Tax Increment Financing districts—TIFs for short—are relatively recent arrivals in the minds of most residents of Marion County.
What is a "TIF"? It is a specially-created tax district to capture tax revenue linked to increased property values from new construction and use the money for improvements within the same district. South Bend Tribune, Apr. 18, 2011.
Let me put it another way. Say there is a four-block square area in a city that one would call "blighted." Some of the old homes still are occupied, but others are vacant. Some of the lots are bare, buildings long-since razed. A developer comes up with a plan to build residential housing and a few commercial buildings—a few small stores. This sounds like a Win/Win situation. An otherwise-forgotten part of the city can be rejuvenated and—here’s the big selling point—produce more tax revenue because property values in the TIF will rise. Gone will be those nasty old houses and vacant lots. In will come attractive housing ans stores.
From what source does the money come to do all this? Herein lies the problem, and the fertile ground for abuses of this nifty mechanism. The city loans the money based upon projected gains. The money is to be used only for that TIF. The money is managed by a board separate from the city’s council. Once the gains arrive, everyone benefits. In the meantime, any taxes raised in the TIF go only to the TIF.
At the end of its existence, Enron sold futures on the weather. Yes, one could speculate on what the weather would by three months down the road. To a degree, that is what futures commodities dealers do anyway. Remember in "Trading Places" with Eddie Murphy and Dan Ackroyd? The evil Mr. Beeks was to deliver the annual frozen concentrated orange juice projections to the Duke brothers so the brothers could corner the market. As it turned out, the early frost would have no effect on production.
This type of speculation can have disastrous consequences in the private market. After all, Ralph Bellamy and Don Ameche’s characters, from "Trading Places," ended up living on the street. (In 1988's cameo roles in 1988's "Coming to America.") The effects can be even worse in the public sector.
Chicago used TIFs in the Richie Daley administration excessively. Daley also used the money from TIFs—and a disastrous parking meter deal—to paper over deficits. The predicted gains often did not materialize. I could make a comment about the common sense of people in Chicago and the Cubs, but, in all fairness, the Daleys were South-siders.
It is dangerous to create something that can enable a politician to look good at balancing budgets when the reality is otherwise. The life of a TIF was 30 years in Indiana. The life has been reduced. During that time, any tax money from the TIF district must go to the TIF.
"Had Enough Indiana?" blogger Pat Andrews will be our guest today on "Civil Discourse Now," along with Jeff Cox, frequent guest and friend of The Show. Pat recently has blogged about the past few budgets of the City of Indianapolis and how TIF funds have been used to cover up deficits. That can be bad, because that money was supposed to be used for development. When the development does not take place, those nice new homes and stores are not built. The tax money from the area goes to the TIF. The TIF often channels funds to developers.
Reforms for TIFs have been proposed. The Ballard administration has pushed to enact several TIFs before those reforms would take place. That is a bad sign: when a politician pushes to beat a deadline on reforms to enact the very things sought to be reformed.
Personally, I believe it is bad to enable a politician to leave office—no implication there, really; I can see Ballard serving as many terms as David Orr (who succeeded Harold Washington as mayor in Chicago following Washington’s death)—with the means of making it look like he practiced fiscal prudence.