Friday, May 31, 2013

TIF Districts: Part I, What is a TIF district?

There has been a lot of debate recently in many communities over something intended as an economic development tool, called "TIF Financing" or "TIF Districts".  This is a debate that has raged in Carmel, Indianapolis, and more recently, Fishers.

But what is this thing called "TIF"?  That is an abbreviation for "Tax Increment Financing".   Basically, the appropriate element of government in charge of economic development establishes a "TIF District", that is supposedly in need of either economic development, or re-development.  It was originally intended for blighted areas, but the actual use has expanded far beyond urban blight.

The way it works, is say ABC Developer wants to build a $50 million dollar project, but they want help from the local government as an incentive to build in an particular community, or area of the community.  The local government can sell bonds to help the developer.  These bonds are repaid by the taxes on the increased value of the TIF district, above what the base value was prior to the development.  In fact, the taxes on the increased property value go ONLY for repayment of that debt, until it is retired.

And that is one of the controversial issues with TIF Districts.  In this case, economic development DOES NOT ADD TO THE TAX BASE, and doesn't go to other units of government that depend on the tax base, such as schools.  And many of those bond issues are pretty long-term.  So if TIFs are over-used, one of the negative side effects is to harm school financing.

Complicated, isn't it?  And the Town of Fishers has actually posted a pretty good short brochure about TIF financing, which you can get here:

As communities compete for economic development, TIFs are one of the tools they use.  But they can be quite controversial.  An IBJ article this week shows the strong arguments that have arisen in Carmel over use of economic development incentives in general, and TIFs in particular.   Similar arguments have waged for some time in Indianapolis, and are of more recent discussion in Fishers, which will be the subject of a future article in this series.

So what is the proper role of government in using incentives for economic development, and TIF districts in particular?  There are many differing views, and some of those will be explored in this series.  I hope this provides food for thought in readers concerned about their community's development.