A new study from Ball State University suggests that tax increment financing districts in Indiana are diverting as much as $320 million annually from other taxing units, with the biggest impact on school corporations.
The research from the school's Center for Business and Economic Research analyzes local option income taxes, sales taxes and property taxes in Indiana counties and the impact of TIF districts from 2003 to 2013.
Cities and counties can establish TIFs as a way to capture taxes from incremental assessed value in areas identified for redevelopment. Property taxes from new development in a district go in a fund that an appointed redevelopment commission oversees and invests back into the district.
The device has been in use for decades, often to generate money to support projects that officials believe would create significant numbers of jobs, as well as stimulate development in and around the area.
It became a widespread tool for local governments throughout the state after property tax caps went into effect in 2008, in part as a way to replace funds lost due to the caps, said Michael Hicks, director of the Center for Business and Economic Research and one of the authors of the study.
“Instead of laying off workers I don’t need and reducing non-vital services, we’ll just TIF," Hicks said.
According to the Jan. 29 report, the districts are diverting millions of dollars from other taxing units that normally would receive the revenue, such as schools, libraries and other public services.
“What a TIF does is essentially allow a stranglehold to be placed on schools, other municipalities,” Hicks said.
In Marion County, TIFs have diverted as much as $63.1 million annually, the most among the counties in the Indianapolis metropolitan area. The financing districts have diverted up to $21.5 million in Hamilton County, $10.6 million in Hendricks County, $8.7 million in Madison County, $5.8 million in Johnson County, $2.3 million in Boone County, $1.9 million in Hancock County, $1.8 million in Shelby County, and $897,000 in Morgan County.
For TIFs statewide, the portion of dollars that would have gone to school districts could pay salaries for an additional 2,400 teachers or operate another 900 buses every year, according to the study.
Hicks said the loss of revenue due to TIFs is “absolutely” one reason school districts are proposing funding referendums. Hamilton Southeastern Schools and Noblesville Schools, for example, are asking for additional taxes in the primary election in May.
Todd Burtron, chief of staff for the city of Westfield, said the city is very careful with its use of TIFs and does consider the impact, but doesn’t believe they're hurting schools.
“Yes, property taxes are utilized in school corporations for purchasing a bus or capital improvements, but for operational costs associated with programs and teachers … that's primarily sourced out of the state funding formula,” Burtron said.
He emphasized that new TIF districts don’t take away any existing tax streams from other taxing units. Rather, they claim taxes from the value of new development that arguably wouldn't be possible without TIF support.
“I always say you can’t miss something you didn’t have before,” Burtron said.
Although Carmel Mayor Jim Brainard had not yet read the Ball State report, he said the city uses TIF districts to help finance infrastructure and downtown development that attracts private investment.
The report also mentions that municipalities are paying up to $30 million annually for consulting firms to advise on TIF spending.
Hicks said it could be a reason why TIF regulations haven’t improved. Those firms want TIF use to continue, he said.
“It’s a cash cow, and I get that,” Hicks said.
The report recommends requiring all elected bodies overseeing a taxing unit within a TIF district to separately vote to allocate its incremental assessed value to the district. This would mean any overlapping school board, for example, would have to vote to allocate its funds to the TIF, which is the process in most other states using TIF, according to Hicks.
“The bottom line is, there are some TIF districts that do things that are positive,” Hicks said. “If the school board had to vote on TIF, then only the better TIFs would survive.”
Hicks suggested requiring more transparency for how TIF dollars are spent.
“We have to come up with some way to be honest with what it does and does not do,” Hicks said. “And figure out some way to keep it without damaging schools.”