Monday, July 25, 2011

TIF Districts - Who Knew The Base Could Drop?

I'm sure some folks in Marion County know that the base of a TIF District can drop.  But, not once was that ever indicated while I was present in a discussion of TIF Districts.

A Tax Increment Financing District is an area created to help finance and spur development.  The additional, new, taxes collected after the District is created, go to pay off bonds that were floated to support the new development in some way.  Sometimes the assistance is in the form of infrastructure improvements, like new street, sewers, etc.  Sometimes it is in the form of helping with construction costs. 

I always heard that the property taxes collected from the property prior to the creation of the District would always go to the usual taxing units as it always did before.  The idea is that there is a 'base' assessed value and the property taxes from the base would flow to the schools and townships and library and IndyGo, etc.  Only the taxes from the increased accessed value (or "increment") would be used to pay off the bonds floated for the TIF District.

Well...  turns out not to be the full story.  I obtained copies of a form called "County Auditor's Certificate of Adjustment to the Based Assessed Valuation of TIF Districts" for 40 TIF Districts in Marion County, covering this year's property tax collections.  These forms are submitted to the Department of Local Government Finance by the County Auditor; Billie Breaux in this case.

Overall, the 40 TIF Districts had a combined gross AV of $4.81 billion.  The base AVs had a combined value of $1.45 billion. 

In the period between 2010 and 2011, assessed values all over the County dropped.  If one accounted for that drop, the base should have come in at $1.5 billion.  But, instead, the combined base AV dropped an additional $43.4 million.  That means over the county, individual property taxpayers had to pay a bit more to cover the shift in base AV.

All TIF Districts did not change in like manner.  While none had an increase in base value, after accounting for the general drop in AV due to the economy, 10 stayed the same, 15 were at zero and stayed at zero, and 15 accounted for the $43.4 million drop in base AV (again, after accounting for the effect of the economy on real estate values).

Now, this might be beneficial in the bigger picture, if there were no real growth in AV - since the bills still have to be paid.  But, the AV grew substantially.  All 40 TIF Districts combined for real growth of $203,337,569.  Surely the base could have been maintained with that kind of real, additional growth.  The 10 districts whose base stayed the same (after adjusting for lower real estate values), combined for $133.6 million real growth.  The 15 districts whose base was zero in 2010 and remained zero for 2011, the combined growth was $15.4 million .  And the 15 districts that lost base value combined for a real growth of $45.2 million.  Add that to the loss of base AV, and you have a taxable increase in the "increment" of  $88.7 million.

So, what do we have?  The base AV has always been promised as a continuing source of property tax dollars.  We are always told that we can count on that and the new development will pay for itself and ultimately contribute to us all once the TIF district is retired.  Only they don't retire TIF districts, do they?  Sometimes they DO return all of the tax dollars to the regular taxing units.  For 2012, only 3 TIF Districts will return all the tax dollars to these regular taxing units, down from 5 Districts doing so in 2011.  But, we were lulled into thinking that at least we had the taxes from the base to keep us going.

But, nooooo..... Excluding areas owned by government, the initial base AV of a TIF District cannot be zero.  The fact that by 2010, 15 had sunk to zero AV, suggests the erosion of the base AV over time.  Now, two of those 15 are or were owned by the government, so zero AV is understandable in those two cases.   Of the remaining 13, though, fewer and fewer property tax dollars flowed to the regular taxing units from TIF District areas, and that means the rest of us picked up the slack in our tax bills.

The way this particular DLGF form recalculating the base AV works, there can never be an increase in the base AV (outside of an increase in real estate values generally).  Once the base AV reaches zero, there can be no increase, even with an increase in real estate values generally. 

I do have to wonder what the initial base AVs were for all of our TIF Districts and what the full extent of the erosion in that base AV has been.

This raises a lot of questions about what can or should be done to fulfill the promise that if we create a TIF District, well at least we can count on the base AV to support our schools and libraries and public transportation and township/fire safety.

Meanwhile, there is enough to do, just to digest the meaning of base AV in a TIF District.


Jeff Cox said...

Anyc ahnce you could post the TIF results online? I'd like to see how the one on the far east side is doing.

Had Enough Indy? said...

Can you access Google docs?

Also, this is just one look at 'how it is doing'. There is no indication of how much debt service is required. If you can get to Google docs I can post a summary of debt service, as well.

Gary R. Welsh said...

That's unbelievable, Pat. It has always been my understanding the AV was frozen at the time the TIF was established and that the taxing districts always got the tax revenues from the base AV and the incremental increase went to the TIF district to pay debt service for projects within the district. Did anyone point to the portion of the law that permits the base AV to decline?