The Invisible Hand(out) of the (Taxpayer Financed) Market

The war between cities and regions to attract business development generated the handouts known as 'incentives', 'tax increment financing', 'abatements', and more - a virtual cottage industry in how to funnel taxpayer funds to well connected developers.  There are more noble goals in play at the same time, like, hoping for a catalyst to spur private sector investment.  But the subsidies don't seem to ever end.

We have seen this cottage industry begin to morph from incentives to entitlements - industries that are begging for land upon which to develop, still expect hefty abatements to "level the playing field" and they no longer even try to tie job gains with those tax benefits.

Now, quietly yet out in the open, there is another transformation happening - the perpetual enrichment of favored landowner through taxpayer funded inducements for development upon leased real estate.

The North of South/City Way investment of about $100 M of taxpayer money involved development of the housing/retail/hotel/fake tech park built on top of land leased from Eli Lilly.  How much cash flow that provides Lilly is - well - none of your damn business, Ms. Taxpayer.

While the land lease model worked out in City Way, it does not always go so smoothly.  The airport has been trying to lease prime real estate where its old terminal used to be.  It has prominent frontage along I-465 and enviable access, not to mention an already existing parking garage.  Plus the old building has been torn down and hauled away.  Height restrictions do play a role here, but there is also the ingredient of who would want to lease the land upon which to construct a building.  Even a fifty year lease will find a day when the tenant must either re-up the lease or move on -- and at what cost?  The only offer they have noted in public has been a casino complex - which I personally root for, but the point here is the paucity of interest.

Last night the City-County Council voted to float $75 M in TIF bonds for the 16 Tech project.  Roughly $55 M would go to move water lines, power lines, and gas lines, and build a bridge and a park - all of which will make the land owned by IU Foundation, IU, Beurt R & Corena J  Servaas, the Benjamin Franklin Literary Medical Society, Health & Hospitals Corp. of Marion County, and Methodist Hospital much more valuable.  Yet, this land will be leased to eventual developers, not sold for the development.  But, it gets even better for these entities - 16 Tech Community Corp has been set up and will be funded by the rest of the bonds to the tune of just over half a million a year (with salaries ranging from $30,000 to $200,000) and their job will be to market the property to developers - so that these not-for-profits don't have to lift a finger or pay a single salary in order to cash in on the taxpayers' largess.

All that said, this one kind of amuses me.  I like the area in question getting a leg up and I like trying to promote biotech for the long run.  I do wonder, though, how viable the land-leasing model will be. In worst case, Mass Ave and Union Station and Circle Center Mall and the rest of the consolidated downtown TIF can all contribute to paying off the bonds.

I've wandered off the point of this post.  What we now have are the taxpayers being expected to fund a quarter to a third of all downtown development AND sustain abatements that need not include increased employment ALL THE WHILE our investments are quietly generating a perpetual revenue stream to well connected landowners.

TIFs - 2013 Legislative Changes Protect the Base & the Curious Case of the North Midtown TIF [corrected]

It has taken me a while, but I finally sat down with the forms filled out last August by the Marion County Auditor's Office, that evaluate the amount of base and increment in each TIF district we have.  These are the annual TIF neutralization forms that I've brought up before in this blog.

The forms for 2013 (pay 2014) are different than those used in previous years.  That is because of changes made just last year by the Legislature to reign in unsound practices that led to the base being eroded each year.  Now it is the actual aim of the form to let the base rise and fall due to changing market values, not due to the amount of tax money the increment took in the previous year.

As a reminder, each TIF district has its Assessed Value split between the base and the increment.  The base is supposed to be the value of the property before the TIF was created, and the increment is the new value supposedly created by the establishment of the TIF.  The taxes that flow from the base are always promised to continue flowing to the schools, city, etc., but we know full well that that promise was not an honest promise - until the 2013 changes were forced by the Statehouse.

Instead of getting to far into the weeds, let me just summarize by saying that the new forms ask how much new construction happened and allots that value to the increment, how much was demolished and allots that value proportionately to both the increment and the base, and, interestingly enough, how much value rolled off from abatements that year and allots it to the increment.  It takes any other increase or decrease in the AV, presumably due to actual rising or falling market values, and allots that proportionately to the base and increment.

In the big view, this change appears to be successful.  I had to make an adjustment for the new North Midtown TIF's inclusion for the first time this year - which was easy enough.  I would have done so for the new Bush Stadium Area and Mass Ave TIFs from 2012-13, but the component TIFs of the Consolidated Downtown TIF are no longer itemized.  Rather, the Downtown TIF and its 10 components are now reported as one set of numbers, as is the Consolidated Airport TIF and its 7 components. 

