Tax-Increment Financing (TIF) has been a prominent funding tool used by local and regional governments for decades to spur redevelopment of blighted areas within those jurisdictions.
The basic premise of TIF is that redevelopment of a blighted area results in an increase in the value of the redeveloped parcel(s). TIF captures the additional revenue generated by the improvements to the redeveloped parcel(s) and uses it to pay the local or regional redevelopment agency back for money given to the developer to make the improvements.
Sounds like a good deal for taxpayers, right? Carmel mayor Jim Brainard prefers to call TIF as “a gift for future generations“.
The ugly truths behind TIF are many:
• Only the Base Valuation (BV) of the blighted parcel(s) — that is, the value of the parcel(s) at the time the TIF is created — is subject to prevailing property tax rates. Any revenue generated from an increase in the Assessed Valuation (AV) of the parcel(s) that is above and beyond the BV goes to pay off project debt.
• Only taxes collected on the BV go to the operational budgets of local taxing units — schools, parks, public safety, libraries and other city services. No revenues generated by the AV go to these taxing units. The result? The amount of revenue from TIF projects going to taxing units remains constant over the 20+ year life of the TIF — even as expenses grow for the taxing districts.
• As more parcel(s) are converted to TIF, a greater share of the property tax burden is shifted to residential and other commercial properties not subject to TIF. When home values are increasing, this is not a huge problem, as increased values bring in more revenue per parcel. Yet, when housing demand softens and home prices level off (as is currently being observed both nationally and locally), then revenue is constricted and a combination of budget cuts and tax rate increases become necessary to balance the budgets of taxing units.
• When one reads the fine print of recent propecti for redevelopment bonds sold by the City of Carmel on behalf of the Carmel Redevelopment Commission (CRC), it is noted that there is no security backing for the bonds, other than advisement to the purchaser to look into the availability of a Special Benefits Tax (SBT). The prospecti goes on to define the redevelopment district subject to the SBT as “all properties within the city”. That’s right — if you own residential or commercial property in Carmel, Indiana, it is subject to this uncapped tax at any time that AV increases and/or lease revenues are insufficient to meet debt servicing obligations.
Even with all of this considered, TIF might make more sense and be more palatable if used for projects with obvious public benefit. However, TIF has recently been used to finance construction of a Main Street steakhouse, a new Midtown corporate headquarters for a firm moving across town from the Meridian corridor, and many of the monolithic mixed-use commercial/residential blocks throughout Midtown and City Center.
In the meantime, maintenance on neighborhood streets and other infrastructure gets deferred while the city focuses its resources on the small portion of central Carmel that receives an outsized share of funding and activity.
How will Carmel’s voting taxpayers know when/if TIF projects are successful? Mayor Jim Brainard’s all-in strategy defies the conventional logic of an incremental and measured approach that requires less public investment and allows for greater organic growth and evolution of the local commercial sector.
Ask the tough questions of all candidates for office. Then cast an informed vote on May 7th.
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