Important TIF Changes Make It Into Law

I'm really late to this news, but thanks to Thomas Heller out of Columbus, IN, I do finally have it.

This past Legislative Session actually took a couple of significant steps to reign in how TIF (tax increment finance) districts are operated.

HB 1116 made it into law with a litany of changes to the way a wide variety of governmental units manage the revenues they garner from property taxes.  From libraries to townships to school districts to municipal governments and more - there's something for everyone in this bill.

Winnowing it down to factors relevant to TIF districts we end up with three items:

It requires the MDC to submit an annual report to the Council and for the Council to forward that information to the State.

It revamps the way the value of the base is calculated each year; limiting any decrease in the value of the base to that caused by lower property values.

It calls for the Legislative Council to set up a study committee on TIFs. 

A reminder on the jargon - the base is supposedly set on day 1 of the life of a TIF district and is the total value of all property then existing within the footprint of the TIF district.  The fairytale always told is that that value will remain in the base and the taxes derived from it will always and forever flow to the schools and libraries and cities and towns.  The increment is supposed to be all the growth in value due to new construction and redevelopment (not just inflation).

The reality is that each year, the County Auditor must submit to the State Department of Local Government Finance, a form for each and every TIF district that recalculates the base.  We have seen considerable erosion of the base of our TIF districts in Marion County over the years due to the calculations handled on these forms (TIF neutralization forms), with base value being converted forever into increment value.   Such is our problem here in Marion County, that 16 of our 40 TIFs have seen their base drop to zero, including 5 of 6 components of the much vaunted consolidated downtown TIF.

In trying to recreate how the TIF portions of this bill flowed through the session, it seems the introduced bill included only the method for the annual recalculation of the base (TIF neutralization in TIF-speak).   At some point after it got to the Senate, this part was deleted.  During the Conference Committee, it was added back and the other two items (MDC report to Council requirement and call for a study committee) were added new.

The MDC (our redevelopment commission) must submit a report to the Council by August 1 each year.  The report must include revenues received, expenses paid, fund balances, the amount and maturity dates for all bonds, and the amount paid on bonds for each TIF district.  Also, a list of all parcels included in each TIF district along with the base value and increment value for each parcel.  The Council has until October 1 to compile the information and submit it to the DLGF.

This would, of course, open all of this information up to the general public as well.

According to the Legislative Services Agency, who evaluate every bill for its fiscal impact, the current law requires the MDC to submit a more abbreviated report to the Mayor each year.  I'm sure he reads it, too.

Because of HB 1116, the law now protects the base from any erosion, except when the assessed value of the property in the TIF district decreases - as in an either local or widespread recession.  This reasserts the promise made when TIFs are created.  In non-recession times, the base would grow along with the value of the property as determined by the County Assessor.  As the LSA puts it, increased base values "would result in lower tax rates and potentially lower circuit breaker losses" to schools, libraries and city governments.  I've noted before that half of all circuit breaker losses can be directly attributed to our TIF districts.

One unfortunate aspect of this change, is that those TIF districts whose base have already dropped to zero will never see the benefit of the new law.  But, it is good that at least one of the fairy tales used to sell the public on a TIF will be made reality, finally.

 

And last but not least, the study of TIFs at the state level is long overdue.  There is so much hocus pocus and shenanigans going on with TIFs that overhaul is needed in order to protect the public.  While I'm usually more apt to back home rule, the actions of our city fathers and mothers to dismantle and ignore the recommendations of our own TIF Study Commission shows how little we can trust them to move forward in the public interest, over the interests of select individuals.

The state enabled TIFs decades ago. Slowly, as problems have come to their attention, they have enacted changes to the law to reign in bad practices. Maybe a decade ago, after seeing abuse of the bonds tied to TIFs, they said that any bond paid with property taxes could be refinanced only if the term was not lengthened nor the payment increased. Last year they limited the life of any newly created TIF district to 25 years. And this year, they stepped forward to protect the base. Now, if only they could turn their attention to limiting the fraction of property value that can be caught up in TIFs, and forcing the sunsetting of existing TIFs once their current bonds are paid off...