Sunday, August 18, 2013

Shifting the Fallout is NOT Fixing the Problem

Shifting the fallout from too many TIFs, is not fixing the problem - and it is NOT fair.

TIFs are syphoning off roughly 15% of all property taxes - and will do so in some cases FOREVER.  Two years ago, TIFs caused half of the circuit breaker penalties which limit how much property tax revenue taxing units can actually receive.  We are approaching the point where, for every tax dollar captured by TIFs, a dollar will be taken from the taxing units that provide needed services with those revenues.

There is currently a barrage of tax and fee increases being proposed, as well as a proposal to float 30 year bonds with new gas tax money provided to Indy by the State. 

Let's look at them one by one - as there is a pattern here.

The ongoing effort to eliminate the local homestead credit has, for the moment, been denied by the Council.  Put simply, if the local homestead credit is eliminated, the City gets more money, but most others lose tax revenues - most notably the various school districts.  It is a zero sum game.  The Mayor wants to shift the fallout from his coffers to other units of government.

The local homestead credit is now being repurposed and packaged with the fact that those property owners within the old Indianapolis Police Department footprint are paying an additional 0.3486 tax rate that the rest of us do not.  (see excellent article by IndyStar's Jon Murray)  This additional tax rate is calculated to bring in $35.3 million this year, minus the circuit breaker penalties caused by TIFs and too much debt.  Now, this is about one tenth of the total tax rate paid by most taxpayers.  When IPD and the Sheriff's Department were resorted/merged, this tax footprint was not reconfigured to the entire IMPD district; likely because it is a tax increase and may have scuttled the merger.

The marketing folks have decided to market this proposed reconfiguration as 'only fair'.  While there is a grain of truth to that, implementing this change will induce another 'unfair' reaction.

If the IPD tax is spread Countywide, the $35 million would be pulled from more peoples pockets - lowering the amount paid by those in the IPD district, and increasing the amount paid by those outside the IPD district.  The tax rate inside the IPD district would drop, and the number of property owners hitting the tax caps would drop as well.  The tax rate outside the IPD district would increase, and the number of property owners hitting the tax caps would increase. 

To avoid getting too far into the weeds, and simply put, the City and IPS would see a rise in the property tax revenue they collect, while the Townships and Township School Districts would see a loss in property tax revenues they collect.  It is a zero sum game.  It is simply a shift of tax revenues from the areas outside the old city limits to those within the old city limits.

Now, personally, I could find my way to support this shift IF the City passed an ordinance tying the creation of any new TIFs to the retirement of old ones - a step in the right direction of actually fixing the negative effects of capturing too much property in TIF slush funds.

There is also a proposal to increase the stormwater management fee that appears on your property tax bill, but is a so-called 'user fee' rather than a tax.  There are too many facets to this proposal to go into all of them right now.  Again, simply put, the marketing arm of the City has decided a winning pitch is to cast this current configuration of this fee as 'unfair'.  The contend that residential property owners pay a fixed $2.25 per month ($27 per year), while non-residential property pays by the amount of stormwater-impervious surface on the property.  The proposal would increase the amount collected by 40%, and change all property to pay $1.10 per month for each 1000 square foot of stormwater-impervious surface.  It would be only by 1000 square foot increments - so if you had 1001 square feet, you'd pay $2.20 per month.  Gravel drives are considered impervious surface for this fee calculation, by the way.

All this begs the question - what happened to the $20 million a year they already collect for stormwater management projects?  Well, the first $10 million per year from the initial fee in 2002, did not go to any new projects, but was assigned to paying back old bonds floated for anything attributable to stormwater - freeing up money for projects having nothing to do with stormwater.  Most of the second $10 million per year, from the 2006 fee increase, has been consumed by the practice of floating bonds for projects, rather than paying as you go.  This caused about a third of the fee dollars to be flushed down the toilet in paying bankers, bond salesmen, and interest.  Additionally, the City has also stopped using any other funds to pay to operate the stormwater system - about $4.5 million per year.

