There is a right and wrong way to use tax increment financing (TIF) to spur development, and we’ve got two projects going on right now in Grant County that demonstrate the dichotomy of what makes good and bad projects. One is underway in Gas City, and one is underway in Marion. Given recent history, it isn’t hard to deduce which one fits which description.
Ideally, TIF is used to bolster and financially assist major private development. A plot of land is marked for development, commonly called a TIF district, and then the incremental increase in assessed valuation (caused by development of the land) is captured to be used to support growth in the area. The most successful TIFs use the captured tax revenue to build roads, create parking, lay sewer pipes and build up other utilities that support expansion in the area.
Investing TIF revenue into infrastructure is the best option because the diverted tax dollars are going toward things that will outlast any failed business venture. The worst way to use TIF is as a handout for companies’ specific business models – things that could eventually be torn down or need remodeled to support a replacement for a failed enterprise.
In Marion, city council approved a plan to issue a TIF bond that would go toward supporting the area containing Ridley Tower. We warned against the plan, which allowed for the use of TIF revenue to help finish apartment renovations within the building, but council members were convinced by consultants and city administration that the TIF funds could be directed toward renovating Fire Station 1 while also supporting the Ridley Tower development.
According to our reports from this week’s paper, it doesn’t look like Fire Station 1 will get any of those dollars. Our editorial board is not surprised by this, considering the timing of the Ridley Tower TIF approval. Indiana code lays out guidelines that should have acted as a warning against approving the deal, called a “but for” test, which requires that a TIF shouldn’t be approved unless the development wouldn’t have occurred without the assistance of the government.
In the case of Ridley Tower, the project developer had already begun putting his plan into action, a plan that the developer agreed to begin due to the possible reward he would make for his risk – one that banks didn’t want to assume at the time.
This doesn’t mean Ridley Tower didn’t deserve a TIF. The planning and timing was just not right. The project is spurring development in the area and is a key project to revive downtown, but the deal should have been struck before any development took place to maximize the benefits to taxpayers.
In Gas City, officials have seen positive effects from their TIF projects. The districts there have often grown in assessed valuation, creating revenue balances in the green that help spur further development.
The TIF plan explained in our Wednesday edition shows promise as it seems city officials expect to use incremental tax revenues to support one major project and not any further private development, which is a solid way to grow the tax base, resulting in a healthier general fund.
While it is too soon to say whether Gas City will focus the increased tax revenue on bolstering infrastructure and not provide government subsidies to Marion Health’s campus building operations, they created the TIF at an appropriate time, before shovels hit the ground.
This sets them up for success as long as they don’t use the TIF revenues as a slush fund for the administration to give handouts to private companies, increasing private sector profits at the expense of taxpayers.
We hope both sides learn from the successes and mistakes made across the country regarding economic development tools since their use is inherently risky business for governments to engage in. It can either go very well, or very poorly. We hope the elected officials do their homework and don’t rely on the word of consultants, economic development corporations and private developers because those entities are all looking out for their own best interest, not ours.
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