Tuesday, July 31, 2012

TIF Study Commission Recommendation # 2 : Protect Taxpayer Investment With Clawback Provisions

My second choice for common sense recommendation of the TIF Study Commission is providing claw backs in the agreement with the chosen developer who is benefiting directly from the TIF dollars.  Goals and claw backs are used constantly for abatements.  But, with abatements you also have the aspect that the 'forgiven' taxes are on increased assessed value that will come with private investment.  So, lower investment, lower assessed value, lower amount of forgiven taxes.

A TIF financed deal is different.  With bond proceeds flowing straight to the project, either for mere infrastructure or directly to the developer to suit their own needs, and future TIF dollars set as collateral to pay back those bonds, there is no protection to the taxpayers that the goals will be met.  So, currently when the developer and, frankly, city officials make promises of private dollars invested or jobs created at such-and-such average salary - they are made in thin air with nothing to protect taxpayers from statement inflation or simple error in judgement.

By enumerating and specifying the investment and jobs goals for the TIF money, and by crafting a way to determine how much money the developer owes back to the City if they don't reach the goals, the taxpayers gain some protection.

Its well past time that the taxpayers stop being left holding the bag when TIF funded projects don't work out as well as City officials and developers say they will, in order to get their hands on the money in the first place.

Here is the wording of this recommendation (click here - page 19 of the pdf):
j. Include claw back provisions in project agreements that are subject to effective oversight and ensure that non-performing projects are quickly remediated through the return of TIF funding when performance goals are not achieved.

Friday, July 27, 2012

TIF Study Commission Recommendation # 1 : All TIFs Should Have An End Date

I am going to spend some blog time posting what I think are the most significant recommendations of the  TIF Study Commission.  As always, check out the lengthy list of recommendations for yourself - click here and view pages xv-xix  of the executive summary (pages 18-22 of the pdf).

My top spot for most common sense recommendation is that all TIFs should have an end date when they are dissolved entirely.

The current situation is that 11 of Indy's 33 TIF districts have end dates and 22 do not.  No word on the status of the 12 TIFs in the excluded Cities.  Three of Indy's TIFs are classified as 'dormant', meaning all property taxes generated by them is flowing through to the taxing units for the time being.  They can be recalled to service at any time by a mere vote of the MDC, as two were last year.  All new TIFs must, by state law, have an end date of no more than 25 years.

Here is the exact recommendation of the TIF Study Commission:
h. Establish Sunset Dates for all TIFs. The Commission recommends the following with respect to TIF districts that are dormant or have no mandatory expiration:

i. Dormant TIF districts: In the absence of overwhelming justification otherwise, the Commission recommends the termination of all three dormant TIF districts.

ii. TIF districts with no required sunset date: In the absence of overwhelming justification otherwise, the Commission recommends the establishment of termination dates based on the last maturity date of the related bonds.

iii. TIF districts without outstanding debt and which are used on a pay-as-you-go basis: in concert with appropriate community development organizations and in alignment with a comprehensive planning document, the MDC should establish a capital spending plan and sunset date no longer than 20 years into the future.
I would wholeheartedly agree with each aspect of this recommendation.  The promise that we will all eventually benefit from the economic development or redevelopment of a TIF district can and should be fulfilled by letting them expire and all revenues flow as regular tax dollars.  This would lower everyone's property taxes and, at the same time, add more dollars to the schools, library, townships, etc, by lowering the number of people who hit the tax caps.

There is little distinction between the perpetual TIF district and a slush fund for a sitting Mayor from which he/she can dole out favors.

Thursday, July 26, 2012

How Bills Are Really Made

BTW - ALEC has special status under Indiana law - Legislators can take unlimited gifts, trips, and 'assistance' from ALEC and they do not have to report dime one or dollar one-hundred-thousand.

Wednesday, July 25, 2012

Indy Star Editorial Dead Wrong - More Information Needed to Substantiate TIF Expansion

The Indy Star Editorial Board wants you, Mr. and Ms. Taxpayer, and the City-County Council to buy a pig in a poke.  Not just any pig, mind you, its a downtown pig - so who needs details?

In today's Editorial, "Put Mass Ave on faster track", the Board repeats the same old, unfounded and untrue, myths about TIFs to push for the expansion of the consolidated downtown TIF to fund development along Mass Ave.  The alternative they are brushing aside is to actually implement the recommendations of the TIF Study Commission in order to set criteria for the proper evaluation of this TIF proposal.

Where to begin?

Lets start with the idea that before a TIF is created, it is reasonable for those empowered to make the decision to ask for data that demonstrates the need for TIF financing of a particular project.  Information that demonstrates the need for -- THIS TIF - in THIS place - with THIS footprint - for THIS project.

