When is the right time to let the free market do its thing, and when does local government need to help by putting its foot on the gas?

For the first time, this question is coming up in regards to residential housing.

The local story that’s piqued my interest the most lately is that the Town of Albion is looking into the possibility of setting up what may be Indiana’s first-ever residential tax-increment financing district.

If you’ve followed local government for any time at all, you’ve probably heard the term TIF thrown around. But it wouldn’t surprise me if most people have little understanding about what TIF is and how it works. (I’ve heard candidates running for office who thought they knew, but when they started talking about it, it quickly became clear they had many of the facts wrong.)

The essence behind TIF is that it gives local governments a funding mechanism to try to spur development in an area that is unlikely to ever develop without intervention.

In its purest sense, you create a TIF district which then allows a local government to borrow in order to make improvements that would help development in that area. For example, you may want to extend your water, sewer and electric lines to a vacant industrial park and spend money to put in some access roads to the land.

By creating the TIF, the assessed value of that land is frozen at that point. If your vacant land is worth $100,000, that value is frozen and all of the taxing entities will get the tax revenue on that $100,000 going forward.

But if, say, a new $5 million factory gets built, the tax on that new $5 million in assessed value — the increment — gets captured into a separate fund in control of the redevelopment commission. Those are the “TIF dollars” you’ve probably heard about.

Governments are then supposed to use that incoming TIF revenue they’re capturing year-to-year to pay back the debt they assumed and/or bankroll it for future improvements.

That’s how TIF works in its purest sense. Changes and loose interpretations in the law have allowed TIF money to be used in many ways beyond that, but at its heart, that is the goal — borrow to make an area prime for development, capture tax revenue from new development, repay debt.

Up to this point, TIF has really only ever been available to business property and, in most cases, industrial land. Over the last 30 years, Indiana has been all about jobs, jobs, jobs, so TIF was a good mechanism to encourage new job growth.

But things have changed. Ten years after the Great Recession, communities in a lot of places have jobs, jobs, jobs coming out of their ears and no people to fill them.

Ten years after you couldn’t give a house away after the housing bubble burst, now communities are clamoring for new housing, for new places for people to live.

The problem is, no one is building.

And the people who are building can’t seem to build anything at a price point below $180,000-$200,000. For a region where the median household income hovers around $50,000, that house is unaffordable to the average buyer.

So this is where TIF could really come in handy.

If a community really feels housing is a priority, why not find some acreage to TIF? If the city or town is willing to tackle the cost of public components like utility extension or roads so that a developer doesn’t have to, that would not only drive down the cost and complexity to the builder, but ultimately drive down the cost to the buyer at the end of the line. The local government would recoup its expenditure through TIF in future years and potentially have money available for future needed repairs, maintenance and/or improvements.

Now, there are a few notable issues. One, industrial land has a property tax cap of 3%, while residential is only 1%, so there is a significant tax differential. Also, residential developments cost more to serve in terms of police protection, public utilities, fire protection and schools (although I doubt many local schools would complain about enrollment going up for the first time in a decade).

Now, whether you think this a good idea or not probably comes down to where your philosophy on government involvement in free market investment lies. I can think of a few local politicians who would probably be mortified at the thought of sticking their hands into this cookie jar.

But, I’m also willing to bet if Albion finds out this residential TIF thing can work and puts it into action, that communities that utilize residential TIF will find themselves growing new housing developments, while everyone else sits on the sidelines waiting fruitlessly for a developer to come knocking.

If communities are as serious about addressing the housing shortage as they claim to be, more should be looking into this new opportunity, or, at least, keeping tabs on Albion to see what transpires.

Steve Garbacz is executive editor of KPC Media Group and editor of The News Sun. He wrote about TIF ad nauseam when he worked in Johnson County, because nothing happens around Indy without TIF dollars being involved. Email him at sgarbacz@kpcmedia.com.

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