A law that goes into effect next month will require cities to consider giving back some tax money collected for economic development if they’re not using at least half of it every year. In addition, it shifts the final decision to elected rather than appointed officials.
This is a positive step toward reining in some of the excesses that have been shown in a few communities around Indiana.
When a business locates or expands in a tax-increment financing (TIF) district, the additional property taxes collected from the growth is set aside in a special fund. The cities can use the money for infrastructure and economic development projects, but the districts divert that revenue from schools, libraries, townships and fire districts.
But the law doesn’t take the next step, which is to offer up a clearer definition of what constitutes appropriate spending. Here again, a few Indiana cities have attempted to use money collected in TIF districts as a kind of slush fund for certain projects.
It will be up to the General Assembly to address this issue.
In the meantime, when the law takes effect July 1, neither Greenwood nor Franklin expects to be affected because both cities have long lists of projects they plan to pay for with money collected in their TIF districts. Greenwood collects more than $7 million in TIF money each year. Franklin raises about $3 million.
The law doesn’t require a city to start releasing TIF money to other governments, but it shifts the decision to the elected city councils instead of the appointed redevelopment commissions. Currently, redevelopment commissions make all the decisions about how to spend TIF money, and a city council has no power to challenge it. Now a city council would be able to give back the money if the commission isn’t spending it.
Getting some money back from TIF districts would reduce, but not eliminate, the problems for local schools. Clark-Pleasant Superintendent Patrick Spray said the new law would allow school districts, which would receive most of the TIF money if it were released, an opportunity to talk to the city council and make a case to get the taxes released.
The law is aimed at stopping cities across the state from stockpiling money that they’re not using, according to co-author Sen. Greg Walker, who represents part of Johnson County.
Redevelopment commissions also are required to create annual budgets that will be reviewed by the city council, so it will encourage them to do more long-term planning about how they are going to spend TIF money, he said.
Ideally the law will help reduce the number of projects that would benefit only a small number of people as opposed to a major road upgrade that everyone can use, Walker said.
TIF districts were created to allow cities to set aside money so they could improve a property that might not otherwise develop without road, utility or drainage work, he said. Once projects were completed and a business came in and generated new taxes, the TIF money is supposed to then be given up and split among all governments like other property tax dollars are.
These new rules are a good first step, and it’s encouraging that Franklin and Greenwood have a reasonably clear idea where the money will go in the near future. At the same time, though, they need to consider the impact TIF districts have on other taxing units, especially schools, and be willing to help out financially if appropriate.
The next step is for the General Assembly to develop clearer guidelines on what constitutes a proper project. When that is complete, communities will know when and how TIF funds can be spent.