Deadline looming: Local governments rush to extend tax increment financing

“Time is just of the essence right now,” said Kurt Bachman, Shipshewana’s city attorney, in an interview before Thursday’s town council meeting.

Shipshewana’s dilemma is mirrored throughout Indiana, as municipalities adjust to a 2014 state law that has significant consequences at the local level for property taxes and capital projects funding.

“We hate it, to be quite honest,” Angola’s Mayor Dick Hickman said, regarding last year’s law.

The General Assembly’s changes affected a tax policy known as tax increment finance, or TIF, that redirects property tax revenue for the purpose of economic development.

Under normal circumstances, property taxes support a community’s operating budget or other local institutions, such as public schools and libraries.

With TIF, however, the local government body designates TIF “districts,” as they are called, where property tax revenues based on new construction are set aside by a city, town or county for development projects.

Municipalities, through TIF, may borrow money against the predicted growth in assessed value for property inside the designated TIF district. If a company plans to build a factory within that area, the city may borrow money based on the predicted value of that land once the factory goes up.

This gives local governments the financial capabilities to invest in projects, such as roads or sewer line extensions, that are needed to get that factory there in the first place.

Hickman noted that local governments have brought “literally thousands” of jobs and many industries to Indiana through the use of TIF districts.

“It’s an extremely important tool that we have,” Hickman said, “and one of the few tools we have in bringing economic development to each of our communities.”

TIF financing is a widely used tool throughout northeast Indiana at all levels of local government.

There are 10 TIF districts in Noble County, six in Steuben County and 13 operated by DeKalb County governments. The total number of LaGrange County TIF districts was not available by press time.

“In today’s day and age … (attracting companies to an area) is like a competition by, between and among all kinds of communities,” said Jim McCanna, the DeKalb County commissioners’ attorney. TIF districts, he said, provide municipalities with their greatest bargaining chip in those contests.

DeKalb County’s most high-profile use of TIF happened in the 1990s, when the county government used TIF to attract Steel Dynamics Inc. to rural Butler.

The county government agreed, through the use of TIF-generated funds, to pay for the construction of a multi-million-dollar structure that filtered fumes produced by the mill.

TIF projects, by law, must be used “in or to serve” the area inside a TIF district. The phrase “to serve” allows for quite a bit of flexibility in how the funding is actually used.

In the case of Steel Dynamics, it was determined that, because the structure protected local air quality, it would “serve” the TIF district.

The deal worked out, and Steel Dynamics established itself it DeKalb County, bringing with it hundreds of jobs to northeast Indiana. McCanna said he doesn’t know of a more successful use of TIF in Indiana than in the case of Steel Dynamics and DeKalb County.

“TIF was huge in drawing (Steel Dynamics) to the area,” McCanna said. “I’m not sure we would have been able to get SDI without the money we were able to put into infrastructure.”

Kendallville’s two TIF districts have provided funding for developing the city’s downtown, as well as the east-side industrial park. More than $300,000 worth of TIF money has supported matching grants for renovating storefronts along North Main Street, said Kendallville Mayor SuzAnne Handshoe.

“(TIF districts) can be very helpful to a community,” Handshoe said, “because they allow things to happen in a specific area that might not otherwise have been accomplished.”

In Angola, TIF money is paying for the city’s recently built water tower. Its also developing land around the intersection of Interstate 69 and U.S. 20 for what Hickman said the city hopes will one day be a technology park.

But despite its wide use, TIF can also be controversial. School districts, as well as other local institutions funded through property taxes, would under normal circumstances receive the captured TIF money in their own budgets.

Westview school district Superintendent Randy Zimmerly said TIF is a good concept but is sometimes not so good in practice. If a municipality is going to establish a TIF district, it should have a definite objective, Zimmerly said, and it needs to spend that money wisely.

Shipshewana used TIF to extend its sewer system to Westview’s Meadowview Elementary School. Not only did the school benefit, but the extension allowed the city to expand its sewer service for home and business owners.

“That was good for infrastructure, good for the community and good for economic development along that corridor,” Zimmerly said. “How can I argue with that? That was a good move, I think.”

Municipalities misuse TIF, though, Zimmerly said, when they hang on to TIF-generated funds for future, hypothetical projects.

“What often happens is TIF districts collect revenue over time, but lack a project,” Zimmerly said.

Another general concern regarding TIF involves how the money is spent.

Several years ago, the city of Carmel, according to the South Bend Tribune, used $175 million in TIF funds to build a 1,600-seat performing arts center. It was partly in response to that use — or, rather, misuse — of TIF that the Indiana General Assembly voted to further regulate TIF districts.

The new regulations, according to McCanna, require more oversight of how TIF is used by municipal governing bodies.

The new state law also put a cap on the life of a TIF district — and that’s the part that Hickman and other municipal officials don’t like.

“It’s sort of a punch to the gut for small municipalities who are trying to function long-term and invest in economic development,” Bachman said.

From here on out, the law stipulates that any new TIF district gets cut off at 25 years. For any TIF districts started before 1995, the General Assembly assigned them an expiration date in 2025 — with one exception.

A municipality can extend the life of an older TIF district if debt requires it to last longer. The deadline for generating this TIF-preserving debt is June 30, 2015 — hence Shipshewana’s rush to issue bonds at its Thursday town council meeting.

Other local municipalities, including Garrett and Ligonier, are squeaking in bonds under the impending deadline for their older TIF districts, as well.