Tuesday, November 10, 2015

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.


Pete Boggs said...

Thank you, for your good work Pat (!!!); exposing crony statism & Tax Incremental Fascism.

Anonymous said...

Public Risk--Private Profit. THAT should replace the "Indiana--A State that Works" logo on the State Office Building.

How long until the entire state becomes one big TIF?

Anonymous said...

Check out this very relevant white paper called "Redevelopment: The Hidden Government". It details California's struggle with publicly-funded economic development that nearly bankrupted the state. http://www.coalitionforredevelopmentreform.org/a_ima/morr.pdf