The public has the Council Proposal 15, the text of which lends no information of any value, and the MDC resolution, which I uploaded some time ago to Google Docs.  This resolution includes the  Mass Ave area as expansion #2.  It is 112 acres covering 132 parcels.  Beyond that, there is no information.

So, we do have information on what TIF is proposed, in what place.  But why does the footprint have to be so large?  What exactly is the project to be funded with the proceeds of the TIF expansion?  How much money is the City hoping to contribute to the project?  For what - just streets or are we footing the bill for developer costs? 

A really large question is why this proposed TIF would include the assessed value of EXISTING development.   It begs the question: If those people who invest in such bonds, need not only the security of the best performing TIF in Indianapolis (the downtown TIF) but also tax revenues from existing development in the expansion area - just how risky IS this project and its repayment?

And this leads to another really large question - if there is already development in this area, why do we need to tie it up in a TIF?  What happened to the 'but for' test?  This is the seat of your pants test that can't be described beyond - you just know it when I feel it.  The idea is that 'but for' the TIF financing, the project would not happen.  But development is already taking place here.  The free market is working.

What is the project?  All we know is that there are three finalists in the running - none of which have been disclosed.  In his article in yesterday's Star, Jon Murray reported:
The finalist teams have not been named publicly or their projects released.

Deron Kintner, executive director of the Indianapolis Bond Bank, said the initial proposals were submitted in October, and all the five proposals originally considered as contenders relied upon TIF assistance.
Really?  They ALL proposed TIF revenues as the exact form of government assistance???  Now how did that happen?   But, I get off the point.

We don't know anything about the magnitude of the government (taxpayer) assistance involved, for what, or for whom.  We do know that the City is so loose with money that the broker stands to make $1 million on the deal (see Cory Schouten's article "Mass Ave deal's brokerage fee raising eyebrows")

The TIF Study Commission recommended that key evaluators be applied to any proposed TIF so that it could actually be evaluated.  But, for the Star Editorial Board, this goes too far.  They are content with the limited information currently available, that gives no Councillor and no taxpayer any real tools to take an honest look at whether this TIF is in the best interest of the community at large.

So, where are we?  The Star editorial ignores the fact that we have few specifics with which to evaluate the proposal that the downtown TIF be expanded to include 112 acres and 132 parcels to finance the development of one parcel.

But, the editorial does not fail on that point alone.  They perpetuate the TIF myths once more.
Under TIF, a city locks in a site's property tax contributions at its current level.
I have gone into this several times before.  The base tax revenues are subject to being converted into TIF revenues if the district underperforms for any reason, including recession.  See yesterday's post for some of the gory details.  Suffice it to say, even our holy downtown TIF has 5 of 8 districts whose base has dropped to ZERO.  BUT, this statement is all the more egregious because the proposed Mass Ave district would include already developed parcels in the TIF, deliberately excluding them from the base.
To further attract development, the city also provides enhancements that can include street improvements, parking and landscaping.
Under this Mayor, TIFs are also used to provide $8 million more a year to the Pacers and give a nearly $100 million loan to a developer who could not qualify for a bank loan (the 'but for' test in action) - just to name two deviations from the mundane 'street improvements' meme.
The process certainly can be abused. Some communities have overused the tool, expanding it far beyond what is necessary to promote development. If an area's tax revenue is frozen for too long, schools, transit and other public needs can suffer. 
This is exactly what is going on with the downtown TIF - not just 'some communities' - OUR community.
Further development of Mass Ave and other areas in and near Downtown is needed to attract new residents, who in turn will increase the city's income and sales tax revenues. Those taxes are even more important for cities now that Indiana has capped property tax rates.
Further development of any area of our City will benefit us all.  Why does this area need any government subsidies to develop?  Isn't the free market already attracted to the area?  The Star has provided no justification for any public financing, much less TIF financing.  What is worse, the Ballard administration has provided no justification for any public financing in this area, much less TIF financing.
It's important for Mass Ave, the rest of Downtown and the entire city that the proposed developments be allowed to move forward without further delay.
Actually - NO.  Its important for the entire city that the proposal for any new TIF be clearly substantiated as to why this TIF - why this place - why this footprint - why this project before it is approved.  It is not asking much of our City officials to consider facts; not myths.  The recommendations of the TIF Study Commission need to move forward through the Council and the MDC with all haste, yes.  But any new TIF should wait until the criteria for approval are in place.

It is long past time that we stop relying on the old, untrue promises of TIFs and set up solid criteria for evaluation and monitoring of TIFs in Indianapolis.  The Star Editorial Board should insist on such things, instead of using the fourth estate to help muscle through what amounts to buying a pig in a poke.

