Thursday, April 28, 2011
But, that is no reason why you should not comment on those things anyway.
So, let's have another free-for-all. What's on your mind?
Tuesday, April 19, 2011
MKNA blog on TIF districts -- (current) as part of an educational process as the Meridian Kessler Neighborhood Association deliberates on the potential for a TIF area landing in their neighborhood
South Bend Tribune "Good tool, but..." -- (2011) brings up pro and con TIF district points
Baker & Daniels "Tax Increment Finance in Indiana" -- (pdf created in 2008, document undated) authored by Melina Kennedy and posted on CDFA.net, a pro-public-private partnership and pro-tax-financing group (thanks to Yoda, who cited this document in the MKNA blog)
CDFA overview of TIF history and types -- (2008) authored by Jackie Nytes and posted on CDFA.net, a pro-public-private-partnership and pro-tax-financing group -- has county map showing location of TIF districts at that time
An IBJ article "City reviews TIF districts" -- (2008) wherein Mayor Greg Ballard criticizes former Mayor Bart Peterson's TIF district policy as overreaching and some TIF districts having overlived their usefulness
Neareastside HOTIF FAQs -- (2006) written on City of Indianapolis, Mayor Bart Peterson, letterhead
If you have other links, please provide them to me and I'll edit this entry (firstname.lastname@example.org)
TIF Districts - The Good, The Bad, & The Ugly - Part 1
TIF Districts - The Good, The Bad, & The Ugly - Part 2
Monday, April 18, 2011
In part 2, I want to go through some of the variations and how they contribute to a wide variety of purposes and uses for TIF districts. If I had described a model motor vehicle with a sedan analogy, this part would give all the variety that would demonstrate the spectrum from moped to motorhome.
Size of the TIF District
Sometimes the size of the TIF district is larger than the project area itself. This is because the bonds will not sell unless the buyers can be convinced that adequate money will flow from the District to make payments on the bonds that they buy.
Collateral for the Bonds
There is likely a different term in bond markets for what revenue streams will be used as collateral to repay the bonds. Sometimes the area of the TIF district, even though quite large, will still be inadequate to generate enough tax revenues to cover payments on the bonds - especially in the early years. Often, the first few years of payments are interest only AND the amount of those interest only payments is rolled into the bond issue amount - so the City is borrowing the amount of money needed for their part of the project plus the first few years of payments on that loan.
If the first 5 years still are not likely to generate enough TIF property tax revenues to cover the bond payments, another revenue stream will be used as collateral for the bonds. In the case of the United TIF bonds, even though hundreds, if not thousands of acres of land were thrown into the District, the expectation was that the revenue stream would be insufficient for a while. So, they guaranteed the bonds with County Option Income Tax revenues.
Uses for Which Bonds are Floated
Once a TIF District is created, it can be used to float bonds for a variety of uses. If sufficient money flows into the TIF District fund, a second round of bonds for yet another project within (or near) the District boundaries can be floated.
Chime in if you think of a use for TIF bond revenues that I don't list here. But, it could be for road and other infrastructure improvements, industrial buildings, commercial buildings, houses, renovations, and even complexes of buildings for a multi-use project.
New wrinkles have been introduced in just the last year that deserve community conversation.
One is the City's use of TIF bonds to provide a loan to a developer for the North of South project. Another is the Fort Harrison TIF District decision to float bonds to build a strip mall with the hope of selling it to an unknown buyer in a couple of years.
Uses of Excess Revenue in TIF Districts
I'll go into how much excess money resides in the County's TIF Districts next time. But, it is substantial in some.
The TIF property tax revenues flow into the TIF District fund. The first obligation is the payments due on the bonds owed by that District. Next is the creation of a positive fund balance that is large enough to convince bond buyers that the District has enough revenue to make future payments.
After those two obligations are fulfilled, excess revenue can be used to pay off the bonds early and retire the District. Actually, I'm not convinced that any District has actually been 'retired'. The list that I have shows 'dormant' TIF districts, where the tax revenues from the District are divided among the various property taxing units of government - schools, townships, city, county, library, public transportation. The use of the word 'dormant' kind of scares me that they could be put back into service tomorrow, if so desired by the Mayor.
