Half Past the Month: Research First, Then Publicize

November 14, 2015

by Craig Ladwig

You know there is a political element when the sponsors of a research study announce in advance what the research is going to find. So it is with a study from the University of Southern Indiana directed by the Indiana Economic Development Association (IEDA) that promises to debunk the “myths” of tax-increment financing (TIF) — that is, to explain what a good deal it is.

“Powerful myths and considerable misinformation about TIF activity in Indiana regularly cloud understanding and perceptions about the value of the TIF tool,” says the CEO of IEDA in a press release. “To clear up possible confusion and document best practices, the Indiana Economic Development Association is funding and directing a comprehensive statewide TIF study that will be fair and nonpartisan.”

The target of this fairness and nonpartisanship is the work of Dr. Michael Hicks of the Ball State University School of Business. Dr. Hicks and Tom Heller of the Indiana Policy Review Foundation have been separately decoding the inscrutable TIF formula so that average citizens and local officials can understand where local tax money is going.

A Ball State study published last winter found that TIF boosted assessed value within the TIF district but led to higher tax rates, less AV (assessed valuation) outside the TIF and modestly lower manufacturing employment within the county. Hence, the average TIF was bad for a county. The Ball State study also corroborated the findings of studies in other states, which suggest that TIFS are used as a budget-management tool for local government rather than as an economic-development tool.

Even more damning was a Legislative Services Agency study published this fall. The study, using more granular (parcel-level) data than the Ball State researchers had available, found that TIF had no employment effects, but that redevelopment commissions were formed to capture growth that was already occurring. The conclusion, then, was that the average TIF had no effect on employment, but merely captured tax dollars from other units (schools, libraries, etc.)

In all, 2015 was a tough year for IEDA and advocates of unlimited TIF spending. Studies about California, which did away with TIFs in 2014, showed no effect of the loss of that financing tool. The current issue of the Indiana Policy Review illustrates the problem of base loss, and suggests malfeasance in the administration of certain TIFs. The Economist magazine published an article this fall that connects TIF and tax abatements to lost school funding across Indiana.

Tax-increment financing was supposed to be an economic-development boon, but the lack of positive outcomes and its apparent misuse as a budget-management tool suggests that there are broad problems with the system of local-government finance in Indiana. Charges of crony capitalism in connection with a TIF district have been leveled in a series of articles by the Marion Chronicle.

This worries legislators such as Sen. Greg Walker, who in the past has expressed concern that TIF in particular is problematic. He has urged that its impact on local tax bases be objectively reviewed and reevaluated.

Such concern in advance of the legislative session might explain the preemptive press release. But what also should worry legislators is an Indiana Economic Development Association that is willing to manipulate and time academic research to protect failed policy.

Craig Ladwig is editor of the quarterly Indiana Policy Review.



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