By not paying as you go, the City has yet again reached into your childrens' purses to pay for your stuff today.  Sure, it helps get politicians reelected, but it is not prudent fiscal policy.  If they had been prudent, we'd have $20 million a year for projects and stormwater problems countywide could have been resolved within 10-15 years (they said the need was $246 million in improvements in 2001).  Instead, they floated 30 year bonds and wasted a third of the money for 30 years.

Have they learned their lesson?  Nope.  The already plan, should the fee increase be granted, to float at least 7 bonds which will consume 60% of the fee and leave only 40% for pay as you go projects.  Who knows what the fate of the 40% will be when the next Mayor seeks re-election.

The last item I want to put into today's hopper is the proposal to float a $135 m bond for streets and sidewalks using the additional $7 million in gas tax proceeds the State has decided to share with the City.  Here's the math.  $7 million over 30 years is $210 million, but the bond would only generate $135 million.  That's $75 million flushed down the toilet to pay bankers, bond salesmen and interest.  Again, spending $135 million on sidewalks sounds good in a 10 second reelection campaign ad, but it is bad fiscal policy to do it this way.

Putting too much property value in TIF districts, has consequences.  Floating bonds unnecessarily, has consequences.  Shifting the fallout from these bad practices is NOT fixing the problem.  It merely makes life easier for the current City elected officials and their buddies.

This City continues to create TIF districts, the effect of which is to reduce property tax revenue for basic services - like police, fire, and schools.  City leaders continue to float bonds that rob the next generation, instead of paying as you go.  They figure that the lack of services and a good marketing pitch will get you to dig deeper in your pocket.  There's a sucker born every minute, as PT Barnum used to say.  Guess who our City leaders think the suckers are?


Jon said...

Indianapolis is on the fast track to be the next bankrupt city, the next Detroit. Our dependence on TIFs, using bonds for short term goals, continued corporate welfare and skewed spending priorities.
Once Indianapolis reaching the tipping point, debt load exceeds our revenue stream, then the city will collapse.
We can't continue to add TIFs, increase fees and taxes without consequences. The people who have the wherewithal to escape to a lower tax environment will move to that lower tax area. Much like Detroit the loss of those high earners will only exacerbate the problem.

Had Enough Indy? said...

I'm not convinced its a fast track. I think we can still change course - but the gravy train would be threatened by any reasoned approach to City finances - so it will be difficult.

Jon said...

Perhaps I should have said that Indianapolis isn't deviating from the path. In the past 30 years the city has built the Dome and rolled the bond debt into the Lucas build rather than pay of the debt. Currently TIFs are extended ad infinitum rather than paying off the TIFs. That kind of behavior doesn't bode well for good financial stewardship.
Since our mayor was elected the state has taken over a large portion of the police and fire pension debt and yet the public safety budget is still increasing at the same time we have less police on the streets. We have received 50 million in federal dollars to aid in hiring new police and yet that didn't occur. We continue to give away scarce tax dollars to developers, Broad Ripple parking garage, North South project and the giveaway of the Pan Am Plaza. The puesdo sale of the water company is a classic example of how not to run local government. Alledgely the city received $435 million for the sale but the reality is that $435 million is closer to a bond purchase, the debt was just added to the water company price. It was a good deal for Citizens, ceo makes almost 3 million a year but not such a good deal for the customers whose bills will increase by about 15%.
I haven't seen any indication that this city and its leaders have any fiduciary responsibility.

Had Enough Indy? said...

If BlogSpot had a 'like' button, I'd 'like' your comment twenty times.

Gary R. Welsh said...

Thanks, Pat. Excellent analysis as always. I think you're a bit too generous in your praise of the Star reporter who reports everything in isolation and never connects the dots. It's journalistic malpractice by any other name.

Had Enough Indy? said...

Thanks for the kind words, Gary.

As for Jon Murray, he's had some pretty intricate tax and fee proposals to describe. He did it well, I think. I also have to say he included a lot of 'dots' in this particular article, and didn't lose the reader in doing so.