the value of the abatement would scale accordingly).
The tenant will be Shoshone Trucking, based in Peru, IN. Shoshone will use the property for truck storage, vehicle maintenance, materials storage, and an office. The company currently has 12 employees, and plans to expand to 20 when they are able to move into the building
The jobs to be added are truck drivers, with a starting wage of $21.10/hour plus benefits.
The property is 5260 W Vernal Pike. A map is included below. This property is within the county’s Westside Economic Development Area (TIF District). This means that the costs of and benefits of this take abatement will both accrue to the TIF district, not to the other units of government that service this parcel. This also has implications as to the process (which I’ll discuss below).
The property is zoned Light Industrial, with no zoning changes required for this usage.
Mr. Scank reported that he had a 5-year lease with Shoshone Trucking, with 2 2-year options. For this reason, he is applying for a 5-year tax abatement (this is shorter than the more typical 10 years). As with all tax abatements, the percentage of new assessed value as a result of the investment that is abated declines throughout the life of the abatement.
For example, for a 5-year abatement, the first year 100% of the new assessed value is abated, in the second year 80%, down to only 20% in the fifth year. After the term of the abatement, 100% of the new assessed value is taxed.
This abatement application is unusually small in scale compared to our typical tax abatement applications. Most of our abatements come in the form of much bigger investments (i.e., bigger buildings); this project is similar in scale and scope to the abatement that the Council granted for Eco Logic in 2014.
All tax abatement applications in the unincorporated county (which this is go to the Monroe County Economic Development Commission (EDC) for review, analysis, and recommendation to the County Council. The EDC met last Thursday, 2015-12-17, and voted 3-0 to recommend in favor of the 10-year abatement (the abatement request has subsequently been reduced to 5 years).
All tax abatement applications require two votes by the County Council: what is called a “declaratory resolution” and a “confirmatory resolution”. Tonight will be the declaratory resolution. If the vote is in favor of the abatement tonight, then the Council will schedule the confirmatory review and vote at their 2016-01-12 regular meeting.
In addition, however, because this abatement request is in a TIF district, the Monroe County Redevelopment Commission and the Board of Commissioners (as the legislative body that created the Redevelopment Commission) also are required to approve the abatement request. The RDC’s review of the tax abatement application is restricted to consideration of whether the granting of the tax abatement would jeopardize the Westside TIF’s ability to meet its bond obligations. Since the investment that is associated with this tax abatement will increase the revenue to the TIF district and the overall value of the investment is very small in proportion to the overall value of the TIF district, it would be very difficult for the RDC to find that the abatement would jeopardize the ability to make bond payments. In any case, the RDC met on 2015-12-17 and found that the abatement would not jeopardize the Westside TIF’s ability to meet its bond obligations.
The County Commissioners’ review will be scheduled for their regular meeting on Friday, 2016-01-08 (assuming the Council approves the declaratory resolution tonight).
Finally, as a matter of practice, the County Council always requires a memorandum of understanding (MOU) with the recipient of the abatement. This MOU constitutes a binding contract between Monroe County and the recipient of a tax abatement, and specifies in detail the terms of the abatement, including the timeline for the creation of any proposed jobs, criteria for substantial compliance with the terms of the abatement, and any remedies (“clawbacks”) for noncompliance. This MOU would be considered at the same time as the confirmatory resolution.
In summary, here are the relevant dates:
Review by Economic Development Commission: 2015-12-17 (Completed)
Review by Redevelopment Commission: 2015-12-17 (Completed)
First Review by County Council: 2015-12-22
Review by County Commissioners: 2016-01-08 (tentative, if first review by the County Council is successful)
Second Review by County Council: 2016-01-12 (tentative, if first review by the County Council is successful)
The property is currently assessed at $62,300 and pays approximately $1080 in property tax per year. The following table summarizes the value of the investment and the 5-year abatement, over a 10 year period. I used estimated tax rates provided by the Assessor’s Office — and made the assumption that neither the property value nor the tax rates would change during the 10-year period.
There are two numbers that matter most in the analysis of the abatement. The first is the total of the column “Estimated Revenue Not Received”, $21,412. This is essentially the value of the abatement to the property owner over a 10-year period, and is also the revenue forgone as a result of the abatement, assuming the investment went on as planned, without the abatement.
The second number is the total of the Additional Taxes Paid from Investment column, $49,962, which is the estimate of the additional amount of taxes over the status quo that would be brought in as a result of the investment.
These two numbers really can be seen as reflecting the two different sides of the abatement: the tax revenue forgone (assuming the investment goes ahead) and the additional tax revenue generated by the investment.