Tuesday, July 24, 2012

Misinformation About TIFs Continue

I understand that the side bars in newspaper articles are supposed to quickly convey the high points of the longer article.  But the sidebar in today's story about the proposed expansion of the Consolidated Downtown TIF district continues the same old myths about TIF districts that have misinformed the public for decades.

In the article itself, reporter Jon Murray does have the space to get it right, but the sidebar does not do the public any favors.  Murray is an outstanding reporter, in my view, who is very keen to be absolutely accurate.  I think the reason the sidebar is incorrect is the pervasive misconceptions about TIF districts that have been promulgated for decades remain entrenched.  The TIF Study Commission revealed TIF's true nature, but the findings will take time to sink in.

The article is titled "Residential/retail plan for Mass Ave. triangular block has setback in City-County Council".  The sidebar is provided in the print version only.

The sidebar tries to give a snapshot of what a TIF district is.  Under "How They Work" is:
The level of property taxes collected prior to the new development being built still is sent ot schools, libraries, IndyGo and other local government units.  Once the district is disolved, all taxes collected flow to those units.
First, the level of taxes collected prior to the creation of a TIF district does not necessarily continue to flow.  This level is called the 'base'.  But, if the TIF does not perform or if there is a drop in assessed value, some or all of the base will be converted into TIF revenue and no longer flow to the taxing units (see "TIF Districts - Who Knew The Base Could Drop?")  In fact, in the one year between 2010 and 2011, there was an aggregate drop of $43.4 million assessed value in Indy's TIF districts.  14 Indianapolis TIFs had dropped to a base of ZERO by 2011.  The much vaunted, high flying, consolidated downtown TIF had 5 component TIF districts at zero base by 2011, of 8 total (I have information on 7 of the 8 component districts).  That year alone, the 7 component districts for which I do have information, the remaining base lost about $10 million more.  So, no, the base will not necessarily continue to flow to the taxing units - even in the best performing TIF district we have.

The second is technically correct - but it begs the question of whether or not the district will ever be dissolved so that all of those taxes can flow like regular property taxes, easing the burden on all of us taxpayers, as well as restoring funds to the taxing units that got caught in the tax caps.  21 of the Indianapolis TIF districts are not required to be dissolved EVER.  11 of the Indy TIFs do have a drop dead date.  Any TIF district created in the future is now required to be dissolved within 25 years of the date of creation.
In the full article Murray does complete the thought:
At the root of critics' concerns are tax-increment finance (TIF) districts, which have kept schools, libraries and the IndyGo transit agency, among other local governments, from benefiting from new developments' tax contributions. That's because the growth in property tax collections that those improved properties spur is diverted for years or even decades to support further development -- sometimes indefinitely, in the case of Downtown.
These are the two promises that are traditionally made to the public to tamp down any remonstrance - the idea that nothing will change with the current tax situation, and we'll all benefit down the road once the TIF is no longer needed.  The TIF Study Commission found out that these promises are routinely not kept and among their recommendations is that all existing TIFs be outfitted with a dissolution date matching the longest outstanding bond obligation of that TIF.  The erosion of the base is not so easily dealt with, but if we could avoid sounding like it doesn't erode, that in itself would be helpful.

Sunday, July 22, 2012

Star Puts Spotlight On Disaster Relief Funds

Maureen Groppe wrote the front page story in today's Star, "Millions intended for natural disaster relief instead spent on technology and industrial parks", reporting on the use of  Disaster Relief Funds for new construction aimed at new economic development, not for restoration of those affected by the actual disaster.  An unrepentant Governor Daniels blithely talks about using the money for a strip mall near Crane Naval Warfare Center.

I only want to make note of two omissions - there was no attempt to examine who benefited from the money and their connection to the government officials who doled out that money.  Nor was there any mention that Disaster Relief bond funds were spent here in Indy as part of the financing of the nearly $100 million loan to developers of No-So, now City Center.

Saturday, July 21, 2012

Councillor Mahern Hits Homerun at Today's McANA Meeting

Councillor Brian Mahern, who conceived of and served on the TIF Study Commission, was McANA's guest speaker this morning.  He did an absolutely masterful job of conveying, in plain English, the breadth and depth of the Commission's work - from what a TIF district is, to what policy recommendations the Commission made for its establishment and operation.  Throughout the lengthy question and answer period, he folded in the rational for the Commission's recommendations along with how TIFs currently operate.  Not once did he get into the weeds - and this topic lends itself to getting mired in complicated details.

