A new law 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, and it shifts the final decision to elected rather than appointed officials.
But Greenwood and Franklin don’t expect to be affected when the law takes effect July 1 because both cities have long lists of projects they plan to pay for with
money collected in their tax-increment financing, or TIF, districts.
When a business locates or expands in the district, the additional property taxes collected from the growth is set aside in a TIF district.
The cities can use those funds for infrastructure and economic development projects, but the districts funnel those taxes away from schools, libraries, townships and fire districts.
Greenwood collects more than $7 million in TIF money each year.
That money can’t help Clark-Pleasant Community School Corp. manage the $4 million it loses to tax caps or allow Greenwood Public Library to build up savings to repave its parking lot. Franklin raises about $3 million in TIF funds each year, while Franklin Community School Corp. continues to cut expenses because it loses $3 million to tax caps.
If redevelopment commissions aren’t spending half of what they raise each year in those tax districts, the city council would decide whether to release some of that tax income to the other governments.
Because both redevelopment commissions have several large projects planned for the next few years, schools, libraries and the city governments shouldn’t expect to get any additional money.
The law doesn’t require a city to start releasing TIF money to other governments, but the law shifts the decision to the elected city councils, instead of the appointed redevelopment commissions, Greenwood city attorney Krista Taggart said.
Currently, redevelopment commissions make all the decisions about how to spend TIF money, and a city council has no power to challenge it, she said. 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, superintendents said.
The new law would allow schools, 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, Clark-Pleasant Superintendent Patrick Spray said.
“It’s a matter if, when a TIF gets to that point when it’s generating that much revenue, it seems like a good release valve,” Spray said.
Schools couldn’t force the city to give up the extra taxes, and Franklin Superintendent David Clendening said he wouldn’t push the issue if Franklin didn’t meet the requirement in a particular year.
The city has done a good job planning ahead to save up for expensive infrastructure projects, he said. As long as that continues, the TIF money would continue to improve the city as a whole, even if the schools lose out on about half of the tax revenue collected.
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 only benefit 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, Walker 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.
TIF districts expire after 25 or 30 years, but some areas completed the projects intended in the district well before that expiration date and are either hoarding cash or using it as a slush fund for risky or frivolous projects, Walker said.
That hasn’t been the case in Johnson County to date, he said, which is why the law isn’t having an impact locally.
“It is an attempt to get back to the original use as a project-oriented fund rather than a perpetual fund, when the spending is for the declared purpose,” Walker said. “That could be the bond payments, that could be purchase of assets, land, buildings.”
At the end of 2013, Greenwood had about $23.6 million in its TIF accounts, plus another $35 million it borrowed to complete upcoming projects, including the widening of Worthsville Road and the building of a new pool. Franklin had $6.7 million at the end of 2013.
Greenwood likely won’t be giving up any money because it will use more than half of its annual income to pay back loans. Of the $7.2 million the city raises each year, about $4 million will be used to make loan payments for the next 15 years.
The city also is considering future road projects in downtown Greenwood that would cost several million dollars to complete, Taggart said.
Franklin has several projects planned for the next few years, including road construction on Jefferson and King streets and improvements at four intersections along the truck route.
Based on current plans, the city will spend more than $4 million this year and in 2015, and then $1.5 million to $2 million the following years through 2018.
Since Franklin doesn’t have any debt that’s paid with TIF money, the city will either need to plan new projects or consider giving up the money.
The city likely won’t give any money back soon because the commission has many more projects that could be done, redevelopment commission president Bob Heuchan said.
Those projects might include flood mitigation and stormwater improvements, projects to help local businesses grow or infrastructure work to prepare land for a new business that might want to locate in Franklin, according to the commission’s long-range plan.
The recession slowed business development, so the city hasn’t needed to use much money to help new or expanding companies, Heuchan said. That’s allowed the city to build up funds to take on the big road projects planned for the next three years, he said.
“The last several years going back to 2008, it was a slow time, and all that time those dollars were getting racked up with nothing to spend them on,” he said.
The law doesn’t force redevelopment commissions into spending half the income every year because projects could cost more than a city or town raises in a year, said Loren Matthes of H.J. Umbaugh and Associates, a financial group, which has studied the law and is advising governments around the state.
But since commissions will have their spending reviewed by the city council, they should form a long-term plan that shows what they’re saving for and when they would start that project to help justify why they need to keep the TIF money, she said.
Franklin is already doing that type of planning by compiling a list of potential projects as well as a five-year spending analysis, Matthes said.
Franklin still has many infrastructure projects it will need to do in the next five, 10 or 15 years, so city council members likely won’t have to decide whether to give money back any time soon, council president Steve Barnett said.
If the city gets to a point where it doesn’t need any more road work or sidewalks or site development for businesses, Barnett said, he would support releasing the TIF money.
“I don’t see why we wouldn’t give some of it back,” he said.