Weighing In on Tax Increment FinancingJune 30, 2016
Weighing In on Tax Increment Financing
By Dustin Jones, Senior Client Advisor for Ginovus
This week, Inside Indiana Business reported on the results of a University of Southern Indiana study, commissioned by the Indiana Economic Development Association (IEDA), which further supported the use of Tax Increment Financing (TIF) as a “beneficial tool” for economic development. As is often the case with matters involving tax dollars and their economic impact, how you gauge “beneficial” outcomes largely depends on what you are measuring and on or for whom you are measuring the benefits.
The gold standards by which all economic development projects are measured are the investment, jobs and wages that are expected or committed to be created as a result. By these measures, it is no surprise this new study found that development activity involving the use of TIF induced positive, beneficial results. This is particularly true where TIF is being used to incentivize projects with significant private investment and job creation commitments as opposed to more traditional, pure public infrastructure projects.
For economic development professionals and government officials, there is little question that TIF is a valuable and effective tool to enhance or secure business expansion and attraction. A larger and more difficult question to answer is whether the use of TIF significantly impacts and increases future investment and job growth beyond the scope of the target project. To this point, IEDA’s findings offer some evidence that areas using TIF do benefit from lasting impacts on employment and wages.
One of the most common criticism of TIF deals is that they disproportionality benefit those directly tied to the project, primarily the developers, while the gains to the general public are less certain and more difficult to quantify. This point can be particularly debatable when TIF is used to spur development in blighted or poor areas. One such case is the pending $535 million TIF proposal by Under Armour to redevelop the Port Covington neighborhood in Baltimore. While the proposal would certainly be transformational for an area that has suffered from years of disinvestment, opponents point out that the project will place more demand on public services, which will not benefit from the future tax revenue, and that local residents are least likely to benefit from the added jobs and new housing.
These unknowns represent valid concerns. However, there are also shining success stories to back up proponents of TIF supported redevelopment efforts. In 2012, Angie’s List contemplated expanding its corporate headquarters in a challenging neighborhood in Indianapolis, IN. The company had grown up in a collection of underutilized, dilapidated historic store front properties near the city’s downtown, an award of $5.6 million in TIF funding was the difference between the company moving to a modern office space in a different city or continuing with a transformational development plan that otherwise would have hindered the company’s financial performance. With great vision and leadership from the city, and the company’s commitment to a major redevelopment project, the resulting development has not only created an impressive corporate campus, but has also sparked what is now becoming a thriving neighborhood surrounding it.
As government officials and the taxing authorities affected are forced to consider how and whether to use economic development tools such as TIF, they take on the responsibility and challenging task of weighing the impacts now and in the future. Ginovus has years of experience negotiating and evaluating dozens of projects that utilize TIF funds, including TIF backed bonding and appropriation of existing funds. That experience provides valuable knowledge and insight to guide businesses and developers through the process of seeking TIF funding and to help governmental entities understand the potential impacts of TIF funded projects.
Ginovus is a recognized leading provider of location modeling, site selection, and economic development incentive procurement and compliance management services. Ginovus team members bring the experience of advising and assisting clients on more than 1,500 project across North American and the Caribbean during their distinguished careers. Ginovus is headquartered in Indianapolis, Indiana.
To TIF or Not to TIF?
By Dan McGowan, Writer/Reporter
INDIANAPOLIS – The Indiana Economic Development Association says a new study confirms Tax Increment Financing as a “beneficial tool” for economic development. The study was carried out by economists from the University of Southern Indiana and commissioned by the IEDA. It concludes that TIF districts have a positive impact on employment and wages, compared to areas not using TIF. The study also outlines “spillover” benefits for surrounding counties and calls TIF areas positive tools for quality of place-enhancing projects.
The organization says the analysis included a broader range of statewide TIF data than previous efforts, creating “more nuanced” results. It also considered numbers before, during and after the Great Recession.
Chief Executive Officer Lee Lewellen says legislators can use the research as a baseline for making decisions on crafting TIF regulations and local leaders can help decide whether TIF is the right option for funding a particular project. He adds the study busts one negative perception about TIF districts. “There have been statements made in the past that TIF districts are gobbling up lots of taxable property in the state of Indiana and competing with other taxing jurisdictions. But we found that when you look at TIF districts compared to all taxable property in the state of Indiana, TIF districts only account for 3 percent of all taxable property,” said Lewellen. “That was maybe not really surprising, but it was good to have a confirmation that it wasn’t as extensive as it really is.”
One such study, released in February by the Ball State University Center for Business and Economic Research, suggested TIF districts are pulling away large amounts of funding from elsewhere, particularly local schools. CBER Director Mike Hicks said in that study, TIF is “not actually creating new investments.”
The IEDA/USI study also highlighted over 250 changes to state laws governing TIF over the last 25 years. “The vast majority of these changes focused directly on addressing key issues like transparency, reporting and application, said IEDA Board Chair Jody Hamilton, “A key point is that TIF was found to be a useful economic development tool – one of a number of available tools – that is positively and uniquely responsive to individual community and regional needs.”
Lewellen expects the research to serve as an independent benchmark.
You can connect to the full study by clicking here.