Indiana has finally decided to get rid of “legacy” tax increment financing districts, those that were created on or before May 31, 1995. Under the current law, they never expire, but ones created after 1995 have 25- or 30-year expiration dates, depending on when they were formed. Under the new law, which takes effect July 1, all legacy districts will expire June 30, 2025, unless they are repaying bonds issued before July 1, 2015.
And local units of government are already beginning to complain about the loss of revenue. Mishawaka Mayor David Wood, for example, said the city has committed to spending $43.6 million in TIF money for the next 20 years to pay for a $160 million sewer system. Without that money, the city might have to increase sewer rates.
That concern illustrates how TIF has strayed from its original purpose of helping revitalize economically distressed areas by allocating property tax revenues generated in them to be dedicated to improvements there instead of being dispersed as they normally would.
Too often, Hoosier lawmakers say, the districts become redevelopment slush funds that governments tap for lavish projects. “Mayors figured out they could create a cash cow that gave them millions of dollars to spend at their discretion,” South Bend City Council member Dave Varner told the South Bend Tribune.
Not only is it a good idea to put a time limit on TIF districts – letting a government program last forever is never a good idea – now might be a good time to question the whole premise of TIFs. There are hidden costs, for one thing, that might not make them as attractive as they appear on the surface. And often tax burdens are merely shifted from one set of taxpayers to another. Property tax dollars captured by TIF districts are not then available for schools, libraries and other property tax-funded entities. That puts pressure on those entities to raise their tax rates. Overall tax burdens are increased.
Any time a special district of any kind is created for the purpose of economic development, it’s a tacit admission that something is wrong with the local taxing structure. The best tool in government’s arsenal is a tax structure that is adequate for public spending needs but not so onerous it that discourages private investment. Instead of looking for new gimmicks, public officials should spend more time looking for that sweet spot.
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