If you don't have the time, energy, or overwhelming interest in TIFs to watch all 24 hours of archived WCTY broadcasts of the TIF Study Commission meetings, or the time, energy, or overwhelming interest to read all 96 pages of their report plus all appendices - then the WCTY broadcast of this meeting may be just the perfect morsel that can bring you up to speed on the topic (forgive my mixed metaphors).

WCTY will begin showing the McANA meeting early this week - from past patterns begin looking for it on Tuesday.

Today's McANA meeting clearly demonstrates the public interest in TIFs and how the public wants them to operate within Indianapolis. Remember, TIFs consume your tax dollars, so you owe it to yourself to become somewhat conversant about the topic, as well as making your opinions known as the policy recommendations move toward adopted and implemented policy practices.

Thursday, July 19, 2012

TIF Study Commission - TIF FAQs

The recently concluded TIF Study Commission has posted a very impressive document summarizing the findings of the Commission as well as recommendations for public policy modifications regarding TIF creation and management in Indianapolis. You can access the 96 page report, as well as the appendices.

For this entry, I am going to summarize what I thought were the ten most important findings of the Commission.  Of course, this is my opinion and it will undoubtedly be valuable for you to scan through the document's executive summary, if you aren't going to try to digest the entire report.

1) TIF (tax increment financing) is a development tool enabled in all States, except Arizona, and the District of Columbia.  The type of taxes collected, the footprint of the districts, and the uses for TIF money are all types of things that vary between States in the creation and management of TIF districts.

2) While many believe the base (the existing assessed value on the day a TIF district is created) continues to provide it's property taxes to Indianapolis' various taxing units, that is not necessarily or usually true.  The base can erode and be converted into part of the TIF itself.  Additionally, any growth in the value of the base due to improving market value, always goes into the TIF.

3) There are many types of TIFs here in Indianapolis, with a variety of purposes.  There are TIFs that accumulate funds, then spend them - as well as TIFs that are used to float bonds which promise the expected new tax revenue stream for repayment.  There are TIFs created to encourage redevelopment in older areas and new development in thriving areas.

4) TIF funds are spent on a wide variety of projects.  While most of the public may assume that roads and other basic infrastructure is what TIF funds are used for, that is just the beginning.  TIF funds are used to build buildings, make loans to developers, repay previous city expenditures (so that the money could be used to fund the 2012 city budget), pay money to the CIB (so they can send the money on to the [cough, cough, Pacers] ICVA), build housing, and make other improvements in business areas.

5) State law recently changed, requiring that no new TIF district exist for more than 25 years.  TIFs established prior to to the change can live forever - this would include all of our current TIFs, unless their establishment included a 'drop dead' date.

6) Some TIFs district bonds guarantee repayment with more than the property tax revenue stream created by the TIF.  For instance, the airport TIF for United promised County Option Income Tax revenues for the repayment, when property taxes were insufficient.

7)  When a TIF district is accumulating more money than is needed to repay the bonds or needed for further projects within the district, the City can pass the excess "through to the base" (to the other taxing units).  This process is annual and each year's decision is independent; if the City decides to pass $10 of the excess through to the base this year, they can change their minds next year and keep the $10 in the TIF.

8) TIF districts that do not have an expiration date can become 'dormant' and all of the property tax revenue passes through to the base.  A dormant TIF can be reactivated with only the approval of the MDC.

9) There are other economic development tools that can be used to encourage development, redevelopment, or ongoing infrastructure improvements besides TIF districts.  This includes general obligation bonds, like those used for the new Wishard Hospital project,as well as abatements and other incentives.

10) There is a key mathematical relationship between TIF district property tax revenues and the amount of money the taxing units lose due to the property tax caps.  The more property tax revenue diverted to TIF district funds, the greater the loss of revenue to all taxing units.

There is one more piece of information presented to the Commission that I think is striking and has importance well beyond the TIF district policy discussions.  Lets call this item number 10+.  That was the idea planted by Brad Beaubien, Director Ball State College of Architecture and Planning, Indianapolis Center (see "A Clip From The Latest TIF Study Commission Meeting").  He said that Indianapolis avoided the urban core decay that challenged many cities decades ago, by establishing Unigov.  Unigov brought in a huge number of acres of undeveloped land which provided ever increasing revenue to the City as that land was developed.  That process is now nearly over, and Indianapolis is now in the situation that the other cities were back in the 60's.

As anyone can plainly see, I've limited the information gathered by the Commission to just 10 items.  This is keep things as simple as possible, while, hopefully, not oversimplifying things.  All of the Commission meetings are archived on WCTY's website and the final report is well written, if thick.  I recommend either and both to anyone interested in wading through it all.  If you are interested in these things, it will be worth it.