Tax-Increment Financing districts ("TIFs") were developed in California in the 1950s. The idea was to infuse areas desperate for investment with public funds. A specific area would be designated as a TIF. By "specific," I mean specific blocks would be designated as within the boundaries of that TIF's "footprint." Projects would be designed for the TIF. Bonds would be floated by (most often) the municipal government of the place in which the TIF was to be created. Money from the bonds would be loaned to developers. The idea was that any taxes above what that area usually had paid before the TIF would go into paying back the bonds. Bonds, after all, are in this context loans from the taxpayers to developers.
Today, California bans TIFs. TIFs proved to be a disaster---there and everyplace else TIFs have been used. Developers had a tendency to paint rosier pictures---sometimes called "blue sky" in certain types of criminal prosecutions---than the reality would turn out to be. In the meantime, those areas used up even more services of the municipality in question than that for which their "usual" taxes could pay. And then, of course, there was the debt with which the municipality and its taxpayers were left, in the form of those bonds. TIFs end up sucking tax dollars for general fund purposes (e.g., police, streets, schools) from the rest of an area's tax base---areas outside the TIF pay for services the TIF itself cannot support.
Developers used to develop with private investment. Then politicians got the idea they should provide incentives to developers. One good example of a package of incentives to a corporation to spur development was that extended by Indianapolis to United Airlines.
Now, it seems, developers cannot develop without money from the public till. In an article in yesterday's Indianapolis Business Journal, "Fountain Square project would need city subsidy," Scott Olson quotes Adam Thies, director of the city Department of Metropolitan Development: "'There's not a [tax-increment financing] district in this area,' he said. 'So how do you subsidize something without a TIF district? There's no open pocketbook for subsidies.'"
Another way of saying that last part of Mr. Thies's statement is: "The Mayor doesn't have a ready slush fund."
What happened to private investors' desire to develop? Perhaps with the juicy prospects of TIFs dangling over the landscape, like so many pork chops ready to be plucked and eaten, private investors choose to resort to the public Till.
To answer Mr. Thies's question: "You subsidize something without a TIF by eliminating TIFs and wait for developers to see the wisdom of investment in a place like Fountain Square---or Broad Ripple, where TIF money was not needed, but rapscallions saw an opportunity and pounced.
TIFs were banned in the place---California---where they were developed. Mayor Richard Daley, II, ran Chicago into the financial ground with TIFs. TIFs are fancy ways for politicians---notice I referred to projects and TIFs under two Democratic administrations, United under (cough before I can write his name) then-Governor Bayh and TIFs in Chicago---so the disastrous concept of TIFs enjoys acceptance amongst politicians because they can take credit for something today, get votes, and move on to the next election, or lucrative employment in the private sector, by the time the bill comes due to pay for the TIFs.
For every "successful" TIF, there are seven or eight failures. "The Chicago Reader" has an excellent series of articles that trace the history of TIFs in the Windy City and the ways in which TIFs have wrecked Chicago's finances.
If someone wants to throw out a barb about deficit spending, fine. This is beyond deficit spending, however. TIFs allow politicians to write bad checks for the benefit of their cronies.
The General Assembly should enact legislation that bans TIFs. Otherwise, Indianapolis will be in the same financial shape as Chicago.