Study: TIF districts divert millions from communities

Indianapolis Business Journal

More than $5 million a year isn’t collected by local governments, such as schools, libraries and fire districts, because it is instead set aside for infrastructure and economic development projects, according to a new study.

The Ball State University study delved into how much money is being set aside in tax-increment financing, or TIF, districts. The study found that as much as $320 million each year is set aside statewide. That means those property tax dollars do not go to other local governments, such as schools, who the study found lost the most.

Local school officials have raised concerns about tax dollars being collected in TIF districts that then do not come to the school district for expenses such as replacing buses and maintaining buildings. Both Center Grove and Clark-Pleasant school officials have raised concerns about Greenwood adding new or expanding current TIF districts in the past because of the tax dollars they would not be able to collect from new development.

Cities and counties can establish TIF districts as a way to capture taxes from new business development in certain areas that can be spent on infrastructure projects, such as streets and sewers, or to attract new businesses to an area. In a TIF district, property taxes from new development are set aside in a special fund and an appointed redevelopment commission oversees how that money is spent.

TIF districts became widely used by local governments throughout the state after property tax caps went into effect in 2008, limiting how much taxes could be collected based on a property’s value, as a way to replace lost funding, said Michael Hicks, director of the Center for Business and Economic Research and one of the authors of the study.

“Instead of laying off workers I don’t need and reducing non-vital services, we’ll just TIF,” Hicks said.

According to the study, which analyzes the impact of TIF districts from 2003 to 2013, TIF districts are diverting millions of dollars from other taxing units that normally would receive the revenue, such as schools, libraries and other public services.

“What a TIF does is essentially allow a stranglehold to be placed on schools, other municipalities,” Hicks said.

In Marion County, TIFs have diverted as much as $63.1 million annually, the most among the counties in the Indianapolis metropolitan area. In other counties, TIF districts have diverted up to $21.5 million in Hamilton County, $10.6 million in Hendricks County, $8.7 million in Madison County, $5.8 million in Johnson County, $2.3 million in Boone County, $1.9 million in Hancock County, $1.8 million in Shelby County, and $897,000 in Morgan County, the study said.

The loss of revenue by school districts is one reason they are proposing referendums where voters are asked to approve letting them collect more in taxes, Hicks said. Hamilton Southeastern Schools and Noblesville Schools are asking for additional taxes in the primary election in May.

Todd Burtron, chief of staff for the city of Westfield, said the city is very careful with its use of TIF districts and does consider the impact, but doesn’t believe they’re hurting schools. New TIF districts don’t take away existing revenue from other local governments, and instead get tax dollars from new development that wouldn’t be possible without them.

“I always say you can’t miss something you didn’t have before,” Burtron said.

In Carmel, the city uses TIF districts to help finance infrastructure and downtown development that attracts private investment, Mayor Jim Brainard said.

The report also said that cities and towns are paying up to $30 million each year for consulting firms to advise on TIF spending. That could be a reason why TIF regulations haven’t improved, Hicks said. Those firms want TIF district use to continue, he said.

“It’s a cash cow, and I get that,” Hicks said.

The report recommends requiring all elected bodies within a TIF district, including school boards, to approve the funding going to the TIF district, which is the process in most other states, Hicks said. Hicks also suggested requiring more transparency for reporting how TIF dollars are spent.

“The bottom line is, there are some TIF districts that do things that are positive. If the school board had to vote on TIF, then only the better TIFs would survive,” Hicks said.

“We have to come up with some way to be honest with what it does and does not do. And figure out some way to keep it without damaging schools.”