Special taxing districts known as tax increment finance districts, or TIFs, aren't having their intended impact on local economies, according to a recent study from Ball State University.
Tax increment financing has been implemented as an economic development tool for more than half a century in many states.
Cities and towns use TIFs to borrow money against future property taxes. They then use that money to redevelop an area in hopes that it will boost economic growth, increase property values, and, therefore, boost property taxes.
It's been argued that TIFs bring higher wages, more employment, and bigger investment to communities.
Michael Hicks, director of the Center for Business and Economic Research at Ball State, says he and his colleagues looked at TIF use in every Indiana county over the last ten years.
"What we found was that as TIFs were increased in a county, property tax rates in the non-TIF areas went up," Hicks says.
But he says it's not completely clear if TIFs are the cause.
Hicks says his team wasn't able to find specific data about how TIF money is used, or much data going back further than a decade, but he says the overall effect of TIFs became clear, and it wasn't all positive.
"The correlation is unambiguous," Hicks says. "There's no doubt that the more, higher use of TIF is reducing employment, reducing the number of business establishments in a county, and causing tax rates to rise in non-TIF areas."
Hicks says they don't know exactly why that is, but it could be because the money is being misused or is being used only in certain areas so it's not benefiting the surrounding communities.
He adds that the widespread use of TIFs is an indication that local government tax structures aren't working.
"In a normal setting, local governments would be able to raise enough revenue to handle the problems that local government has, in terms of transportation for school, public safety, waters, sewers, and those sorts of things," Hicks says. "So the fact that TIFs have doubled in 10 years probably means that that's not working well."
He says the TIF structure is extraordinarily ambiguous – governments can use them for a wide variety of projects.
That can be good when cities face unexpected circumstances, but Hicks says their use has become so ubiquitous in Indiana that redevelopment commissions have become cavalier.
The report ultimately recommends the legislature follow through with the analysis it is conducting on TIFs to determine in what circumstances they should be allowed.
