TIF Study Commission Meeting 2 - TIF-a-licious

Hard to imagine, but the second meeting of the TIF Study Commission was even better than the first.  I found it provided some hard numbers to flesh out the concept of our TIFs, brought together some variables that impact one another, and exposed the 'language' problem when discussing such arcane (but important) tools of government.  You could see new avenues for exploration opening as the discussion moved along.

I have to say that the City and County are being impressively well served by this group.  All are serious; all are weighing in with important things to say or ask; all have done their homework.  The agendas are chock full and the exchanges are riveting.  The topic is not being taken lightly or merely skimmed.  These guys are hip deep in real, meaty issues.

I don't want to simply report what was said.  I believe that we need a community discussion as well as a policy maker discussion of TIFs - how long should they live - on what should their funds be spent - how should they be prudently structured - what kind of oversight should be in place - how public input can be improved - how they can better serve their stated purpose - and more.  So, at this point at least, I want to recraft some of the information that was put forth to frame the important concepts that are falling out of these meetings.

One important idea that bubbled up last night was the use of language (my Anthropology friends will like this).  It is said that the Inuit language has hundreds of words for 'snow'.  While we feel that 'sleet', 'snow', and 'hail', coupled with the adjectives 'wet' and 'fluffy', suit our needs nicely.  There is purpose in a TIF technical language, but it can exclude information from those who do not understand the language, and it can confuse all when common English and the TIF technical language share a word, but use it to mean different things.

I am going to avoid as much TIF jargon as I can - mostly so I don't misuse it.  However, I do want to paint the concepts so that we can all partake in this important conversation.

The first concept, and the topic of this entry, is that property tax rates, property tax revenues, and tax caps are all affected by TIF districts in a complex way.  Sometimes it is useful to look at the extremes in order to illuminate the trends.  So, lets look at the effect of TIFs from two extremes - all or nothing.

(This falls out of the information presented by City Controller, Jeff Spaulding, for those who have or will watch the WCTY replay.)

Before the tax caps --  If there were no TIF districts, the total value of Indianapolis/Marion County property would be used to determine the property tax rates.  The rates would be the lowest they could be and each property owner would pay the lowest amount needed to fund the services of the City, Library, IndyGo, Township (with and without fire), and schools. 

Before the tax caps -- if everything but my house was in a TIF district, the value of my property would be used to calculate the property tax rates.  My bill would be $1 billion.  But, don't be laughing at me.  My tax rate would apply to every parcel in the TIF district - so you'd be paying quite a large sum as well.  However, only my tax payment would pay for City services and the Library and IndyGo and the Townships and the schools (jargon: the taxing units).  Your payments would go to service the TIF bonds and projects being funded out of the 'everything but Pat's house' TIF.

After the tax caps -- If there were no TIF districts, the total value of the Indianapolis/Marion County property would be used to determine the property tax rates.  The fewest number of taxpayers would max out and hit the tax caps; mostly in areas where the school district has oversized debt.  These folks are protected by the tax caps.  The rates would be the lowest they could be and each property owner would pay the lowest amount needed to fund services.

After the tax caps -- If everything but my house was in a TIF district, the value of my property would still be used to calculate the property tax rates.  But because of the protection afforded by the tax caps, my bill would be $2000.   (jargon: my tax cap credit would be $999,998,000)  All the services provided by the various taxing units would be hurt or shut down completely (the taxing units all have other sources of revenue - but property taxes is a large fraction for each unit).  The calculated property tax rate would apply to the 'everything but Pat's house' TIF, and like  me, every property owner would receive protection from the tax caps.

Bottom line -- before the tax caps were in effect, increasing the total number or size of TIFs would cost all taxpayers more money, but the taxing units would still receive all the revenue they qualified for.  Now that the tax caps are in effect, increasing the total number or size of TIFs cost taxpayers more money until they hit the cap (and are protected by it), but the taxing units do not get all of the property tax revenue they requested.  Their property tax revenue is reduced by the same amount as the tax cap protection afforded the taxpayers.  (jargon: the tax cap credits provided to the taxpayers are subtracted from the property tax revenue that the taxing units hoped to receive.)

In 2011, the total property tax revenue requested by all taxing units was $1.057 billion.  The tax cap credits totaled $134.5 million, or 12.7% of the amount requested.  So the taxing units 'only' got $922.5 million.

Certainly, TIF districts aren't the only reason taxpayers hit the tax caps.  But, TIFs are the topic of discussion right now and as they grow, they cause an increase the number of taxpayers hitting the tax caps, and they therefore cause a decrease in the property tax revenue that actually gets to the taxing units to spend on services for the public.

Spaulding noted that if all TIF districts were dissolved (not going to happen; just hypothetically speaking), an additional $43 million of property tax revenue would flow to the taxing units because the tax rate would go down and fewer property owners would hit the tax caps.  Taken together with the 2011 tax cap credits mentioned earlier, it can be calculated that the TIF districts in Indianapolis/Marion County cause 31% of the tax cap credits.   Some call the tax cap credits a 'problem' to be solved, while others call it 'protection' to be applauded.  I obviously fall in the latter camp.  But, at the end of the day, it is obvious that the expansion of TIF districts or the increase in the size of existing TIF districts has a notable impact on the tax caps and the reduction of tax revenue that the government has to spend on needed services.