By Thomas Heller in the Muncie Star-Press:
Tax increment financing (TIF), a widely misunderstood economic-development tool in Indiana, operates something like a bank. TIF districts make investments in local public improvements (roads, etc.) hoping to attract follow-on investment from private companies.
Often these improvements are financed by borrowing — that is, issuing bonds to be paid off by the growth or increment in the TIF district’s property values and the taxes collected therefrom.
Local governments in Indiana, most specifically redevelopment commissions, have been aggressive in using TIF districts for debt-financed development. In the five years ending in 2010, Indiana’s TIF districts sold $430 million in TIF bonds, placing the state seventh highest in the nation, ahead of Illinois, Ohio and Michigan. Indiana’s TIF districts expect to collect $580 million this year.
But a key assurance behind TIF has not been met here. Instead of protecting the tax bases of local schools, libraries and the city and county general-purpose governments, TIF districts work to drain them, causing higher than necessary property tax rates — even on property beyond TIF boundaries.
Indiana appears unique in allowing the erosion of the TIF “Base” (one of two calculated parts of the total tax base within a district). The Base is supposed to continue producing revenues for school, libraries, cities and counties. The Base erosion occurs in a series of steps termed “neutralization,” the complexity of which acts to shield the Base erosion — and its adverse effects — from the view of legislators, journalists and the public.
In fact, a TIF district can work against a sound economic-development plan, eroding the Base and imposing tax increases beyond its boundaries. Worse, this erosion can hide a significant write-down of value on existing properties already within the district.
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See the full article here:
http://www.thestarpress.com/apps/pbcs.dll/article?AID=2013307140018
