Sunday, November 18, 2007

East-Side Corridor "TIFF Financing"

Recently an article appeared in the News Sentinel in support of a TIF to fund a new East-Side Corridor. The proposed corridor would be about 6 1/2 miles long and open up an area that is not prone to development. The property taxes currently collected on the property in this area of undeveloped land are low. The thinking is if we spend $45 million to build/improve a road/bridge, that individuals/companies will develop this property and increase property values enough to pay the $45 million the taxpayers would have to pay.

There are several errors in this thinking. First and foremost, you cannot get something from nothing. If a need existed currently for this land, then development would be taking place. Yes, a road can attract business to locate there, develop the land and increase the assessed value. However, low property costs can also attract business and development. My question is where does this business come from? Did it relocate from some place else leaving an empty shell of a building? Did it locate here as a new start up? Are we robbing Peter to pay Paul or more precisely robbing the taxpayer to fund another Kitty Hawk?

If all that happens is a relocation of an existing business in Allen county, then spending $45 million is a waste of money since the tax base does not increase, but is simply reallocated.

However, there is an even higher level of thinking that can easily dispel the notion of TIF financing and that is called basic mathematics. There is a call to cap property taxes to 1% of assessed value. How much increased valuation is needed to fund a bond for $45 million over 30 years? Keep in mind that a six and half-mile road requires yearly maintenance and snow removal. Have you ever seen a road that lasted 30 years without major repair? This proposed road would be for truck traffic, which would require even more maintenance. I would expect the taxpayer having to spend on an accrual basis about $3 to $4 million yearly on this new road. The bond cost would exceed $2.3 Million a year. Together the break-even point is about $6 to $7 million a year in increased tax revenue that can be directed directly to the taxing authority (outside of public education, library, etc). With a 1-% tax rate, with 50% going to fund public education, we would need an increase in property tax assessment of $1 Billion in this area.


Ok, now some will cry foul and say that this investment would attract new people to Fort Wayne or New Haven. These new people will pay property taxes, eat in restaurants, spend money and pay income taxes that would not have been paid before. This begs the question, is the purpose of government to tax people to increase revenues forever or provide services? As Fort Wayne has grown, the number of people living here and paying taxes has grown, yet the property tax rate and other taxes have gone up faster than inflation. Therefore, claiming a cost reduction based on economy of size is just plain false.

In the case of a TIFF, the local government or supporters claim the entire amount of the increase in assessed value and subsequent taxes paid, to pay project's cost while leaving the cost of maintaining the infrastructure(s) (new schools, snow removal, more parks, services, library, etc) to the those already here. In simple terms those supporting the use of TIFF’s are claiming that economy-of-size reduces costs. This is only true until you consume any excess you pay for currently, yet do not use. As soon as you add another paid worker and more infrastructure, your economy of size resets.

Yet we need to take into account the time value of money. It could take years before a company relocates here. This means we pay $6 to $7 million a year and get nothing for it. This investment capital over time increases the development costs. If it takes 7 to 8 years to fully develop the land, and realize increase property tax revenue, the cost to the taxpayer could double. So instead of possibly needing $1 Billion in increased assessment, we the taxpayers could need to see this small area of our county increase in value by $2 Billion.

The distance between Maplecrest Road and Adams Center road is 6.5 miles. It is about 2.8 miles to I-469 from Adams Center Road. The amount of land in the area west of I-469 is about 18 square miles. Of this half of this is developed. This means we could expect to buy or use immanent domain to take property belonging to another and develop it by some one else. The investment alone per acre is roughly $7,812.

What could be located here?
“As a publicly owned facility, Fries’ training center wouldn’t directly generate any taxes. But he expects it to attract restaurants, motels and other businesses that would pay TIF taxes.

Located on 200 acres formerly owned by the landfill, the center would provide a place for police officers to practice marksmanship and driving. Firefighters could practice, too, and divers could hone their skills in ponds. Other operations, including police-dog training, would be transferred there from the dilapidated Kidder building on Lima Road. The public could learn driving skills there, too. “I’m tired of seeing kids die on the roads,” Fries said.”

This new training site is 4.5 miles from the proposed Fries’ training center. We already have hotels and motels that built where they are in the expectation of doing business in the future. Would we see a dedicated new motel for this site? Would we actually see increase occupancy rates in Fort Wayne or would hotels see reduce profit margins leading to lower paid taxes? Sounds like people are counting the same dollar multiple times.

What we need is business that adds value and sells it outside the county. This type of business brings new dollars to the county and is the best way of improving our economy

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