Excess revenue in a TIF District could also be used for small projects that would not require new bonds. Such things could be road or sidewalk improvements. Just this past year, the MDC spent TIF money to build the 4th spoke from the ArtsGarden to the PNC building. The MDC also created an interlocal agreement with the CIB this past year, that gives $8 million per year to the CIB from the consolidated downtown TIF. That money is simply being 'laundered' through the CIB in order to provide cash to the Pacers organization.
The City-County Council approved siphoning money from the Ameriplex TIF (part of the United TIF), laundering it through a middleman fund, to provide a one time $1.2 million to the Indianapolis-Marion County Public Library.
Consolidated TIF Districts
Sometimes multiple TIF Districts will be set up with the intention of working as one unit. This was the case for the United TIF. Then you have the consolidated downtown TIF, that I believe was consolidated after pieces were created for their own purposes - please correct me if I have that wrong.
A couple of years ago, then Bond Bank Executive Director Kevin Taylor, gave me a map of all the TIF Districts in the County. 38 TIF Districts are shown. I have a list from last year, showing the money flowing into the various TIF Districts - but with the consolidated districts counting as just one district, not the multiple component TIF Districts. They amount to 30 TIF Districts, with 5 listed as "new" and not appearing on the map I got just 2-3 years ago.
Location of TIF Districts
From the map showing the location of the 38 TIF Districts, here are the number of Districts in each Township (of course, they are not of equal size or monetary value):
Pike = 1
Washington = 3
Lawrence = 2
Wayne = 6
Center = 18
Warren = 4
Decatur = 2
Perry = 1
Franklin = 1
The 5 TIF Districts listed as "new", 2 are in Beech Grove, 1 is listed as Pendleton Pike (so it could be in either Warren or Lawrence), 1 listed as Monarch (presumably Monarch Beverage that relocated to Lawrence), and 1 in Speedway.
So, there you have it - the moped to the motorhome of TIF District-ology.
Saturday, April 16, 2011
Regular readers of this blog know I have been following closely, the details of this now-approved project since it crawled out from under a rock back in October (in particular, see my blog entries "North of South - Details of Proposed Deal", "MDC To Vote On No-So Deal Today", "No-So Field of Dreams - Lie & They Will Build It", "Council Considers No-So Deal Tonight - Hold On To Your Wallets" & " No-So Bonds - Do They Meet Standards Set By Law?")
Even trying to keep up with this lousy deal as it snaked its way through the process, I was stunned to read a couple of new 'details', expensive to the taxpayer details, in Shouten's excellent report.
One is that the value of the land that Lilly is 'contributing' to the project actually weighs in at $2 million, not $15 million.
The city also gives credit to Lilly for contributing the 15-acre site on which North of South will be built, valuing the property at $15 million. For tax purposes, though, the current assessed value of the 12 parcels set for development is $2 million.
Another is that the $15 million the City paid to Lilly to donate to the project, was in fact, not repayment of a loan long overdue. Rather, it was an early payment due in 2020, on money that Lilly was contractually obligated to put up for the rerouting of Kentucky Avenue around their manufacturing plant on the near southwest side of town. They had to put up that money because the property taxes used as collateral for the bonds the city floated for the project were inadequate to cover the bond payments.
City officials agreed in 1989 to vacate a portion of Kentucky Avenue and spend $36 million to widen surrounding roads to accommodate an expansion of the Lilly Technology Center.And, last but not least, I am beside myself with disgust at the revelation that the developer will get to sell of pieces of the project and pocket profits on those pieces, while leaving the taxpayers holding the bag on unprofitable pieces.
The city sold bonds backed by property tax revenue on the property, but starting in 1997—thanks in part to a new round of abatements, Kintner said—the bond payments due exceeded the property tax payments, triggering an agreement for Lilly to cover the shortfall.
Lilly paid about $13 million toward the bond payments over the years, and would have been entitled to reimbursement from the city of the remaining balance after the original bonds were retired in 2020.
Buckingham could start cashing in profits from the project by selling individual components before taxpayers are paid back in full.Just to remind everyone - Mayor Ballard keeps repeating that his administration values transparency. When they continue, time after time, to withhold important information on deal after lousy deal, then there is NO transparency in his administration. Its called lying by omission.
The hotel, office and apartment phases each are assigned a “base release price” at which the bonds for that portion are considered satisfied. For instance, the release price for an office component starts at about $2.4 million (and falls as payments are made on the bonds).
If the developer can sell that portion, it can pocket any profit above the release price. A potential consequence of the arrangement is, taxpayers could get stuck holding underperforming portions of the project while the developer cashes out of profitable ones.