In the 2011 (pay 2012) TIF summary provided to the TIF Study Commission, the value of the base for all TIF Districts in Marion County was reported as $2.02 Billion.  By the next year, the base had been eroded substantially; in 2012 (pay 2013) the total base AV fell to $1.47 Billion - losing a quarter of its value as half a billion dollars was pushed into the TIF increment.  The latest figures for 2013 (pay 2014), show a stabilized base AV, coming in at $1.47 B, once again (after subtracting the new North Midtown TIF).

Half the TIFs lost value and half gained between 2012 and 2013, with a net growth of $170 M for a total TIF District (base plus increment) value of $5.83 B.  The Downtown TIF accounts for just over half the value of all TIFs in the County, but its growth accounted for the lion's share of the Countywide TIF increment value, adding $149 M.

The State Legislative Services Agency puts together annual reports on the impact of the tax caps.  In 2012, the LSA reported that Marion County TIFs collected $99 M in property taxes.  By 2013, that figure rose to $108 M.  The projected TIF revenue to be collected this year is $118 M.  The Downtown TIF is the big winner, with a projected revenue of $68 M.

The North Midtown TIF was established early last year, so this was the first time the base and increment were evaluated through the annual TIF neutralization process.  The form (p. 7 of the pdf) reports that there was no new construction, $286,300 worth of demolition, and $755,960 in previously abated property coming off the tax rolls.  You'd think that since there was no new construction, the base would continue to be 100% of the entire TIF AV. 

Nope. 

The abatements granted before the TIF was established are now generous donors to the increment.  The increment went from 0 to $469,707, in a year that saw no growth truly attributable to the creation of the TIF.  Since abatements tend to run 10 years and fall off the same fraction each year, one can guesstimate that the old abatements could award the North Midtown TIF about $4 Million over the next decade.  Not bad for just starting a TIF and having no new dollar investments to claim as having been caused by the TIF.  [These are the corrected numbers.  As Anon 10:50 pointed out, I had the incorrect order of magnitude previously.  I apologize for the added drama.]

I await brand new legislation regarding TIFs to get signed by Governor Pence.  I'll report within a couple of days some exciting new Legislative endevors to reign in rampant abuse of TIFs, especially here in Marion County.  They did a good thing last year, by solidifying the TIF base, so that at least one of the promises made when TIFs get created is a promise that stands a chance to be fulfilled.  The North Midtown TIF shows that the revamped system is not perfect, but much improved over the old way.  One step at a time.  One step at a time.

Councillors Mahern and Adamson Stand Up for What is Right

Yesterday was a bad day for sense and sensibility in Indy government.  The Council voted 25 to 2 to pass Prop 15, which expands the consolidated downtown TIF by more than a square mile.

The only two who had the strength of their convictions were Councillors Brian Mahern and Zach Adamson.  Angela Mansfield appeared to be absent and Vernon Brown was excused from voting due to a conflict of interest. 

By my count, at least 7 Councillors, bent their principles and voted in favor. (Others were always going to vote the party line, the public interest be damned.)  Sure, their vote would not defeat the measure, but it would have sent a message that the ongoing community discussion on TIFs is necessary.  That conversation will continue.

Councillor Vop Osili made promises to folks living in the Riverside and UNWA neighborhoods.  The language he negotiated and inserted into Prop 15 fails to target those promises to those neighborhoods. 

Councillor Joe Simpson refused to amend the Mass Ave portion of the TIF to exclude 2 of the several parcels that are already slated for private investment.  This extension of the consolidated downtown TIF is merely being created as a slush fund for the Ballard administration, and Simpson is fine with that.  He and they are stealing revenue that would have gone to help teach the children of IPS, stealing revenue that would have gone to deliver poor relief in Center Township, stealing revenue that would have gone to IMPD, IFD, IndyGo, Health & Hospitals, Parks, and the libraries - and spending it on development that could and would have happened without the TIF.

I sincerely hope that a dye was not cast last night.  I hope we merely walked down the wrong path on a course that we can change before it is too late.  TIFs have consequences.  They are not free money.  At some point, we will cross a line that harms Indy's economy and the services we pay taxes for.

Councillors will feel the urge to get in line to get a TIF for their area, too.  By my count, the two that passed last night are just the first of 8.  I don't know where the line of economic harm is.  Perhaps it isn't even a bright line, but rather a gradual loss of services and quality of life for most of Indy's residents until drastic cuts in public safety and education become routine, and we do the best we can to wait out the 25 year lifespan of the TIFs.

The issue of TIFs is a hard one.  I have been happy to see the community trying to get on top of it, digest it, and decide upon it.  The conversation began in earnest about a year ago as key people in key groups began to understand there is no free ride with TIFs.  And the conversation will continue. 

Today I want to thank Councillors Mahern and Adamson for standing up for Indy, even when the powers that be tried to make them bow.  We need elected officials with spines and principles and who will fight for what is right and best for Indianapolis and its people.

The public good suffered a blow last night, but the fight continues.

