Backgrounder: BSU Researchers Critical of TIF

February 9, 2016

by Craig Ladwig

A group of researchers at Ball State University last week released another critical assessments of Tax Increment Financing (TIF). The authors, Dr. Michael Hicks, Dr. Dagney Faulk and Srikant Devaraj, join Tom Heller, writing in the current issue of The Indiana Policy Review, in casting doubt on this enigmatic tax policy.

The problem for those of us without subpoena power, though, is that it requires multiple graduate degrees and a flare for forensic accounting to fully understand the alarming implications of the TIF research.

In Fort Wayne, for example, grown men (members of city council with professional degrees and experience in finance) are having a devil of a time tracking a $4-million garage. Parking spaces disappeared when a TIF-funded project shifted objectives, the allocated dollars apparently used to subsidize something else entirely.

Let it just be said that TIF doesn’t dependably create the economic development it promises or even the projects for which it is authorized. A scan of the Ball State research tells us as much:

  1. TIF use in Indiana does not boost income or sales taxes, its raison d’être. Nor is it associated with a statistically significant net increase of assessed property in the counties where it is deployed. Nor does it boost employment. Nor could the researchers find clear economic developments associated with the average TIF in Indiana over the past decade.
  2. What it does do is enrich the professional class. Legal and professional services ranged from $32,000 to $85,000 per year in the first five reports randomly selected by the study. The authors note that is far more than $10,000 per TIF district per year, suggesting that at least $7.5 million per year is paid by Indiana Redevelopment Commissions for legal and consulting work alone.
  3. In addition, there is: a) the creation and sale of bonds, which comprise many more millions of dollars per year in professional services; and b) the general use of TIF to finance speculative property development.
  4. A small number of consulting, legal and engineering firms benefit in the tens of millions of dollars per year. The authors say that alone explains the presence of strong interest groups advocating for TIF to policymakers at all levels of government, along with a strong pressure to retain TIF without consideration for its efficacy or the overall well-being of Hoosier taxpayers.
  5. The authors conclude that the value of a TIF to the average Indiana community is as a mere budget management tool. As such, “It is not transparent, likely to capture assessed-value growth from other more urgent community needs (such as schools) and likely dampens economic activity outside the TIF area through higher taxes or asset capture.”

That’s just great. It is not only obtuse but also largely worthless and quite possibly corrupting. We asked someone steeped in TIF arcana, then, to explain why it is so popular with Indiana local governments. What, other than big-time law firms, propels such bad policy?

Our friend, In at least rhetorical answer to our question, sent us a clipping from the New York Times. It tells how a little town in Puerto Rico has been able to finesse the electric utility in order to pay for an ice skating rink and other economic-development projects. This is made possible by an old New Deal program that tacitly encourages Puerto Rican politicians to provide electricity without actually paying the electric company. It is popular, as you might expect, so popular that the mayor of the now-bankrupt town once bragged he would be in office “until the day I die.”

Granted, ice skating rinks might be politically popular in a place where the temperature rarely drops below 90 degrees but they are exceptionally expensive there. And “free” ice, like “free” financing and “free” parking garages, is not free. In fact, the Times estimates that 288 governmental bodies on the island are delinquent in their power payments by $300 million.

It would be a good idea for Indiana voters to start jotting down the names of politicians taking credit for TIF-financed economic-development schemes. And don’t buy any bridges in Brooklyn, parking garages in Fort Wayne or ice skating rinks in Puerto Rico.

Craig Ladwig is editor of The Indiana Policy Review.



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