Opinion and Forefront

MAHERN: City robs services to subsidize developers

July 14, 2012

Louis MahernCan you imagine the outcry if the city took money from Indianapolis Public Schools, the library and the parks department and gave it to deep-pocketed downtown developers? That is exactly what is about to happen, but there is no outcry. Why? Well, it’s somewhat complicated.

Tax increment financing is an economic development tool designed to spur development in blighted areas. The governmental entity, in this case the city, sells bonds, and proceeds from the sales are used to subsidize private development. The property taxes then paid by the development and any subsequent additional developments in the TIF zone are to be used to pay off the bonds rather than going to schools, libraries, etc.

The underlying rationale is that, but for the subsidy, no further development would occur. Without the initial subsidy, the argument goes, the area would continue in its blighted state. This assumption posits that, since no further development would occur, no additional property taxes would be collected.

This “but for” test is important because, if subsequent development would have happened without the city’s subsidy, local taxing units would unnecessarily be deprived of the property taxes paid by the additional development.

But what if additional development would happen without the subsidy? This is a situation that is hard to prove since it speculates on possible future events. How do we know if the redevelopment would have happened absent the subsidy? What if the new development happens before the TIF is established?

When a TIF district is designated, the current property tax base in the district is established. Property taxes paid on the existing base continue to go to the taxing units: public safety, schools, parks, libraries and so on. This step is quite important because it ensures that only the additional developments will fund the developer’s subsidy.

However, there are two TIF area expansions the mayor is pressing the City-County Council to approve. Both districts have existing developments the mayor wants excluded from the base in order to increase the developer’s subsidy.

The Tech 16 proposal is an expansion of an existing TIF. This is the proposal that will turn old Bush Stadium into apartments and purportedly create a science and tech corridor between Fall Creek and 16th Street along Indiana Avenue.

The city wants to subsidize the Tech 16 developers by capturing the new property taxes that will be paid by, among others, two new apartment complexes: the Avenue, a $20 million housing and retail development on the old site of the YMCA; and 1201 Indiana, a $27 million student housing and retail development. Both developments are essentially complete, which pretty much destroys the “but for” argument since neither development resulted from the TIF designation and subsidy that has yet to be approved by the council.

The same situation exists at a TIF district expansion the mayor wants to create on Massachusetts Avenue. To ensure enough cash flow to retire the hoped-for bond issue and developer subsidy, the city is proposing to capture the property taxes that will be paid by Trail Side at Mass Ave, a mixed-use housing and retail development in the 800 block of Massachusetts Avenue. The project is completed and soliciting tenants.

The two completed Tech 16 projects and Trail Side at Mass Ave have a combined cost of $57 million. That is $57 million in property tax base that should be available for parks, schools, libraries and most especially a public safety department facing its own multimillion-dollar shortfall.

By including these completed projects in the TIFs, the mayor is robbing parks, libraries, schools and public safety of over $1 million a year in revenue in order to subsidize downtown developers. Doesn’t sound right, does it?•

• Mahern has been an assistant to U.S. Rep. Andy Jacobs and U.S. Sen. Birch Bayh and served in the Indiana Senate. Send comments on this column to ibjedit@ibj.com.

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