June 01--Business tax breaks are sweetening the Albanese Confectionery expansion in Hobart and putting a frothier head on a growing Three Floyds brewery in Munster.
Those are some of the prominent examples of how municipal officials use tax abatements and tax increment finance districts to bring in new business.
But that worries those on the Lake County Council who say these tax incentives shrink remaining government revenue needed to fund essential local government services.
The council commissioned a recent study of Lake County government finances by the Indiana University Center for Urban and Regional Excellence.
According to the study, there are 545 real estate parcels in Lake County with tax abatements that have canceled the assessments on new buildings and machinery worth $144.7 million for up to 10 years. The report doesn't specify how much in taxes are lost.
It also says 19 TIF districts diverted $58.4 million in taxes away from general government uses. Instead, that money is spent on new roads and sewers needed to lure new or expanded business construction.
Justin M. Ross, an assistant professor of public finance and economics who authored the report with Madeline Dinges, an IU senior, said, abatements and TIFs are "self-inflicted" income cuts. And they are not only for the community officials who created them, but also in recent years for county, township, school and other local government units that also would otherwise draw taxes from property getting the breaks.
County officials said their finances suffer the most, since every TIF and abatement in Lake negatively affects their tax collections, already hobbled by the state's circuit breaker system that puts a ceiling on the total amount of money local government can tax.
Currently, the county and each town and city can create a TIF without the approval of the other overlapping tax districts that could be negatively affected. Legislation to require all overlapping tax bodies to approve a TIF might help rein them in.
Ross said he is skeptical about whether abatements are effective in snagging new business construction, but it's hard politically to turn away from them. "It's easy to be blamed if you don't offer incentives," Ross said.
The IU report concludes Indiana already has a more favorable tax climate than Illinois, and additional incentives are unlikely to improve a local community's chance of landing new business.
"If you need gimmicks to generate economic activity, then you have a fundamental problem," Ross said.
Merrillville Town Councilman Shawn Petitt said TIF districts have provided the streets, sewers and other infrastructure needed to make the town's undeveloped land ready for new business, and its 13 abatements have brought in new companies with payrolls in the hundreds of people.
"I'd like to ask the professor, how do I repave Colorado Street for $550,000 without a TIF district? And then, two months later Modern Drop Forge is knocking on the door with 250 jobs. Granted, they got an abatement," Pettit said.
Munster Town Manager Tom DeGiulio said it is important to grow communities.
"I always equate your community to a shark; if it stops swimming, it dies," DeGiulio said. "We have three major redevelopment areas in Munster -- Calumet Avenue north of Ridge Road, the Lake Business Center and the Centennial Village to the south. Those are huge projects that don't work any other way without the TIF."
He said Three Floyds did get an abatement on new construction and equipment, but said they still will pay 50 percent of the tax on their improvements.
"It's not a free lunch," DeGiulio said.
Hobart City Councilman David Vinzant said his town has even offered abatements for home building, because "we went through a time when we had no residential development in the community. I don't know financially how it worked, but it achieved the goal of getting homes built.
"Now we are doing industrial tax abatement. We now focus on, do they generate jobs? So many communities are offering incentives; if you don't offer incentives, they won't come to your community. To remain competitive in the marketplace, you have to offer something."
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