Public Hearing Scheduled on New TIF District for Cook Redevelopment of GE Plant

IMG_1864Note: This version of the posting has been revised to address some questions from an early reader.

The last stage of the process of splitting off two parcels from an existing Tax Increment Finance (TIF) district and creating a new TIF district to support the planned Cook Group redevelopment of the shuttered General Electric property in the County’s Westside Economic Development Area has been scheduled for Wednesday, March 21, 2018 at 4:30PM in the Nat U. Hill Meeting Room at the Monroe County Courthouse. This meeting of the Monroe County Redevelopment Commission (RDC) will include a public hearing, followed by an anticipated vote on resolutions creating the new TIF district and pledging any TIF revenues from the new area towards paying the bonds for the redevelopment.

Old GE Plant Before Cook Renovation
Loading Docks at the GE Factory

This public hearing culminates a series of actions that began with the RDC passing an initial resolution on January 17, 2018 that stated its intention to pull the two parcels of the GE plant purchased by Cook Group out of the County’s Westside Economic Development Area (WEDA), sometimes referred to as the Richland TIF, and create a new TIF district (referred to as an allocation area in the documents) consisting solely of these two properties. Since then, the Monroe County Plan Commission and the County Commissioners have both approved this action. On February 13, 2018, the Monroe County Council approved the issuance of $6.2M in economic development bonds to support the redevelopment project.

The following map shows the proposed new TIF allocation area. The purple shaded area illustrates the City of Bloomington’s incorporated area. On October 18, 2017, Cook Group and the City of Bloomington signed an agreement for Cook to pay the City of Bloomington $100K per year for 15 years in order to avoid annexation by the City. The new TIF district would last for 25 years. Note that this proposal does not actually increase the number of parcels in Monroe County in a TIF district — it simply splits off two parcels from the Westside Economic Development Area and creates an independent allocation area out of the two.

Screenshot 2018-03-11 07.44.01

The RDC’s stated purpose for the creation of the new TIF allocation area, from Exhibit B in the resolution is:

Site clean-up and preparation; paving of parking lots; hardscape and soft-scape landscaping including streetscape improvements, curbs and sidewalks; site access improvements; and exterior building improvements. The estimated cost of the entire redevelopment project is $125 million, and the Commission’s contribution to these costs will be based on what may be financed from the new tax increment revenues derived from the project.

Based on representations of the Companies, the Commission has determined that the development will not proceed as planned without the contribution of tax increment revenues to be derived from the Cook Allocation Area to the projects described above.

Essentially, Cook is estimating the cost of the redevelopment of the sprawling factory at around $125M. The County is providing $6.2M in bond funds towards this effort to support streetscape, access, sidewalk and walking trail, and exterior building improvements to what has become a blighted area of the County’s westside — all improvements that will benefit the public as well as Cook.

The sole source of repayment of these bonds will be the additional property taxes generated from this new TIF district (the so-called “increment” in Tax Increment Finance) resulting from Cook’s redevelopment efforts. This includes both real property and personal property (equipment).  Further, the bonds have been structured so that Cook (or a related business entity) will purchase the bonds, meaning that the risk of any shortfall in revenue would be borne by Cook, not the County taxpayers. Once the bonds have been paid off, any additional revenues can be spent on improvements in this new district or in the larger Westside Economic Development Area.

Old GE Plant Before Cook Renovation
Inside the Shuttered Former GE Plant, Site of New Cook Group Project

If you really want to get into the weeds of the estimated revenues and payments from this proposed TIF district, you can see the analysis performed by the County’s financial analyst Financial Solutions Group, Inc.

One of the questions that has come up from a reader of a previous edition of this posting is why to create a separate TIF allocation area at all — why isn’t the existing Westside Economic Development Area adequate? The answer is that creating a separate single-taxpayer TIF district constrains the risk of the project. First of all, if by some chance the developer is unable to generate the required revenues to pay the bond (unlikely, but is within our due care duty to prevent against) it is only they who will suffer. The rest of the taxpayers of the westside TIF will not have to make up the difference (or have to shift resources out of other important westside projects). Secondly, if the project were funded out of the Westside, then the revenues (increment) from the rest of the Westside TIF would need to be pledged for repayment of these bonds as well. The need was to have the revenues from Cook’s investment and only those revenues pledged for repayment. The structure of an independent allocation area provides both of those protections.

IMG_1868
Power substation at Curry Pike and Profile Parkway

In my view, this project represents a generational opportunity to redevelop a blighted and abandoned factory and allow it to return to providing jobs for Monroe County residents (Cook is pledging at least 500 new jobs from the project), and also represents an effective and responsible use of tax increment finance to improve the well-being of Monroe County residents.

This public hearing gives you an opportunity to make your thoughts known about this project to the Redevelopment Commission. Please come on Wednesday, March 21, 2018 at 4:30PM in the Nat U. Hill Meeting Room at the Monroe County Courthouse.

Redevelopment of Concrete Jungle around Lafayette Square? And an aside on Community Revitalization and Enhancement Districts (CRED)

The Indy Star’s columnist Erika Smith reports on a $2.7M investment over 3 years that the City-County Council just approved for the Lafayette Square area (West 38th Street):

I’ve always found this area (Lafayette Sq in Indy) fascinating in kind of an urban-wasteland sort of way. It will be interesting to see what they are able to do with this CRED investment. With that much already built environment, it will be a tall order for redevelopment. I like the idea of taking up a lot of the unused concrete and putting in grass and trees.

Incidentally this effort follows a kickoff last year to a major rebranding effort for the whole Lafayette Square area that includes gateway sculptures, sidewalk connectors, wayfinding markers, and bus shelters. The architectural firm Schmidt and Associates (which has also done some impressive work in Bloomington, and is responsible for the amazing Mass Ave redevelopment in Indy) is the lead designer. The Indy Star published a picture of one of the gateway markers: Lafayette Square area: Passport to the world.

Fiscal Aside:

The money will come from a mix of local funds, grants, and private investments, and will be funneled through the Local Initiatives Support Corporation. $800K will be provided through revenues raised from the Lafayette Square Community Revitalization and Enhancement District (“CRED”), which captures some state income tax, county option income tax (COIT) and sales tax generated in the district. CREDs are sort of like TIF districts (except that the revenue source is income and sales tax, rather than property tax), and are available for investment in downtown areas and investment in areas that have been severely impacted by an economic downturn or loss of a major employer. Qualified investments in CREDs also entitle the investor to a 25% tax credit (if approved by the Indiana Economic Development Corporation and if the investment is not simply moving operations from a different part of the state).

The first CRED was actually established in Bloomington, in order to redevelop the site vacated by Thomson Consumer Electronics. Now, there are around 9 CREDs around the state, including a second CRED in downtown Bloomington.

References: 

Here are a couple of other interesting references on CREDs:

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!

City of Carmel Bails out Carmel Redevelopment Commission

The Indianapolis Star today has an interesting article summarizing a situation in Carmel that has been going on for several months now:

In short, primarily because of cost overruns on the construction of the Carmel City Center (think Palladium), which is funded by the tax increment in a TIF district, the Carmel Redevelopment Commission has gotten into a situation in which it doesn’t have any income left for further redevelopment after its debt service payments are made.  The City of Carmel is essentially agreeing to bail the Redevelopment Commission out by refinancing its debt. The savings through lower interest rates will either allow the debt to be paid down faster or will allow additional revenue to complete the development. In exchange for the bailout, the City Council will be asserting greater control over future debt of the Redevelopment Commission.