Special Interests Fight TIF Reform

Sen. Luke Kenley (R-Noblesville) has introduced SB 17 to place some restrains on tax increment finance (TIF) districts, which erode the tax base and shift property tax burdens to homeowners. In a designated TIF district, taxes paid by property owners are diverted away from other taxing bodies like schools and into a special taxing district to finance projects specific to that area, often to the benefit of specific businesses. Kenley's legislation would, for example, allow taxpayers to remonstrate against a TIF bond. Another idea would prevent a TIF district from being enlarged unless the revenues within the original district are insufficient to meet the financial obligations of the original project. And finally, it requires that an area be blighted in order to create a TIF district. All are good and reasonable ideas, although I would argue don't go far enough. As Niki Kelly writes today in the Fort Wayne Journal-Gazette, you would think the sky was going to fall if Kenley's ideas actually made it into law:

The first would allow residents to remonstrate against a TIF bond. That means it would take just 100 signatures to effectively delay a project enough that the interested business would walk away, said Jerry Stilwell, attorney for Gibson County in southern Indiana.

He noted that officials there used TIF as part of a package to lure Toyota to Indiana in the mid-1990s and that wouldn’t be possible under the bill as written.

“Ours is a success story for TIF districts,” Stilwell said. “I guess somewhere in Indiana there are TIF districts that aren’t working. But I don’t want you to kill the golden goose.”

Another key change in the law would limit the expansion of these districts. The bill would prohibit enlarging the boundaries of a district unless the existing area does not generate sufficient revenue to meet the financial obligations of the original project.

Under this provision, Fort Wayne officials likely would not have been able to expand the Jefferson Pointe TIF district to include the downtown area for the Harrison Square development.

And Mike Howard, the Noblesville city attorney, also testified that the bill would require that an area be blighted to create a TIF district. This would mean cities and counties could not use tax increment financing on farmland, effectively making it a tool only for urban areas.

Kenley reminded these folks after hearing their testimony that he had to find a way to reduce property taxes. Kelly writes, "Kenley politely listened during the hearing but pointedly told those criticizing the plan that it’s time to consider the other side of the coin – taxpayers and their need to pay lower property taxes." “We are going to have to find ways to satisfy both sides,” he said while encouraging those testifying to suggest ways to tighten the use of the districts.

I remember working on TIF legislation back in the 1980s as a revenue analyst on the Illinois House Republican Staff. At that time, there were efforts to expand TIF districts to areas other than those which were blighted. TIFs were originally envisioned as a way of revitalizing blighted, inner city neighborhoods. Nowadays, they declare a several thousand-acre tract of farmland a TIF district, build a major automobile plant on it employing thousands of workers and effectively remove hundreds of millions of dollars in improvements from the tax rolls of school districts and other local taxing districts throughout the early life of the business. In some cases, the business eventually closes without ever being added to the tax rolls. In Indianapolis, virtually the entire one-mile square downtown is a TIF district.

Kenley is on target in his efforts to rein in TIFs, but it once again just points up the unfairness of the property tax. Provisions in the law like TIFs allow elected and unelected officials to pick winners and losers. Some people get a pass on paying their taxes, and others are expected to pay more to make up for the loss. It's unfair, and it's unconstitutional.