Is TIF really a good economic tool?

(Fort Wayne) News-Sentinel

Tax increment financing has been around a long time and is used in all 50 states and around the world for economic development. When a TIF district is created, tax revenue is divided into two streams.

The first is based on the original assessed value of the property, and that money continues to be distributed as always. The second is the additional tax money created when property values go up. That money is spent on improvements in the TIF district.

Developers say it’s one of the few tools left to spur growth and investment. But what if it’s not as effective as it is purported to be? That’s the suggestion of a study by the Center for Business and Economic Research at Ball State University.

Tax increment financing does boost investment within the TIF district but actually reduces it outside the district, says Michael Hicks, economics professor and center director. Furthermore, TIF use increases taxes and reduces countywide employment, “albeit modestly.”

Hicks also cites another study, this one by the Indiana Legislative Services Agency, which “found what most other studies have; TIF use isn’t creating jobs but is capturing growth that would have otherwise occurred.”

So, overall, a TIF district increases taxes and reduces jobs, all in the course of just capturing growth that would have happened anyway. Doesn’t sound like that much of a bargain, does it?

We’re not suggesting Indiana governments just start abandoning TIF districts. But local officials really ought to be thinking long and hard about how they are used. And now would be a good time to start the process.

Planners always think they know what’s best for the local economy. They know which areas most need a boost, they know how to given them that boost and they know how to do it without hurting other areas of town. So they often tend to be more involved in what should be a free market system that they should be.

And now they’re going to be more involved than ever. After winning one of the state’s Regional Cities grants, local officials will have tens of millions more dollars to spend on stimulating growth so we can have a million people in northeast Indiana.

So, the question: Is tax increment financing a good tool? It’s a simple question, but maybe the answer will get a little complicated.

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