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Downtown tax district reaps unexpected windfall

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At a time when tax dollars are scarce, Indianapolis has accumulated more than $12 million from a downtown tax district to spend on projects in the area.

The money comes from property tax revenue from new development  that is captured to cover payments on $576 million in debt on downtown projects that are part of the Consolidated Tax-Increment Financing, or TIF, district (see map).

Over the last few years, the money collected beyond what’s needed to pay off those obligations has grown, freeing up $12.1 million for other projects.

Those include $3.5 million in renovations to the City Market; $600,000 for a skywalk connecting the Artsgarden to the Hyatt Regency Hotel; and $8 million to fund tourism promotion activities of the Indianapolis Convention and Visitors Association. Next year, another $9 million could go toward sewer and street improvements for a proposed development that includes a gym and hotel near Eli Lilly and Co.

City leaders say those are prudent uses of the funds, which, once collected, must be spent on economic development projects in the downtown area or used to pay off the debt. But some members of the City-County Council and the public have questioned why the windfall came about and whether there’s been thorough discussion about its use.

“We hear about projects here and there,” said Brian Mahern, a council Democrat. “It appears there’s more money than needed for [debt]. It only makes sense that there’s a broader discussion about where to use those dollars, and I don’t think that’s been the case.”

City officials counter that the decisions about how to use the money were made at public meetings.

Each year, the downtown district, like similar districts in other areas of town, brings in more money than is needed for debt payments. The extra money provides a cushion to meet bondholder requirements and boost bond ratings.

In 2008, the excess money in the downtown TIF district doubled to $22 million as tax revenue increased. Revenue rose as more projects came online and as refinancing helped debt obligations remain steady.

Those funds remained consistent in 2009, when the state legislature allowed Indianapolis’ downtown TIF to capture businesses’ personal property taxes to make up for tax revenue lost to the state's 2008 property tax reform.

For this year, the city also opted to take those personal property taxes for the TIF—rather than giving them to the general tax base, which includes schools, police, libraries and fire. The amount of overflow in the TIF grew to about $28 million. The city has chosen not to take those funds in 2011, which will decrease the excess money brought in next year to $18 million.

By the end of this year, the city estimates there will be close to $91 million collected from the downtown TIF beyond what’s needed to make its debt payments. The money eligible to be spent would dwindle to about $24 million after factoring in a $9 million cushion for tax money lost to appeals or non-payments and another $58 million for the city to hold a reserve of 10 percent of its debt.

And that number likely will further dwindle to about $12 million, pending the issuance of bonds for the proposed development near Lilly and Clarian Health’s planned neurosciences center near Methodist Hospital. Those would increase the downtown TIF debt to more than $700 million and hike the amount needed for a 10-percent reserve to $70 million.

Deron Kintner, executive director of the Indianapolis Public Improvement Bond Bank, said it was prudent for the city to take in enough money to build its reserve, given the high level of debt in the district and the need to retain credibility with rating agencies.

Kintner said leaders were being especially cautious when they made the choice to keep the personal property taxes for the TIF. They were making calculations based on projected tax revenue. Real figures weren't available because the property tax cycle was behind schedule.

Kinter also pointed out that once the reserve money is factored in, there’s not much wiggle room for extra spending.

“It’s going to give us some flexibility and allow us to do some good projects with the development of downtown,” Kintner said. “(But) we’re not in a position where we have plenty of excess.”

It seems like plenty to some neighborhood advocates concerned about amenities such as libraries that are cutting back hours due to funding gaps a third the size of the $12.1 million for downtown projects.

And some have questioned spending the money on things such as the City Market and the ICVA when there’s a need for improving downtown roads and parking meters. The city has proposed addressing those issues with a controversial 50-year lease of its parking meters.

“If there’s that much excess money, wouldn’t it be wiser to apply the funds to upgrading parking meters or helping to handle the infrastructure deficit or paying off the bonds more quickly?” said Cathy Burton, president of the Marion County Alliance of Neighborhood Associations.

Mike Shaver is a Carmel-based community and economic development consultant who works with municipalities across the state. He said it’s common for cities to collect excess TIF funds and use the money for other economic development projects, citing the towns of Seymour and Converse as examples.

He said in those cases it’s important for government officials to have a highly public discussion about how the money will be used.

“What you have to do in that process is be very transparent about it in order to convince the public you’re not creating a slush fund,” Shaver said. "That’s a very real potential problem.”

Mahern, for one, is concerned that there hasn't been enough transparency. The council approves development plans and debt issuances for projects in the TIF. But decisions about how to spend excess funds are left to the nine-member Metropolitan Development Commission, whose members are made up of appointees by the council, the mayor and the county commissioners.

