City Government and Greg Ballard and Urban development and Development/Redevelopment and Property taxes and Government & Economic Development

Mayor says some of 38 TIF districts have problems, might need reorganization

September 15, 2008

Former Mayor Bart Peterson often called Fall Creek Place his signature achievement. To rebuild an urban neighborhood once so crime-ridden that residents nicknamed it "Dodge City," he used a powerful economic development tool called tax increment financing.

Establishing a TIF district around the then-blighted neighborhood spurred development by allowing the city to issue bonds to pay for infrastructure--think sidewalks and sewers--and other improvements there. As with most TIFs, the bonds are to be repaid with property taxes generated by new projects in the area.

But Mayor Greg Ballard worries his predecessor may have overreached with the TIF for Fall Creek Place's last phase, which isn't producing enough revenue to support its $6.2 million in outstanding bonds.

And he's not sure all of Marion County's 37 other TIF districts are necessary, either. So this summer, Ballard's administration began quietly reviewing every local TIF with an eye on reorganization.

When it works, the TIF designation can spur major redevelopments in areas where businesses fear to tread. Indianapolis' consolidated downtown TIF district, for example, paid for much of the renewal of the Mile Square, including Circle Centre mall.

Supporters say TIFs cost taxpayers nothing, since they capture only new tax growth that wouldn't otherwise occur. But critics argue the special zones have a tendency to linger on the books long after their original intent has been served. Worse, they say, TIFs erode the community's general tax base.

"They've gone astray over time," said Greg LeRoy, executive director of the Washington, D.C.-based tax watchdog group Good Jobs First. "They've seriously entered the area of unintended consequences. And in many cases, very costly, counterproductive, unintended consequences."

The assessed value of all the property inside Marion County's 38 TIF districts has increased more than 80 percent since they were created--from $3.2 billion to $5.8 billion, according to city officials.

Since revenue generated inside the TIF can be used only there, that extra $2.6 billion hasn't helped other taxpayers who are bearing the burden of funding broader government services like snow removal and schools.

"Most economists would say the best thing would be not to have to do this special stuff," said Purdue University economist Larry DeBoer. "Deliver quality services efficiently at the lowest [overall] possible tax rates and let the chips fall where they may.

"That's not how the game is played, though."

Fall Creek Place

During its review, Ballard's team found some TIFs--like the one around the Indianapolis International Airport--it believes are performing well. But officials say other TIFs have long outlived their purpose.

The United Northwest Area TIF, for example, has simply been parking its millions in earnings into a bank account. That's money that otherwise would support local services, lowering the burden on other taxpayers.

And then there's Fall Creek Place, which isn't producing enough extra property tax revenue to support the $6.2 million in bonds backed by its Phase IV TIF. Although the bonds will mature in 2010, Indianapolis Local Public Improvement Bond Bank Director Kevin Taylor characterized the situation as a "concern," not a crisis. Still, he and others in the administration clearly consider TIFs ripe for reform. "I'm concerned about our city being carved up into little pieces and what that means to the city as a whole," Taylor said. "So many of these projects ask for $5 [million] to $7 million. By the time you create a TIF, with all the feasibility studies required, you're talking about pretty expensive dollars."

Despite the current shortfall, Fall Creek Place is widely considered a TIF success. It has received so much national acclaim, other cities have sent delegations here on study missions.

Before the project began, crime wasn't the neighborhood's only problem, said Chris Palladino of Mansur Real Estate Services Inc., which led the Fall Creek Place redevelopment. The area's streets and sewers also were crumbling, and there was no obvious source of funds to fix them.

"Without TIF, there's no Fall Creek Place, period," said Palladino, the local firm's director of neighborhood development and finance. "That's the bottom line."

Palladino pointed out that the first three phases of the redevelopment were expected to produce no more than $700,000 in new property tax revenue. But the project was so successful that it actually captured $1.2 million annually, he said--until last year, when a reassessment of existing homes reduced the total property taxes they generate.

Meanwhile, newly constructed homes in Fall Creek Place's final phase haven't sold as quickly as in earlier phases for a variety of reasons, Palladino said, including the national meltdown of the mortgage industry. Palladino called the current TIF shortfalls a temporary cash-flow problem.

"I have no doubt at the end of the day, when it's complete and homes are in there, it's going to perform just fine," he said.

Total assessed valuation

The biggest question about TIFs is whether they are necessary. Purdue's DeBoer said it's difficult to tell whether developers would move forward on their projects without the benefit of TIF-backed improvements.

"How can you tell whether developers are just trimming their costs?" DeBoer asked. "Everybody involved has an interest in saying the TIF is necessary for development."

The sign of a good TIF, LeRoy argued, is its success in driving urban renewal. But in too many cases Good Jobs First has studied around the nation, he said, local officials simply create them for any developer who asks. So instead of being used only to attract development to blighted areas, they have morphed into a standard perk businesses can ask for as they look to cut costs.

"That's the challenge here: How do you keep the [TIF] tool sharp?" LeRoy said. "To me, it's a very rusty tool, in many places."

Peterson inherited most of the county's TIFs, said Baker and Daniels LLP partner Melina Kennedy, who served as deputy mayor and economic development director in the Democrat's administration.

She said Peterson established a few new TIFs carefully as part of his overall plan for urban neighborhood renewal, and now the Republican Ballard needs to articulate his vision.

"[TIFs] can be very important, particularly to support major projects as well as revitalization efforts," she said. "But they need to be hand-in-hand with strong leadership at the top and a cohesive vision for the whole city. That's going to be critical."

Still on the books

Some scrutiny is merited, to be sure.

Take the United Northwest Area TIF, located just north of Burdsal Parkway, for example. The assessed value of property inside the district has more than doubled from $80.3 million to $167.9 million since it was established in the late 1980s, but the Bond Bank's Taylor said the additional revenue is no longer paying off bonds or supporting any new projects.

Instead, he said, the money is simply piling up in a bank account now worth nearly $3.4 million.

Ballard wants to apply the cash toward shoring up the city-county budget, Taylor said, and make sure every TIF is reviewed more frequently to avoid a similar situation in the future.

That's music to the ears of public officials like Greg Jordan, the Indianapolis-Marion County Public Library's board president. The library board hasn't established a formal position on TIFs or Ballard's review, but Jordan encountered them frequently in his former job as Marion County treasurer and has seen directly how they affect local government budgets.

"Frankly, units of [local] government are all being asked to cut and do more with less," he said. "It's a very legitimate concern if [TIFs] go on in perpetuity. It's not unlike implementing a sales tax that's going to fund a certain project and it never goes away."

TIFs are created jointly by the City-County Council and the Metropolitan Development Commission. They're often planned around a 25- or 30-year bond issue, but when the end date approaches, economic developers frequently keep them going to underwrite new projects.

Businesses are taking a wait-and-see approach to the mayor's review.

"We view TIF districts as a necessary weapon in the economic development arsenal," said Greater Indianapolis Chamber of Commerce President Roland Dorson. "Having said that, we're pleased that there's a review of them under way, because we think they should be used judiciously."

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