Tax Increment Finance districts have made a lot of growth possible in communities throughout the county, officials say.

Between Kosciusko County itself and individual towns from Claypool to Warsaw, 22 TIFs currently target $5.25 million in tax dollars onto infrastructure needs like sewers, roads and rails in each district.

They’ve been credited in the past 20 years with enabling major projects such as the Louis Dreyfus biodiesel plant in Claypool, the Trupointe fertilizer hub near Milford and development on the north side of Warsaw in a zone that generated $3.45 million in extra property value last year alone.

TIF districts were enacted in Indiana more than 30 years ago. They are overseen by a redevelopment commission at the town or county level, whose actions must be approved by local government when it comes to plans and financing.

Improvements in a district are funded by a bond issue at the outset, which is then paid off using increased tax proceeds, known as increments, generated by increases in assessed value from land improvements.

Warsaw established its first TIF a little over 20 years ago, according to county Auditor Michelle Puckett, who noted over time she’s seen them almost double in number in the county – most of that in just the last few years.

The eight TIFs active in 2003 were together worth $1.27 million, followed by steady growth over the next decade. The 2013 total of $4.42 million in additional property value among the 18 TIFs active then was the single largest jump in value, from $3.14 million in 2012, after the addition of the Oakwood, Trupointe and Warsaw Eastern districts. The bulk of that extra $1.28 million is seen in the Warsaw North TIF, which grew from $1.89 to $2.81.

Statewide, the net assessed value in TIFs almost doubled from about $10 billion in 2003 to $19 billion in 2012, according to a study published in January by the Ball State University Center for Business and Economic Research.

The total extra valuation among TIFs locally is expected to grow even further now that the Trupointe facility is up and running – its TIF saw $47,588 in increased value last year, up from a first-year value of $1,302 – and now that another district was established in January, for an 80-acre site near Mentone requested by North Central
Cooperative. The City of Warsaw, which currently oversees several TIFs with a total enhanced valuation of just over $4 million, is also moving to expand one of its districts north along Ind. 15.

Uses for TIF money, as exemplified by the fiscal plan the county redevelopment commission recently drew up for the Maple Leaf Farms district in Milford, can include the cost of studies and surveys in preparing a site as well as marketing a site to potential businesses; rehabilitation of existing buildings and construction of public works like sidewalks and sewers; and job training and relocation.

When the Louis Dreyfus site was established about eight years ago, which prompted the resurrection of the county redevelopment commission after several years dormant, Puckett said the area was just farmland that wasn’t being collected on. It was determined that diverting the income would have zero impact on surrounding tax recipients, she said.

The TIF generated $290,997 in extra valuation last year thanks to the improvements to the land, according to county records, and a total of more than $2 million since 2008. That’s all money that will benefit community needs outside the district, such as school corporations, once the TIF expires, Puckett noted.

In the meantime, she said, TIF-funded improvements lead to greater employment, which brings more income taxes and investments in the community such as home purchases.

They also bring the hope that more businesses will move in to take advantage of the improved roads, rails and other infrastructure.
That’s the aim of the industrial park TIF in Syracuse, where roads and utilities were installed at U.S. 6 and Ind. 13 to attract companies, she said, remarking on Warsaw’s own success with investing along Ind. 15.

“Businesses wouldn’t be there if it hadn’t been done. It’s hard to have one without the other – it’s kind of a chicken-or-egg scenario,” she said. “I think if the dollars are spent wisely, on improving the community, other businesses will feed off that and it will continue to grow.”

Property tax money withheld from schools during the duration of a TIF is less of a concern now than under the state’s pre-2008 funding formula, when property taxes were responsible for a third of a district’s general fund, said Kevin Scott, Warsaw Community Schools chief financial officer. Property tax revenue now only supports a few specific funds, he said, including capital projects, transportation operation and bus replacement, on a 2015 rate for Warsaw of $8,218 per $1 million of assessed value.

On the other hand, he observed, new jobs generated by a TIF and new families brought to the area can increase student enrollment, in turn improving state funding for schools. He estimated an average of 70 new students for every 100 families, based on demographic data, and noted that Warsaw receives from the state $5,732 per student for the 2014-15 academic year – money that does support the general fund.

“As a result I support economic development using a TIF district as a tool to attract new business,” Scott said. “If there was no development encouraged by a TIF there would be no change in the assessed valuation and no improvement for taxpayers or for property cap impact (lost revenue) for governmental taxing units.”

He also noted that after speaking with Umbaugh and Associates, the accounting firm which advises both the City of Warsaw and WCS, he feels comfortable that the growth of Warsaw’s TIFs “will lead to additional development and in turn increase the tax base of assessed valuation that would not otherwise happen. In years to come this will lead to increased tax base for all overlapping government units and apply downward pressure on overall tax rates.”

The only caveat Scott raised is when TIF districts don’t appear to sunset, meaning the property taxes they capture aren’t eventually released to tax recipients like schools.