Now, fellow taxpayers, you and I are underwriting a deal far, far, more risky than anyone ever mentioned.
Friday, April 15, 2011
So, here we go -- Part 1 -- What is a TIF District? And why should you care?
TIF stands for "tax increment financing". You should care because all TIF districts in Marion County cause YOUR taxes to rise. How that happens should become evident as this series goes on. But, trust me, its true.
The simplest way to explain a TIF and how it works is to create a fictitious example of one getting set up.
So, lets say that you live right next door to a 10 acre farm field. The property is assessed at about $800 an acre, for a total assessed value of $8000. The farmer currently pays property taxes on that value with a tax cap of 3% -- so up to $240 a year in property taxes.
The Mayor of your City decides that your area is in need of an economic development push. Something to get the ball rolling so that other businesses will want to locate in your area as well. An example in the private sector would be, if a McDonald's locates on a block, other fast food chains likely will follow. Another example is when a WalMart builds, other retailers will tend to build near it, simply because WalMart attracts so many shoppers the other retailers could benefit from all the traffic passing by.
So the Mayor has his economic development staff go out and scout for a good location and also search for a good project to build. They decide that that 10 acre farm is perfect, and the farmer is willing to sell it. They also decide that solar panel manufacturer they have been trying to lure to town would be a perfect business for that location. They reason that green jobs are the wave of the future and that suppliers of solar panel parts would want to locate near this manufacturer. The solar panel parts businesses would, of course, be expected to build their own buildings with their own money.
The solar panel manufacturer, though, would have his building built from money raised by the City. The City would get the money by selling a bond, to be repaid over 25 years. To get the money to make the bond payments, the Mayor, through his Redevelopment Commission, establishes a TIF district on the 10 acre parcel. While the assessed value of the current farm field is $8000, that value will rise to $50 million once the solar panel manufacturing plant is built. Likewise, the property taxes collected will rise from the current $240 to $1.5 million per year.
The way a TIF district works, the taxes collected from the plant will be distributed as follows. $240 will be spread among all of the units of government that have always received that money - so, the schools, township fire department, city, county, library, and public transportation will split the $240. $1.5 million minus $240, will go to the TIF district fund. The money in the TIF district fund will be used to make the bond payment. Sometimes there will be more money in the TIF district fund than will be required for the minimum payment on the bond. This will be discussed in future posts in this series. Just note, it can and does happen that money accumulates in a TIF district fund.
So, that is basically it. The Tax Increment Financing District takes the increased property taxes due to the new, publicly financed, development (the 'increment') and uses it to pay off the bonds the City floated to finance the development in the first place. The hope is that the development will attract private investment in new buildings nearby and bring new jobs to the area. With new jobs, new housing will be necessary and more amenities for the new neighbors will be attracted to the growing community. This is the hope, anyway.
Friday, April 8, 2011
I've said it before and I'll say it again - nothing happens at the Indianapolis International Airport that is not pre-approved by the Mayor.
I suspect his fingerprints are on the latest news from the Airport. At least his campaign's fingerprints are under suspicion.
In today's Indy Star there is a notice of a public hearing on an Airport ordinance that would rescind an older ordinance allowing collective bargaining by Airport employees. In part the notice says:
General Ordinance No. 1-2011, if adopted, shall repeal General Ordinance No. 9-2008 which established a system to permit representation of certain employees by unions (employee organizations) for purposes of limited collective bargaining for employees of the Indianapolis Airport Authority.
The meeting of the Airport Authority Board will be at 8 am, April 15, in the main conference room of the Radisson Hotel, 2500 South High School Road - not in the Board room at the airport.
The Airport Board was going to vote on this proposal to nip union hopes in the bud (aka 'union busting') back at its March 11 meeting (see my blog entry "Union Busting Reaches Fever Pitch in Indiana"). Then, all of a sudden, the proposed vote was taken off the table "indefinitely" (see my blog entry on March 9 "Indy Airport Sidesteps Union Issue - For Now") "Indefinitely" sure had a short tenure.
At the same time as the vote was 'indefinitely postponed', Mayor Greg Ballard's campaign was making much hay of its endorsement by 4 AFSCME locals representing City workers. In fact, the campaign made the announcement on March 8 and the Airport's 'indefinite' postponement hit the newspaper on March 9. Coordinated ? Quack, quack, quack.