In addition, it is useful to look at the two columns labeled Cumulative Without Improvements and Cumulative With Improvements. In particular, these numbers show that even WITH the abatement, the property will be generating more revenue by the second year of the abatement than it would have without the investment.
Tax Abatement within a TIF District Critique
So besides the usual criticisms of tax abatements in general (in my opinion the most salient being that the literature shows that tax abatements have a minimal impact on a business’s decision to make an investment), this abatement is subject to another critique — that it is a tax abatement within a TIF district. Indiana is one of the few (not the only — at least Iowa and Missouri also permit them) state that permits tax abatements within TIF districts, so overall this is a relatively rare and not-well-studied situation.
I’ve heard this critique take 2 different forms, which can actually be seen as diametrically opposed:
A tax abatement in a TIF district is “double-dipping”, as it combines two economic development incentives
A tax abatement in a TIF creates two economic development incentives working against each other, because the purpose of the TIF district is to capture revenue from development in the district, and a tax abatement diminishes the amount of revenue for capture
I reject double-dipping argument, at least in the general case. Tax abatements and TIF districts are often lumped together in public discourse as similar economic development incentives. However, they are really very different. While a tax abatement is clearly an economic development incentive that works to the benefit of an individual business/investor by reducing the amount of new taxes paid by the business, the TIF district serves to provide infrastructure that makes particular parcels of land broadly develop-able. Any business that is going to expand or site at a particular location will generally only do so if there is existing infrastructure.
So the benefit to an individual business owner of being in a TIF district is simply having access to land with infrastructure. But this is not a particular benefit beyond any other land that has infrastructure that is outside a TIF district. The benefit of a TIF district accrues more directly to the unit of government that created the TIF district — the ability to raise revenue to put in infrastructure to support employment.
Incidentally, I’m not saying that double-dipping couldn’t occur in a specific case. A redevelopment commission could choose to invest in or provide some other sort of direct assistance to a particular property (other than providing publicly-available infrastructure) and then also allow a tax abatement on the same property. However, this is not the case here, and in general.
The second argument — that a tax abatement in a TIF creates two economic development incentives working against each other, because the purpose of the TIF district is to capture revenue from development in the district, and a tax abatement diminishes the amount of revenue for capture — does have some merit — but this merit has to be evaluated on a case by case basis. First, we have to start from the premise that the goal of the TIF district is not to accumulate as much revenue as possible, but to provide overall benefits to the community. These benefits can include redevelopment of blighted/brownfield land, amenities that improve the quality of life of residents of the community, and employment available to local residents (in urbanized areas, providing housing is an additional potential benefit of a TIF district).
The revenue captured by a TIF district is simply a means to the above purpose(s), in that the revenue allows for the investment in the infrastructure (in particular, pays the bond that created the infrastructure). So in the case of a tax abatement within a TIF, the abatement would only work at cross-purposes with the goals of the TIF district if it impaired the ability of the TIF district to invest in the infrastructure necessary to meet its goals. This could mean impairing its ability to make debt service payments, but could also mean impairing its abilities to make other infrastructural improvements that aren’t funded through debt.
So as long as the abatement does not impair the ability of the TIF district to make the necessary investments to meet its goals, it does not work at cross-purposes to the TIF district. Again, making this determination requires looking at the specific case. Is the abatement relatively large compared to the overall cash flow of the TIF district, such that it could materially affect that cash flow? Is the TIF district putting in special infrastructure or other incentives specifically to serve this property? Does the project necessitate special services or greatly increased demands on government? If the answer to any of these questions is in the affirmative, then the abatement could be seen as working at cross-purposes with the TIF district; if not, though, the abatement can be seen as working in concert with the TIF district. If the abatement plays a role in incentivizing the investment (again, it is not a given that this happens), then the abatement can increase, not decrease, the revenue available to make investments in the TIF.
And finally, even if you take an entirely negative view of tax abatements — in effect, see them as harming all of the other taxpayers — the taxpayers that are harmed in the case of a tax abatement within a TIF district — are only the other property owners (businesses) in the TIF district. So even if you take a categorical stance against tax abatements, having the tax abatement in a TIF district actually mitigates the harm done to the other taxpayers AND units of government.
Council Meeting Tonight
The Council will take the first vote on this tax abatement application tonight. As always, the meeting is open to the public, and will be held this evening (December 22, 2015) at 5:30 in the Nat U Hill room of the Monroe County Courthouse, and it will be broadcast on CATS. Public comment will be taken on this tax abatement application. Hope to see you there!
There are two items on tonight’s agenda for the Monroe County Redevelopment Commission (RDC) that are very important to me and the issues that I ran for public office on.