The Case Against Prop 15

Tonight the Indianapolis-Marion County City-County Council is poised to vote on Prop 15 - which would expand the consolidated downtown TIF district in two directions for a total addition of 1.1 square miles.

There are three components :

A) 112 acre easterly expansion, less than half of which runs along Mass Ave (see "What's Wrong With This Picture - The Proposed Mass Ave TIF" for maps of the proposed TIF) all supposedly needed for the development of 0.8 acres.

B) 604 acre westerly expansion (see "Proposed Bush Stadium TIF - Google Aerial View" for maps of the proposed TIF) all supposedly needed for the development of a couple of block area.

C) Also pasted on top of the expansion TIFs are three programs - a $2 million microloan, a $10 million microloan, and a $1.5 million job training program - to be funded by the TIFs.  It must be noted here that TIF funds may only legally be spent on projects within the TIF boundaries and these programs run significantly beyond boundaries.

These are the reason that come readily to mind as to why Prop 15 should be defeated.

1) Prop 15 is dead --- Council rules require that any proposal that is tabled for more than 6 months be removed from the list of pending proposals.  This is exactly what happened to Prop 16, another TIF proposal, which had been introduced and tabled on exactly the same dates as Prop 15.

2) There is a lawsuit pending against the Council for taking any action on Prop 15 because it is dead.  It should give any member of the public pause as to why the Council did not simply follow its own rules and reintroduce the proposal under a new number.  It would only be two weeks from now, before it would be back to the full Council.  Likely, they did not want the TIF Study Commission recommendations (Prop 316) to beat it into law.  This brings me to 3)....

3) The TIF Study Commission recommendations (Prop 316) (see "Finally, TIF Study Commission Recommendations At Committee"), which would require full disclosure of the underlying finances of the proposed projects and the abilty of the TIF to generate adequate revenue to make payments on any debt incurred.  The way I have been framing the need for information is so that the Council and the public could see for themselves - Why a TIF?  Why this location?  Why this project? Why this footprint?  Clearly, the rush on Prop 15 is because there is a concerted effort to avoid full disclosure.

4) The Mass Ave area is thriving, if not downright booming, and has at least 3 large projects already slated for 2013 and 2014 - needing no public dollars.  (Well, suddenly the developers are supposedly telling Deron Kintner, deputy mayor for economic development and director of the bond bank, they think they might need public dollars after all.  Believe him if it makes you feel better.  Many Councillors, who know for a fact that Kintner has previously lied to the Council and to the press, will be citing his words when these TIFs don't work out well.  But, I digress.)  Creating a TIF here is ass backwards from how TIFs are supposed to be created.  The intent is to create a TIF to fund a project to spark development with private dollars.  Instead, the Mass Ave TIF is being created to cannibalize tax revenues from development made with private dollars.  By all rights those tax revenues should be flowing to the schools, library, IndyGo, etc, instead of to a TIF fund.  This is how you set up a thriving slush fund - not a beneficial TIF.

5) The Mass Ave TIF contains three 'nodes' - two along Mass Ave and one abutting the current consolidated downtown TIF.  At least half of the 112 acres is contained in this mystery node.  I have only heard one question asked in a public venue about this huge footprint.  Councillor Zach Adamson (who ultimately was the lone, brave, vote against Prop 15 in committee) asked why that node was needed.  Kintner's answer was that he could not divulge that information at this time.

6) One of the bids responding to the RFP put out by the City to solicite plans to relocate the Mass Ave fire station, actually offered $2 million to the City to buy the property and did not request any public dollars. This proposal was rejected.  The three proposals still in the running curiously all ask for a TIF to be established and for public dollars to be invested in the project.  Now, why would a developer care where public dollars came from?  Really !  This is an example of exactly how stupid and gullible Kintner and the Vaughn/Grand/Ballard administration think the public and the Councillors are.

7) I have not heard one question asked as to why there must be 604 acres of TIF to support a couple of blocks of infrastructure improvements in the Bush Stadium area.  This is the only project publicly acknowledged by the administration.  Obviously, the Councillors have no answer to why this footprint is necessary and wise.  Instead, they focused their attention on getting residents of the area to speak in favor of the TIF because their neighborhoods need help.  Mark Fisher of Develop Indy worked to turn out the residents.  While any caring human being wants to help, we have no gauge for whether or not this TIF is the answer, whether or not other public funds can address the issues, and where this area lands on a prioritized list of neighborhoods in need.

8) The language added to Prop 15 to satisfy some of the neighborhood leaders' interest in tearing down the old Bryant Heating & Cooling facility, is slipshod and may not be enforceable. Lets see if anyone introduces an amendment tonight to clear up the language, or if the Councillors are content to leave it in doubt.