Kintner said the city is simply following state law and points out all decisions about the spending have been made at the MDC meetings, which are open to the public.

“The legislature has designated what the process is,” Kintner said. “We’re just following that.”

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  • Streetcar?
    The city has more than enough to build a streetcar line downtown, or the start of one. Sometimes, if done right, the city could get half of the transit cost covered. So why not build a line circling downtown, and then have it connect the zoo and IUPUI. It's a start!
  • Proven Success / Form Based Financing / TIF plus Economic Area Tax

    The City should be using TIF along our blighted corridors!!! It is proven to be the most successful model of stabilization, creating large ROIâ??s for our public reinvestment. As we clean up our urban drive through corridors, and our communities that feed down town, with mixed use redevelopment, our down town won't need the incentives because there will be enough people that will be able to finance the building of bigger projects, that can cash flow without government subsidies, downtown.
    Along with the TIF, the State needs to be giving % of Sales Tax Back to match the TIF along these corridors, to ensure that we have inexpensive enough services mixed use with apartments above. By design this creates buffer zones and destinations for our communities to have jobs and housing for the mixed incomes where we can live and work, while cleaning up the blight.
    It is imperative to prevent core decline of the arteries that feed our communities and our City. If we do not clean up our arteries the heart (the City Center) will die!!!
    This entire State needs to rebuild is foundations of its core communities and the corridors that feed them, instead of building new, suburban outgrowth. We keep spending money we don't have on outgrowth. Until then we need the government subsides because we cannot rebuild our corridors with proper form based zoning without them. We need form based financing that match the form based code's. Simply, the Cities and States that have done this systematically, as we have been talking about doing for 20 years, are not in the mess this City and State are in.
  • Proven Success / Form Based Financing / TIF plus Economic Area Tax

    The City should be using TIF along our blighted corridors!!! It is proven to be the most successful model of stabilization, creating large ROIâ??s for our public reinvestment. As we clean up our urban drive through corridors, and our communities that feed down town, with mixed use redevelopment, our down town won't need the incentives because there will be enough people that will be able to finance the building of bigger projects, that can cash flow without government subsidies, downtown.
    Along with the TIF, the State needs to be giving % of Sales Tax Back to match the TIF along these corridors, to ensure that we have inexpensive enough services mixed use with apartments above. By design this creates buffer zones and destinations for our communities to have jobs and housing for the mixed incomes where we can live and work, while cleaning up the blight.
    It is imperative to prevent core decline of the arteries that feed our communities and our City. If we do not clean up our arteries the heart (the City Center) will die!!!
    This entire State needs to rebuild is foundations of its core communities and the corridors that feed them, instead of building new, suburban outgrowth. We keep spending money we don't have on outgrowth. Until then we need the government subsides because we cannot rebuild our corridors with proper form based zoning without them. We need form based financing that match the form based code's. Simply, the Cities and States that have done this systematically, as we have been talking about doing for 20 years, are not in the mess this City and State are in.
  • Student's view
    The city, believe it or not, is doing the right thing here. Businesses and people will not choose whether or not to live downtown based on parking meters or some quirky library hours. The city is pushing for major projects that will...
    A. Bring more money into the tax base by increasing density.
    B. Increase the amount of money that the other businesses in downtown make... further increasing the tax base.
    C. Show that downtown is a place of progress and development which will make even more businesses and people want to live downtown, which once again... increases tax base.
    This could domino effect and allow the city to increase their income by much more than the interest on their debt and prove to be more worthwhile than paying it off early.
    The increased tax base would also alow more than enough money to get the library and schools running smoothly.
    People get so lost in the here and now that they forget about the future, which is exactly what TIF funds are designed for.
  • More stupidity
    ...from the Ballard administration. The answer to everything is "sell it off", "public private partnership", "leveraging TIF", "shot in the arm for Econ Dev". This song is getting old, and the graft is bcoming more clear everyday. Vote Democratic next time.
  • Not So Fast
    TIF = Slush Fund

    The misuse of TIF has ruined the tax structure of Chicago and has run up massive debt in Carmel. It is time to change the law and make TIF into what it is supposed to be, a tool to redevelop a blighted area.