Placemaking for the Westside Economic Development Area
The first is a Request for Proposals (RFP) for a consultant to design aesthetic improvements to the County’s three economic development areas: Westside Economic Development Area, Bloomington Township State Road 46 Economic Development Area, and the Fullerton Pike Economic Development Area. I have written may times about these areas; this previous blog post has maps and links to several reports. According to the RFP, the project may include “items such as gateways, landscaping, decorative signage, art and wayfinding to delineate and personalize our economic development areas.”
These activities and elements are sometimes referred to as “placemaking” — transforming and reimaginging nondescript public spaces and giving them a real sense of place and identity. This certainly does include the elements in the RFP — signage, landscaping, etc. — but also needs to include an overarching concept…a name, an identity that hopefully accentuates the virtues of the space and its people, honors the history of the space, and envisions and enacts its future.
I’ve been particularly interested in placemaking for the Westside Economic Development Area. This area has been a real economic engine for Monroe County, and includes such businesses as Cook, Baxter, Grocery Supply.
Here is a letter I wrote early this year advocating for a focus on placemaking for the Westside:
“Since its establishment in 1993, the Monroe County Westside Economic Development Area (WEDA)—also known as the Westside TIF or the Richland TIF—has been an engine of economic development for the unincorporated area of the county, and serves as the site for many of Monroe County’s largest employers, including Cook, Baxter, Printpack, and Ivy Tech Community College. With the addition of several public amenities, including Will Detmer Park, the Northwest YMCA, and the in-progress Karst Greenway, the WEDA is also seeing and will continue to see a significant number of visitors (community residents) beyond the employees of the businesses in the WEDA.”
“Unfortunately, as successful as it is, the WEDA also falls short of its full potential as Monroe County’s employment and economic development hub. The area has no sense of identity or place. It is little known by residents who aren’t employees of one of the businesses therein. It has no well-defined boundaries (except on paper), and the primary entrance points on Curry Pike and Vernal Pike are at best unattractive and at worst somewhat blighted. For these reasons, marketing the area to prospective employers can be challenging – and even residents who are entering the area to visit the YMCA or other amenities are often confused, thinking that they couldn’t possibly be going to the right place.”
“However, a small amount of effort into giving the WEDA a distinctive identity and a distinctive, more attractive common visual appearance will pay dividends.
1.The area should have a distinctive name – one that honors our community’s heritage.
2.The area should have well-defined and visible boundaries and signage, particularly along common gateway areas.
3.The area should have a distinctive and attractive landscaping scheme, and common signage that
identifies the area.”
“An area with a distinctive identity and sense of place is easier to market to prospective employers. It connotes prosperity, attention, and care. Most importantly, though, it is more attractive and inviting to residents and visitors. While the economic development tools are in place to continue to sustain and enhance the success of the Monroe County WEDA, we can do much better for employees, employers, visitors, and residents.
Capital Equipment for Maintenance of the Trails
The Monroe County Parks and Recreation Department will also be presenting their request for $87,575 to the RDC to purchase capital equipment (truck with snow plow and spreader, mower, and trail-friendly maintenance vehicle) to support the maintenance of the county active transportation network, including the newly constructed Karst Farm Greenway. Parks and Recreation is proposing a total budget of $152,190 to maintain the trail network for 2015; this includes the $87,575 in one-time capital equipment. Presumably the Parks department will approach the County Council and request an additional appropriation for the other expenses — personnel, fuel, supplies, etc. early in 2015. The full proposed budget for supporting the active transportation network for 2015 can be found here: Parks Trails Management Proposal.
Since most of the County’s active transportation network is in or adjacent to the Westside Economic Development Area and serves the WEDA, the RDC is allowed to purchase capital equipment to serve the WEDA. However, it cannot pay for ongoing maintenance expenses.
I will be there tonight to support both requests of the RDC.
The full agenda is available here: RDC Agenda-11-19-14. The meeting is scheduled for 4:30PM today in the Nat U Hill Room of the Monroe County Courthouse.
I have posted before on the controversies involving the Carmel Redevelopment Commission .
Today’s Indy Star has a long and somewhat jaw-dropping article that describes in detail the creative financing that Carmel’s mayor (Jim Brainard) and the Carmel Redevelopment Commission used both to fuel the construction boom in the Downtown Carmel TIF district, but also to drive the Redevelopment Commission to the brink of default.
In short, in order to avoid the oversight and opposition of the Carmel City Council, the Redevelopment Commission not only bonded for the capital construction of the Center for the Performing Arts and other infrastructure in the downtown TIF, but also devised a creative method to finance upgrades to the center, and even more stunningly, the operations of the center and a separate staff for the Redevelopment Commission.