9) There has been no financial data or analyses introduced that would justify why a TIF, why this location (although some need was demonstrated), what project much less why that project, and why this footprint for the proposed Bush Stadium area TIF.

10) The $2 million microloan and the $1.5 million job training programs would be made available to anyone within a 2 mile perimeter of the outline of the two-way expanded consolidated downtown TIF. The language is so poorly written that the recipients may not have to be low income, and/or may not have to have a business located in a low income neighborhood.  Promises have been made to nearby neighborhoods and the Indianapolis religious community at large, that these programs are to help the residents within or abutting the TIF area.  These promises are false promises - if you go by the agreement that has actually been reduced to writing.

11) Expending TIF funds, or swapping TIF dollars for other City dollars, to pay for the $2 million microloan and $1.5 million job training programs outside of the footprint of the TIF would be illegal.

12) The $10 million microloan program has no details except it would be funded by the TIF and spent throughout Indianapolis.  Expending TIF funds, or swapping TIF dollars for other City dollars, to pay for the $10 million microloan program outside of the footprint of the TIF would be illegal.  The City could use $10 million to fund raises for IMPD and IFD, and/or a recruit class for IMPD and IFD.  Money the administration insists is not available.  What will be sacrificed for this microloan program, if the law is actually followed and TIF funds are not used for the program?

13) There has been no consideration given to the question, how many TIFs are too many TIFs for Indianapolis and Marion County.  Already 11% of all taxable property is contained in a Marion County TIF, 33% of all taxable property is contained in a Center Township TIF, and 22% of all taxable property is contained in an IPS district TIF.  Prop 15 seeks to add another square mile of TIF to each of those jurisdictions.  Prop 15 will cannibalize taxes that would have flown to the schools, library, IndyGo, Health & Hospitals, Townships, Fire, IMPD, Parks, as well as the City and County government.  Prop 15 will decrease the tax revenues that flow to these units, as well.

For completeness sake, I recommend the following blog entries as well -- "TIF Fact #1 -- We've Been Bailing Out TIFs for Years", "TIF Fact #2 -- $490 million of property value was transferred from the base to the increment this year", "TIF Fact #3 -- TIFs Cause Higher Property Taxes For Everyone and  Cause 41% of Circuit Breaker Penalties To The Taxing Units", "TIF Fact #4 -- TIFs Comprise 11% of All Taxable Property In Marion County - How Much More is Prudent?",   "TIF Fact #5 -- 16 of 40 Marion County TIFs Have Seen Their Base Driven to Zero Value",  "TIF Fact #6 -- 5 of 6 TIFs Comprising the Consolidated Downtown TIF Have Seen Their Base Driven to Zero Value", "TIF Fact #7 -- 33.3% of All Taxable Property in Center Township is Contained Within a TIF -- How Much is Prudent?", "TIF Fact #8 -- 20% of IPS Taxing District Contained Within a TIF -- How Much is Prudent?", "TIF Fact #9 -- Most TIF Districts Underperform County as a Whole" )

There are many excellent reasons for Prop 15 to be voted down tonight.  But, instead, what we will witness is greed, ambition, threats of retaliation, blackmail, and willful ignorance drive the Council to pass this retched dreck.

Prop 15 Gets Public Hearing Tonight - With Notice

Unlike the August 27 meeting of the Metropolitan & Economic Development committee of the City-County Council, the agenda for tonight's meeting does list Prop 15, which seeks to expand the downtown TIF to include the Mass Ave TIF and the Bush Stadium TIF for a total additional footprint of 1.1 square miles.

Proposal 15 remains dead, according to Council Rules, but I expect it to get vigorous debate and a vote regardless.

Not on the agenda is Prop 291, which would approve the proposed Mid-Town TIF.

There is also a budget hearing for the Department of Code Enforcement to be held at the committee meeting tonight.

So, look for a long night.

Proposed Bush Stadium TIF - Google Aerial View

The proposed expansion of the consolidated downtown TIF district (Prop 15, dead, but still being considered by the Council) has two components - a 112 acre eastward expansion to Mass Ave and a 604 westward expansion to capture the Bush Stadium area.  I previously posted a set of Google maps for the proposed Mass Ave TIF for folks to see the fine detail of the TIF footprint (see "What's Wrong With This Picture - The Proposed Mass Ave TIF").  Now I am posting Google maps for the Bush Stadium TIF area. 

I uploaded all the maps to Google docs - google streets, google aerial overview, map 1, map 2, map 3, map 4, map 5, map 6, map 7, map 8, map 9 - so you can zoom in as much as you like.

The Bush Stadium TIF consumes 604 acres and 419 parcels supposedly to support development over a couple of blocks.

Below are a number of maps.  The first two are the street and aerial maps of the proposed TIF footprint.  The aerial map has been enlarged and split into 9 component maps that show street names and building structures in more detail.  Numbers on the aerial map denote the location of the 9 component maps.