  • Re:idyllic indy
    Actually, the City/MDC can elect to not take all of the TIF funds thereby returning money to the other taxing districts and possibly reducing their tax rates. Repaying bonds early can be complicated with call provisions.
  • Leap Frog Expenses vs. Reconnecting Communities with large ROI
    TIF used correctly leverages reinvestment, mostly private dollars that create jobs, which create other jobs, and if/when used correctly, by standards that are proven success models, create large return to our City via public/private reinvestment. Problem is this City has historically created and has misused TIF, sourcing large swaths of commercial redevelopment around 465 loop, creating the perpetual Leap Frog effect, benefiting, subsidizing our Suburban Counties, Out growth. This effectively has bankrupted Marion County, and for that matter this broken 1950 model is currently bankrupting most of our cities and our Country. The proven solution is to saving money and create large Returns on the Reinvestment via liner TIF districts along our Historic Mixed Use corridors, our neighborhood live/work nodes. This is what the Indianapolis Regional Center 20/20 Plan, and the Insight Visioning Plan, and all the national experts that come to our City have explained, how our City needs to used our undervalued resources, so we can create long term sustainable solutions and large economic benefits. Hell this administration flew 50 people to Denver to see how they should do it. Now lets make it happen. Lets Go Indy!
  • what about the cost of services to downtown?
    IndyMan, what it appears you failed to consider in your theory is that the property taxes going into the City/County general fund, as well as to the school districts, libraries, etc., is frozen at the same amount as before all this development occurred. However, the cost of providing basic government services (police, fire, courts, ambulance, planning, code enforcement, parks, traffic control, social services, etc.) has increased along with the new development. Until the TIF debt is paid off, the rest of property taxpayers (not in TIF districts) are subsidizing the increased cost of providing government services to the new residents and businesses in the TIF districts. That's why I believe it makes sense to pay off the TIF debt as quickly as possible.
    • A world class city
      New buildings are nice, but a world class city is more than just new buildings. For example we need public transportation, functioning schools, public libraries and the arts to make this a world class city. Maybe you could throw in some public safety too and jobs that pay decent salaries. Kitner needs to quit stealing the other taxing unit"s money. Release the excess assessed value and let's have a well rounded city.
    • A world class city
      New buildings are nice, but a world class city is more than just new buildings. For example we need public transportation, functioning schools, public libraries and the arts to make this a world class city. Maybe you could throw in some public safety too and jobs that pay decent salaries. Kitner needs to quit stealing the other taxing unit"s money. Release the excess assessed value and let's have a well rounded city.
    • Why GOP can't buy parking meters with TIF
      Using the TIF money for parking meters is too easy. It would provide economic development by providing greater opportunity for people to go downtown and patronized companies and stores without having to pay very high parking lot fees.

      But the real answer is that if we spent the money on parking meters, then Ballard and the GOP can't pay back the cronies who give big bucks to be able to reap huge profits off the backs of the taxpayers. After all, Ballard gets a free parking spot at the City County Building.
    • It is humorous to see many of those who were opposed to TIF Districts in the first place, and then using TIF funds to build additional projects like the JW Marriot etc... are not trying to tell people how to use those funds.

      Seems to me the TIF districts are doing well since, in the middle of a recession, they are pulling in excess dollars. So why not do additional projects that whent they mature will bring in even more? Northwest quad is doing well with life sciences and IUPUI. Northeast is doing well with historic residential and arts along Mass. Southwest is doing well with LOS, Convention Center, Zoo and White River Park. It is time for south west. Connect Conseco and the Wholesale District to Fountain Square with the NoSo project. Then the only area you have to fill in is the MSA site. That will come when the recession passes and credit frees up. that is such a massive project it will take some time, but in 3 years or so, there will be several large companies wanting to build monumental projects there. Then Indy again will be the hub with development radiating outwards.
    • What Does a PR Firm Have to Do With Anything?
      Squirrel, I think your comment about PR are a bit far afield. TIFs are created as a means of public financing of redevelopment of "blighted" or under-developed areas and also to fund certain infrastructure improvements in such areas (usually, related to redevelopment projects). A TIF pledges the tax revenue from a TIF area to issue bonds to help finance redevelopment and infrastructure improvements in the TIF area. So, a good use of "excess" tax revenue collected from a TIF district would be to repay the debt issued for the TIF area, or perhaps to put the money in the general fund, since a TIF really just diverts tax revenue from the general fund to begin with. However, city leaders seem to believe a good use of "excess" TIF funds is to sidestep a transparent process of investing public funds and simply allocate the money to subsidize privately owned sports teams and other private ventures of politically well-connected individuals and corporations.
    • What's that sound?
      We have already committed $12 million; half our available monies, to Lilly interests pending the issuance of bonds for the proposed development near Lilly and Clarian Healthâ??s planned neurosciences center near Methodist Hospital. Those will increase the downtown TIF debt to more than $700 million and hike the amount needed for a 10-percent reserve to $70 million. Yet even as we sink further into the debt bog, Lilly wants another $9 million from Indianapolis to build out North of South. Its shocking overreaching. Ballard has already gone over to the dark side. Why don't we just let him give all our city revenues to Mr. Lechleiter? That sound you hear is the giant suckingup sound Indianapolis' mayors make when they're suckedinto Lilly.â?¨
    • What's that sound?
      We have already committed $12 million; half our available monies, to Lilly interests pending the issuance of bonds for the proposed development near Lilly and Clarian Healthâ??s planned neurosciences center near Methodist Hospital. Those will increase the downtown TIF debt to more than $700 million and hike the amount needed for a 10-percent reserve to $70 million. Yet even as we sink further into the debt bog, Lilly wants another $9 million from Indianapolis to build out North of South. Its shocking overreaching. Ballard has already gone over to the dark side. Why don't we just let him give all our city revenues to Mr. Lechleiter? That sound you hear is the giant suckingup sound Indianapolis' mayors make when they're suckedinto Lilly.â?¨
    • tough nut to swallow
      I can understand how citizens feel about where the money goes. But we still need to be a competitive city. City officials need a new PR firm,We pay them 200,000 or so. Here is were we are not getting our monies worth. $$$$$$$$$
      • Your Answer Is In The Article
        Common, I know you were asking a rhetorical questions, but I'll still answer it. The city isn't planning to use the so-called "excess" TIF money for upgrading parking meters because it has already committed the money to other uses--mainly the ICVAA, which is just a way for the funds from the CIB which would normally go to the ICVAA to be diverted to the Pacers. There's your answer.