Typically, Redevelopment Commissions use the staff of their parent city or county, because TIF funding can’t be used to hire staff. Monroe County’s Redevelopment Commission, for example, uses the services of one of the Monroe County attorneys. However, in the case of the Carmel Redevelopment Commission, they and the mayor didn’t want the scrutiny that would come from having city staff supporting the commission. They developed a financing method called “installment purchase contracts” that would basically allow developers to take out public debt (often at a very high rate of interest) and then have the Redevelopment Commission contract with the developers for the purchase of the improvements (seemingly a variant of the more common lease-purchase arrangement). Revenue from this arrangement was then used to fund the operations of the Redevelopment Commission. In essence, this was borrowing on assets to fund operations — an inherently unsustainable activity (sort of like taking out a home equity loan to pay your electric bill).
The mayor and the Redevelopment Commission’s defense, however, is spirited as well: the mayor had a strong vision for downtown Carmel that required significant redevelopment, and that ultimately resulted in very positive national recognition for livability of the city.
Ultimately the resolution will involve some sort of refinancing of the debts of the Redevelopment Commission by the City of Carmel. The major point of negotiation will be about how much control over the RDC’s operations and activities the city (and the council) will demand.
The whole article is here, and is very much worth reading:
North Park — more formally known as the State Road 46 Economic Development Area — is one of Monroe County’s 3 TIF districts. Appropriately, it lies along State Road 46, between Bloomington and Ellettsville. I think a lot of Monroe County residents would be surprised at how much infrastructure has been installed in North Park — and simultaneously how little development there is.
A number of streets have been stubbed out with full infrastructure (water, sewer, communications), along with sidewalks and multiuse trails. However, the most notable thing about area is that there is almost no development!
Normally, no development — and therefore no tax increment — is disastrous for a TIF district and a local unit of government. Because the increment is used to pay the bond, if there is no increment due to development, the TIF district can’t pay the bond for the infrastructure, and the local unit of government (city or county) is on the hook. However, the North Park TIF district was set up such that the infrastructure bond was backed by the developer (Steve Crider, hence the nickname “Criderville”). This means that when the tax increment is insufficient to make the bond payments, the developer, not Monroe County, is on the hook.
Currently, the only tenants of this section of North Park (the Curry Pike extension east of SR46) are some grazing cows behind an electrified fence.
The Curry Pike extension currently dead-ends into Hunter Valley. A bridge is in process that will eventually connect Curry Pike to Hunter Valley Road.
Wastewater (sewage) treatment is provided by a small package wastewater treatment plant off of Hunter Valley Road.
All of the lots are wired with fiber and communications infrastructure.
A yet-unnamed street perpendicular to Curry Pike ends in Stoutes Creek, which was frothy and very muddy after a pretty powerful rain earlier today.
If you continue beyond the the end of the unnamed street to the north, a trail leads around and over Stoutes Creek to the construction staging area.
The 2012 Capital Improvement Report for Monroe County’s 3 TIF districts reveals some aspirations for the North Park TIF district. A section labeled “Other Projects” states that “These projects may include, but not be limited to construction of a passenger rail service, bicycle and pedestrian paths, bus transit facilities, assistance with low-income housing, fiber optic conduit, and multi-level parking facilities.” So what is the future of North Park — the new urbanist dream promised by the TIF plan? Just another opportunity for suburban car-oriented sprawl? Or a really beautiful ghost suburb, populated by a herd of grazing cows?
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:
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.
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).
TIF districts encourage “green field” development, rather than redevelopment of blighted areas. This development can reduce greenspace, eliminate farmland, and encourage urban sprawl.
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.
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.
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).
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.
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.
Back in July, I posted about the Indianapolis-Marion County Council Study Commission report on the use and costs and benefits of TIF districts as an economic development tool (link here).
When that study was commissioned, it got me thinking that I’d like to see a similar analysis of the TIF districts here in Monroe County — particularly the Westside Economic Development Area. Namely: is the creation of a TIF district for industrial/employment activities a good investment on behalf of Monroe County taxpayers?
Yesterday I had the opportunity to kick off that analysis. A project team from Professor Jim Grandorf’s (Clinical Professor of Accounting at the IU Kelley School of Business) A569 Field Consulting Project graduate course has accepted our project proposal for their semester-long consulting project, and met with me and several other County officials from the legal department and the Commissioners’ office yesterday to frame the project and our goals. We will be working closely with the four graduate accounting students for the rest of the semester, providing them with a drink-from-the-firehose crash course in public sector finance and tax policy, and they will provide us with essentially a cost-benefit analysis of our Westside TIF district. I’m very much looking forward to this project, and, having seen other work products created from project teams in this course from past years, am confident that it will provide significant value to the residents of Monroe County, who are often rightfully skeptical of economic development tools like TIF.