A Word About TIF’s

If selected to represent the residents of our 5th district, I will make as many facts available as possible when the town is pursuing large projects, new programs, developments, etc.  There are too many ways to share information today not to have info available 24/7 for residents to view, offer comments, and share with neighbors. As residents, we deserve the respect of being informed. 

Tax increment financing (TIF) districts are a financial mechanism cities and towns use for economic development. The current Town Council has decided to expand the geographic size of the town’s current Merrillville Road TIF district to use the tool to build the new Community Center at 66th & Broadway. 

The claim is that home owners taxes will not increase to pay for the $24M project. In principal, that is true. But expanding an existing TIF district bond issue that would have been paid off in a few years does in deed cost money as well as divert tax funds that could be used for other town projects or operating expenses. The Merrillville Road TIF was created to make necessary infrastructure improvements to Merrillville Road and the intersections by Route 30 and Merrillville Road. It added sidewalks and street lights down Merrillville Road and redesigned where the road connected to 93rd Avenue. It also widened the street and placed a center turn lane for improved traffic flow. The improvemenets were done to accommodate the building of the 235,000 square foot, Michigan based, Meijer Food Store, one of the first in our region. At that time, all of the Sedona neighborhood, Westwood Estates, The Apartments at Merrillville Lakes, and other surrounding areas made up the TIF district as shown in the map below. I was on the Town Council at that time and supported the TIF district for this wonderful addition to our town. 

Using a TIF District deserves a lot of scrutiny because public sector dollars are being re-routed into a different task, away from general purpose funds. That means the incremental taxes that would normally support general fund town needs like snow removal, salaries, town hall overhead, etc. are not available as they would be if the TIF did not exist. When our town designates an area, or expands an existing TIF area, the property value of all the real estate within the boundaries at that time is designated as the “base value.” This is the amount that, for a set amount of years after the fact, generates revenue through the town’s property tax process. Everything over and above that, through an increase in value of existing real estate and new development in that time frame, goes into a separate fund earmarked for economic development. For example, in the Merrillville Road TIF area, the tire store, the bank, and even the new Starbucks coffee shop, as well as any other new development property taxes generated are earmarked for TIF use since these new developments were not part of the initial ‘tax base’ when the TIF was formed.

The town can then use this secondary pot of money to lure private investors with loans and subsidies for commercial projects, or to make public projects more attractive. Sometimes, private entities put money in a TIF district even before the revenue comes in, because they’re anticipating revenue from economic development in the area. The overall idea behind TIF is: By creating these districts, towns can spark new private-public partnerships and new economic activity in a region that may not otherwise see it, and by doing that, widen its tax base. Its economic development that, in a sense, pays for itself. 

But in practice, TIF doesn’t always play out that way. Critics often charge that it funnels money out of taxpayers’ pockets into a special fund that, by and large, works in a pretty opaque manner. While some of that money funds essential public works, much can also be used for a towns needs, like in this case, a new community center. Problem is, a town project would not be paying taxes on its own building, so the over all idea of building the tax base might take much longer and would come to be only if other developments, private ones, were added into the TIF district area. So, the use of a TIF to build a town building is not really increasing development like the huge Meijer Grocery store generated, in fact it won’t be increasing the tax base at all. 

Another point to consider is that the additional properties that are now part of the expanded Merrillville Road TIF will no longer be providing some of the taxes to the towns general fund and in essence is lowering the fund for general operating expenses. The general fund will already be capped by the new 1%, 2%, and 3% State mandated tax caps on increased property taxes. Taxes each year, can not go up more than 1% for a residential property (house), 2% for income properties (like apartment buildings and similar income properties), and 3% for commercial properties. 

This financing tool can have several drawbacks. TIF’s might capture some tax revenue above the capped base value that may have been generated anyway through natural appreciation in property values if the TIF had not been created. This is money that taxpayers might have otherwise paid directly towards an overlapping school district, or for public services. And while TIF is not a direct tax increase, it may lead to higher rates or service cuts elsewhere, if the city plans on bringing in the same general property tax revenue as before TIF. So if property taxes are higher, if the rates are higher, then the TIF money has come of the taxpayer’s pocket. It’s a diversion in that way. In other words, TIF doesn’t exist in a vacuum. Like other incentive programs, it may have the adverse effect of creating competition between neighboring jurisdictions in a way that is not always beneficial, all for outcomes that are mixed, at best. 

Perhaps the biggest concern with TIF is that of transparency, because of the way this mechanism effectively bypasses the public municipal budget process. Once a TIF is created, or in this case expanded, the operation of a TIF receives less scrutiny than other town spending. 

Due to some of the concerns above,  I believe the bond issue for a new community center would have been a great example of why to have it on a public taxpayer referendum. Like the school district has done many times in the past, let the voters know why the project is needed, the estimated cost, and how the bond would be designed. In this case, the town could have held meetings to explain, in great detail, the plan for a new community center, gathered resident feedback, edited plans based on that feedback, and then place the bond issue on the voting machine in the form of a referendum. If passed, then the Town Council, other boards and commissions could follow through with the necessary steps to build the project. It would have been nice to have complete resident “buy-in”.  Seeing the creative way that the council did two bond issues below the need for a referendum because they were under the $15M loan amount requiring a referendum, seems like a tricky way to fund what should really be a worthwhile town project. 

I am in favor of a Community Center and other ways for our town to build community, and it is about time for Merrillville to do that like other nearby communities. I do however believe that a $24M project requires great attention to detail, a solid business plan, expense plan, projected employee and security needs, and good estimates of any other operating expenses and overhead before putting out bids to start turning dirt at the project site. I also believe it requires the input of informed citizens.      

Information provided by Wikipedia, David Merriman, a professor at the University of Illinois at Chicago, and Rick Bella

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