        As for the parking meters, what the city should do is take advantage of historic low interest rates and the profitable parking meters and issue municipal bonds backed by parking meter revenue. The bond funds could then pay for parking meter upgrades, as well as downtown and Broad Ripple street improvements. Of course, such a course of action would cut out the profit for middle-man ACS, a corporation which is a political ally of both Mitch Daniels and Greg Ballard. So, this deal will be finagled through the City-County Council, and ACS will get their fees for the next 50 years.
      • Why Indeed
        Why? It is obvious! They are "following the letter of the law" meaning they have been able to twist every last penny that they can find a way to justify to their self-appointed boards. My, oh, my, but I wish I had a law to give me excess funds to spread around to my buddies instead of paying off my debts early. After all, I am not a "forever" being, like the various levels of government are, so they just don't need to be financially responsible. They wouldn't pay down public debt with public money. No! Not when they can grease the wheels of their next election campaign.
      • Responsible Spending
        Why not use the windfall to pay down the debt? How much interest will be saved by reducing debt? Quit wasting our money on more projects and pay for thee ones we already have.
      • Timing is everything
        The City needs $10 million to upgrage its parking system. There is $12 million of excess in the TIF.

        The $12 million HAS to be used to projects like parking meters or used to pay down bonds.

        Soooooo, why isn't the City scrapping the parking deal that pretty much everyone but ACS hates and upgrading the System with TIF dollars?

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        1. A Tilted Kilt at a water park themed hotel? Who planned that one? I guess the Dad's need something to do while the kids are on the water slides.

        2. Don't come down on the fair for offering drinks. This is a craft and certainly one that belongs in agriculture due to ingredients. And for those worrying about how much you can drink. I'm sure it's more to do with liability than anything else. They don't want people suing for being over served. If you want a buzz, do a little pre-drinking before you go.

        3. I don't drink but go into this "controlled area" so my friend can drink. They have their 3 drink limit and then I give my friend my 3 drink limit. How is the fair going to control this very likely situation????

        4. I feel the conditions of the alcohol sales are a bit heavy handed, but you need to realize this is the first year in quite some time that beer & wine will be sold at the fair. They're starting off slowly to get a gauge on how it will perform this year - I would assume if everything goes fine that they relax some of the limits in the next year or couple of years. That said, I think requiring the consumption of alcohol to only occur in the beer tent is a bit much. That is going to be an awkward situation for those with minors - "Honey, I'm getting a beer... Ok, sure go ahead... Alright see you in just a min- half an hour."

        5. This might be an effort on the part of the State Fair Board to manage the risk until they get a better feel for it. However, the blanket notion that alcohol should not be served at "family oriented" events is perhaps an oversimplification. and not too realistic. For 15 years, I was a volunteer at the Indianapolis Air Show, which was as family oriented an event as it gets. We sold beer donated by Monarch Beverage Company and served by licensed and trained employees of United Package Liquors who were unpaid volunteers. And where did that money go? To central Indiana children's charities, including Riley Hospital for Children! It's all about managing the risk.

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