Lebanon Business Park Tax Increment Financing Area Impact

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A notice was published in The Lebanon Reporter announcing that the Lebanon City Council will hold a public hearing during its meeting on August 22, 2016, at 7:30 PM regarding Resolution 2016-04. Resolution 2016-04 declares an area of 250-plus acres located within the southwest corner of the Lebanon Business Park to be an Economic Revitalization Area in which owners of real and personal property may apply to the City Council for tax abatements. This Watchdog Indiana E-mail Update is an open letter to Lebanon Mayor Matt Gentry pertaining to this matter.

Dear Mayor Gentry:

Please accept this open letter as my public hearing testimony for Lebanon City Council Resolution 2016-04.

My testimony is informed by two recent authoritative reports regarding Tax Increment Financing (TIF).

The “2015 Indiana Tax Incentive Evaluation” report by the Office of Fiscal and Management Analysis at the Indiana Legislative Services Agency (LSA) can be found online at https://iga.in.gov/static-documents/6/d/e/c/6dec6072/indiana_tax_incentive_review_2015_annual_report.pdf. This report finds that (a) property values in Tax Increment Financing (TIF) areas are only slightly higher and grow at only a slightly higher rate than non-TIF properties, (b) there is no difference in employment growth between TIF and non-TIF businesses even though employment in TIF businesses is slightly higher than non-TIF businesses, and (c) TIF does not have a statistically significant impact on property value and employment growth over time because much of the property value and employment growth observed in TIF areas is attributable to other economic, demographic, and policy factors.

The LSA report findings are supported by the January 29, 2016 report titled “The Fiscal Impact of Tax Increment Financing in Indiana” completed by the Center for Business and Economic Research at Ball State University: see http://projects.cberdata.org/reports/FiscalTIF-20160129.pdf. This Ball State report also concludes that there are, on average, no net benefits from TIF in terms of overall economic development as measured in assessed value, payrolls, employment, or other taxable income or taxable sales of retail goods. Furthermore, the research findings clearly suggest that TIF imposes large costs on non-TIF taxing districts. It was revealed that economic activity outside the TIF area is likely dampened through higher taxes or asset capture.

Higher taxes have certainly occurred outside the Lebanon Business Park TIF area. For the 8 years since 2008, Lebanon’s municipal property tax rate – the portion of the total property tax rate approved by the Lebanon mayor and city council – dramatically increased 79.02 percent from $0.4594 to $0.8224.

Lebanon Utility rates have also alarmingly increased. The average cost of electricity in 2008 for the single-family residence at 2625 Countryside Drive in Lebanon was 8.66 cents per kilowatt hour – the average 2016 cost has increased 49.42 percent to 12.94 cents per kilowatt hour. The average cost of water has increased 53.87 percent from 3.23 cents per cubic foot in 2008 to 4.97 cents per cubic foot in 2016. Average sanitary sewer costs increased 40.99 percent to 8.53 cents per cubic foot in 2016 from 6.05 cents per cubic foot in 2008.

Today’s Lebanon population is just 2.61 percent more than in 2008, and inflation has only increased 11.77 percent since 2008. Lebanon’s municipal property tax rate has increased seven times the rate of inflation the past eight years. The Lebanon Utilities electric rate and sanitary sewer rate increased four times the rate of inflation, while the water rate increased five times the rate of inflation.

The bottom line is that Lebanon property tax rates and utility rates have increased significantly to support (a) TIF-subsidized development within the Lebanon Business Park TIF area and (b) tax-abated development inside and outside the TIF area. Lebanon taxpayers and utility ratepayers have paid dearly to provide more police officers, firefighters, roads, and build-it-and-they-will-come utility infrastructure for the benefit of developers. AND, the research shows that the resulting economic development would have mostly occurred without tax abatements and the establishment of the TIF area. In other words, workforce availability and location desirability are much more important than tax abatements and TIF subsidies when executives decide where to move or expand their businesses – tax abatements and TIF subsidies are mostly a profit increasing shell game for developers at the expense of taxpayers and utility ratepayers.

The observations and suggestions listed next are offered with the preceding information and conclusions in mind.

(1) Resolution 2016-04 does no “harm” because it appears that no tax abatements are immediately awarded and the Lebanon Business Park TIF area is not expanded into the Economic Revitalization Area.

(2) Only consider awarding tax abatements to Economic Revitalization Area developers who create a significant number of permanent jobs that pay a Get-Ahead Wage of at least $20 an hour with full benefits. If they don’t pay a Get-Ahead Wage, let the Economic Revitalization Area developers pay their own way or go elsewhere – because it is too costly otherwise for resident taxpayers and utility ratepayers.

(3) Do not expand the Lebanon Business Park TIF area into the Economic Revitalization Area to subsidize any more construction of infrastructure for the benefit of developers UNLESS it is known beforehand that the developers will create a significant number of permanent jobs that pay a Get-Ahead Wage of at least $20 an hour with full benefits. The Economic Revitalization Area is owned by Duke Realty and is one of three CSX Transportation “select sites” in Indiana. The Lebanon Redevelopment Commission has already paid to build a 1,500-foot CSX rail spur into the Lebanon Business Park up to the Economic Revitalization Area, and is paying to extend Council Drive to benefit the Economic Revitalization Area. Any further rail spur extensions and other infrastructure improvements could be paid for by CSX Transportation, Duke Realty, or developers. Capturing assessed value within an expanded Lebanon Business Park TIF area to further benefit developers would be too costly for Lebanon resident taxpayers UNLESS it is known beforehand that the developers will create a significant number of jobs that pay a Get-Ahead Wage.

In conclusion, please recognize that if the Lebanon Business Park TIF area is expanded into the Economic Revitalization Area and economic development would have occurred without the TIF expansion, then any growth in property values is not available to the Lebanon city government and other local governments that also receive taxes on property located within the expanded TIF area. Also, please realize that expanding the Lebanon Business Park TIF area will result in even higher Lebanon property taxes and utility rates outside the TIF area to pay for additional services within the TIF area. These problems are not worth it UNLESS a significant number of permanent jobs are created that pay a Get-Ahead Wage of at least $20 an hour with full benefits.

Best regards,

Aaron Smith

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This page was last updated on 03/28/17 .