TIFs typically dissolve after 20 to 25 years, once the bonds that funded initial improvements are paid off with the captured tax money from the extra valuation, Puckett observed. But some districts have to be renewed just to fund upkeep of the roads and other improvements put in when the TIF was new.

There’s also the risk that the business developments expected in a TIF don’t happen, she said, leaving the county with the bill for infrastructure work.

A TIF for Maple Leaf Farms was established in the late 1990s to fund nearly $1 million in road improvements to CRs 900N and 200E, with the expectation the bond would be repaid after about 10 years. The assessed valuation proved to be lower than projected, leaving the county in early 2006 to cover the difference between a payment due of $102,000 and the $39,000 in the TIF account at that time. The Maple Leaf TIF was eventually renewed for another 20 years to fund infrastructure upkeep, Puckett said.

Something that made the Trupointe TIF more attractive is that the company agreed to buy the bond, rather than leaving the county responsible, she added.

Many Indiana counties are accumulating debt to manage projects in TIF districts, the Ball State study found, noting that 20 percent of the state’s $12 billion outstanding debt in 2013 was held by TIFs. The study was authored by CBER Director Michael Hicks, Research Director Dagney Faulk and graduate research assistant Pamela Quirin Howard.

Researchers concluded the size of a TIF is associated with higher effective tax rates in a county, which is “not surprising given that Indiana’s local property tax system would necessarily shift burdens of taxation from TIF to non-TIF taxpayers to maintain constant levels of public services.” They found that TIFs increase tax rates by about 0.01 percent on average, but note they cannot conclusively report that TIFs are the cause of higher rates on existing taxpayers, though it is “a very likely effect.”

The study found as well a small, positive correlation between the size of a TIF district and capital accumulation, measured as assessed value, but that TIFs were negatively correlated with other measures or economic development such as employment, business establishments and sales tax revenue. They note that the statistical certainty or size of the lost employment is not sufficient, however, to conclude that TIFs caused these negative impacts in Indiana counties.

“The strongest conclusion that we can draw is that TIFs are associated with these negative outcomes, which is a finding that is consistent with our first result – that TIFs are associated with higher effective tax rates in the counties in which they are used,” state the researchers. “We found that the net impact of TIFs on a county economy is modest, but on average negative in measures of economic development other than assessed value. This suggests that the Indiana TIF is not an effective economic development tool, but is instead a budget management tool for local governments.”

The state already has already taken some steps to increase oversight of TIF districts, as the report recommends. A new law that went into effect in July requires all TIFs created before 1995 – before TIFs were required to have any expiration date – to expire by 2025. Districts repaying bonds issued before July 1, 2015, must expire by 2040.
The law also broadens the definition of what actions by an economic development commission need local government approval, and gives local government oversight of the commission’s budget. The change will likely lead to more formal annual budgets being prepared by redevelopment commissions, including more detailed project lists, TIF estimates and cash flow planning, according to Loren Matthes with Umbaugh.

Most economic developers think TIFs should be evaluated, said George Robertson, Kosciusko Economic Development Corp. president, “but with sound statistical data. This Ball State report is not that analysis.”

He said the study omits several factors that have a greater effect on property tax values, such as caps on property tax collected as well as the 2008 recession, which hit some counties harder than others – the smaller and more rural, the harder hit.

“If you go into the raw data and look at factors other than the only ones Hicks uses to prove a conclusion he already had, you find some interesting trends. The counties that had strong property tax increases and low use of TIFs are all suburban counties around metro areas who get their growth from the job creation activities of the center city. Many are around Indy, some along the Ohio and Kentucky borders. Many of the hardest hit counties (dropping values, high use of TIFs) are rural counties who are aggressively trying to get new jobs to bring back economies devastated by the recession. If Hicks’s ideas are followed, these counties would be condemned to permanent decline.”

Kosciusko County Redevelopment Commission members say they believe the Ball State study missed the point, at least as far TIFs are concerned locally.

“The Redevelopment Commission is of the belief that the TIF is a valuable tool for our county,” said commission President Max Courtney, noting they have seen firsthand the benefits of job creation and infrastructure improvement. “We as the Redevelopment Commission take into account the impact a company will have on the work force, schools, environment, utility usage, roads and taxation. Abatements and TIFs are not taken lightly and many questions are asked before the commission recommends.”

“These tools are used by our neighbors to woo our companies out of our county,” he added. “Whitley County has established a TIF district from the Allen County line to the Kosciusko County line on both sides of U.S. 30 in order to be in a position to make themselves attractive to those businesses who are entertaining expanding or moving.”

Like any tool, observed Puckett, there’s a fine line between using it the right way and the wrong way.
“TIF is a tool they’ve obviously grown accustomed to using,” she said.
“In theory, it’s a good thing,” as seen in the impact of the Louis Dreyfus development. “When it’s paid off, that’s a whole lot of money that will get distributed to the community. If we didn’t have the money to do those infrastructure improvements, it couldn’t have come. It’s hard to say where the county would be without TIFs.”