Now that the campaign no longer needs undivided attention to its supposed support for and by Union brothers and sisters, the Airport is released to return to its union bashing ways.
Perhaps the 4 AFSCME locals would contemplate rescinding their endorsements on principal.
Sunday, April 3, 2011
There is an opening in the public dialog to discuss this economic development tool, thanks to a curious abatement situation recently reported on by IBJ reporter, Francesca Jarosz. In a new article entitled "Tax breaks for Rolls-Royce hinge on investment, not jobs" (sorry, the article is open only to online subscribers), Jarosz reports that the Ballard administration has agreed to two property tax abatements for Rolls-Royce. One would be a $1.2 million, 10-year abatement for the company to remodel the downtown Faris building, recently vacated by Eli Lilly. The second would be a $21 million, 10-year abatement for the company's $190 million update of two plants between Tibbs and Kentucky Avenue.
I was interviewed by Jarosz for this article and she passed on that Rolls-Royce has not actually applied for either abatement as yet. So, the approval process is in very early stages.
Over at Advance Indiana, Gary Welsh has made a couple of excellent points; that this is more of the pay-to-play relationship businesses have with the Ballard administration, and that once the Mayor decides his position on an abatement, the rest of the process is just rubber stamping by the Metropolitan Development Commission and the City-County Council. I can't really argue against those positions. If pay-to-play rumors are even 10% true, the Marion County Prosecutor or the FBI should investigate, prosecute, and jail those who are involved. As for a mutant public process, I am all for a more transparent, more responsive, and more accountable system than the one we currently 'enjoy'.
For my purposes here, I'd just like to get a little community dialog going about abatements, using the proposed Rolls-Royce abatements simply as a complicated, real life example.
So, you be the Mayor. Where do you stand on abatements?
Abatements are allowed by state law for any project that will bring an investment in buildings and/or secure new jobs. The company who is awarded an abatement, pays only about half of all new property taxes that result from their investment. An abatement is granted anywhere from 3 to 10 years. The practice in Indianapolis has been to enter into a contract whereby the company agrees to invest an agreed upon amount of money in new facilities, or upgrades of current facilities, and produce an agreed upon number of new jobs, in return for the abated taxes. This is called the "clawback clause". If the company fails to invest the money or produce the new jobs, the City can ask for the company to repay the taxes as a penalty.
As Jarosz points out in this article, 69 of the 80 abatements granted over the last 3 years have included increased job numbers as part of the agreement. Still, that means that nearly 14% have not included additional jobs.
So, if you were the Mayor of Indianapolis, what would you do? Would you allow any abatements?
Surrounding counties have been particularly aggressive with providing abatements to companies considering locating there. So, there is a regional competition for jobs and future taxes from companies choosing what central Indiana city to call home. Then there are the really big companies who can locate anywhere in the US or overseas. Would abatements be part of your approach to attracting new businesses to Indy?
If you, as Mayor, are open to abatements, then under what conditions would you support one?
Is it a certain type of business? In the past, just for examples, abatements have been granted to retailers like Kroger, hotels (with the condos atop the Conrad also being granted abatements), some housing stock, and industrial businesses.
How do you, as Mayor, balance the need of a company like Rolls-Royce, to make significant improvements in their plants in order to modernize them - but not to produce more jobs. If a major employer, like Rolls-Royce, is looking at two aged plants and has $190 million to spend, they have options to move to a new location and build new, or remain and update the existing plants. Should your City grant an abatement, even though no extra jobs will be created? I think the two proposed abatements for Rolls-Royce actually represent the spectrum of upgrades. In the smaller Faris deal, there is remodeling of an office building, presumably for layout and not modernization. Should your City grant an abatement for a company, even a major employer, to simply remodel a building? Should your City grant abatements for any company to locate downtown? Should your City grant an abatement for a major updating of an aging plant, in order to keep the major employer in your City?
There is no doubt that companies view abatements as routine anymore. If they can save millions of dollars in taxes, they are surely going to do so. So, one cannot be sure of the accuracy of any threat to relocate a business should an application for an abatement not be granted.
Would you as Mayor create a public list of what sorts of investments or job creation numbers will automatically result in an abatement?
Tax abatements are a fact of life, for sure. That does not make every one wise, nor every one foolhardy.
If you were Mayor, what role would property tax abatements play in your efforts to increase economic development and job creation?