Tax increment financing districts aren’t effective tools for economic development, according to a new study from Ball State University’s Center for Business and Economic Research, which suggests TIFs aren’t actually creating new investments.
The general idea of a TIF district is that a proposed project or development will benefit the development around it, and that area should shoulder the bulk of paying for it. Revenue generated from private development in the district — through increases in taxable assessed value — is used to finance public improvements within the district. When the project is paid off, the TIF district goes away.
In Indiana, though, the report argues, “TIF is widely used as a budget management tool, and that is roughly the extent of its value in the average Indiana community.”
Both Bloomington and Monroe County governments have used TIFs extensively. Last year, the city consolidated five of its six TIF districts into one and approved a $48 million bond issue for a variety of public projects, rather than let those districts “sunset,” or expire, in 2025 as state law would have required.
Monroe County took a similar tack in extending the life of its Westside TIF by approving a $3 million bond issue rather than see the district automatically end in 2024, 30 years after it was created. In both cases, the potential for future development and job creation were among arguments cited in favor of extending the districts’ existence.
However, data analyzed by the Ball State researchers points to no boost in income or sales taxes and does not indicate a significant net increase in assessed value, which a true economic development tool would create.
And some data shows TIF districts are pulling large amounts of revenue away from other service areas, especially local schools, according to the study.
The intent of a TIF is that during the life of the special taxing district, other taxing units will continue to collect the assessed value in place before the creation of the TIF, and that at the end of the district’s lifespan, the higher assessed value that results will become part of the overall tax base and increase tax levies to all taxing units.
That might not actually be the case, though, the Ball State researchers say in their report.
“The evidence strongly suggests that TIFs operate differently in their application. Several studies in the past few years identify three challenges to the assumptions that the base is constant and that incremental growth is primarily caused by the TIF,” they write. “These studies suggest that the base assessed value in a TIF is not constant, but is likely to decrease over time.”