Ann Marie Shambaugh, Carmel Cover Stories
It’s no secret that Carmel’s landscape has dramatically changed in recent decades, especially in its central core.
The transformation of sprawling fields and a quaint downtown into vibrant multistory mixed-use developments didn’t happen by accident. It’s the result of years of planning, fueled by a long-term commitment to tax increment financing, or TIF, which Carmel has used more than most Indiana municipalities.
TIF uses the increase in property taxes generated by improvements within an area to pay down the debt acquired to fund them. It’s been used in Carmel to help build the Center for the Performing Arts, Carmel City Center, Midtown and the redevelopment of downtown Main Street, among other projects.
“We use it very effectively in the City of Carmel,” said Nick Weber, executive director of economic development for the City of Carmel. “The results speak for themselves, but TIF is a tool that can support a community’s goals, a community’s vision. You’re getting the development you desire, but you’re able to curate that development or shape that development in such a way that it matches your community and the needs of your community.”
The Carmel Redevelopment Commission focuses much of its efforts on establishing and managing TIF areas, although it handles other duties, too. CRC Director Henry Mestetsky said TIF has led to more than a dozen free parking garages and other projects in Carmel, all without raising taxes on individuals.
“We’re not going out to every neighborhood and raising people’s taxes to create these amenities,” Mestetsky said. “They come from the commercial base that we have built because of TIF, which is why our taxes are lower than other places that don’t have the same amenities. Using the investment of our commercial citizens, without the need to raise taxes on individuals, is kind of an amazing tool, if you think about it.”
But TIF isn’t without its detractors. California, the first state to implement it in the 1950s, revoked it decades later (it’s allowed now under certain conditions). TIF was introduced in Indiana in the 1970s, and since then the state legislature has tweaked laws governing its use to minimize impact to overlapping taxing entities.
When TIF is used, taxing entities – such as cities, school districts and townships – receive property taxes at a baseline assessed value of the allocation area throughout the life of the TIF, which can last for up to 25 years in Indiana. As improvements to the parcel cause its assessed value to rise, property taxes generated above the baseline are captured through TIF to pay down construction debt or related costs. So, assessed values are frozen for up to 25 years for all taxing units, not just the one that created the TIF.
Advocates of TIF claim that property values wouldn’t have risen without it, an argument that aligns with the state’s requirement that taxing units use a “but for” test to determine if a project qualifies for TIF in the first place. The test determines that TIF can be used if the development it is funding would not have occurred “but for” the implementation of TIF to pay for it.
However, no one – other than a municipality seeking to use TIF – evaluates whether the “but for” test is met, according to Larry DeBoer, a Purdue University professor who studies state and local government public policy.
“I suppose you could sue, and then the courts would have a say,” DeBoer said. “But not only is there no oversight on it, there’s really no way to know (if the but/for test was met). If you ask both the TIF-ing unit and the recipient company, ‘Was TIF necessary?’ they’ll both say yes.”
But if used correctly, DeBoer said TIF is a “win all around.”
CRC prepared for 3-year TIF shortfall
State law requires the establishment of new TIF areas to receive approval from several local governing bodies before going into effect. The first and last entity to vote is a redevelopment commission.
Carmel established the CRC in 1989, but commissioners weren’t appointed to fill it until 1996, two years before creation of the city’s first two TIF districts (Amended 126th Street and City Center), according to Mestetsky.
When Carmel first began using TIF, it combined multiple parcels in an allocation area and collected the TIF funds in a single pot, often referred to by city leaders as “the big TIF.” Generally, TIF may not be used in areas zoned for residential use.
“A lot of these (big TIF) areas were created when the Palladium and the Center for the Performing Arts were created,” Mestetsky said. “So, you have a big obligation in the bonds for the Center for the Performing Arts and Palladium, and then you have a lot of allocation areas that capture TIF to pay that bond.”
Debt for the $180 million Center for the Performing Arts campus, which includes the $130 million Palladium, has been refinanced by the city several times and combined with debt on other projects. The city has approximately $182 million in principal remaining on the refinanced debt, Mestetsky said, with major payoffs expected this year and in 2032 and 2037.
For years, the city has been preparing for a three-year period beginning in 2035 when TIF revenues are not expected to be enough to cover outstanding obligations. Mestetsky said the CRC has “ample reserves” set aside to cover the shortfall when it occurs.
“We knew when certain areas were going to run out. We knew what our revenues were going to be. We know where our obligations are, and so very smartly, instead of spending a million dollars of excess cash every year, we tucked it away to this account so that, as always planned, we would have the money necessary,” Mestetsky said. “It’s a function of when allocation areas expire versus the life of the debt. The council has done some refunding, so it extended the life of some of this debt.”
The future of TIF in Carmel
Once a TIF area expires, all taxing entities receive property taxes at their established rates for the entire assessed value of the site. Mestetsky and Weber said municipalities can set a new TIF allocation area on the same site, but its baseline assessed value will reset and freeze at the site’s current assessed value when the new allocation area is approved. Essentially, this means it will reset at a much higher baseline.
This could occur in Carmel in expiring TIF areas with large parking lots, such as the office buildings along U.S. 31, Mestetsky said. Those TIF districts are set to expire in 2035, and because the city is looking to redevelop or infill that area, it might make sense to start new TIF areas there, he said. It wouldn’t work in an area like Midtown, however, where dense development – designed to last for 50-plus years – has recently occurred.
Carmel Clay Schools, the largest taxing entity in Carmel affected by the city’s TIF districts, declined to comment for this story on the impact of TIF. Although the amount of regular property taxes it collects is impacted by TIF, its property taxes collected through referendums are not captured by TIF and thus grows in real time with assessed value. In 2025, CCS is set to receive nearly $6.5 million through referendum taxes from TIF allocation areas.
Carmel Mayor Sue Finkam said TIF is here to stay in Carmel, as she greatly prefers using it over other economic development incentives, such as tax abatements. Most of the existing allocation areas were established during the administration of her predecessor, Jim Brainard, and she plans to continue using TIF when it’s the right fit.
“It’s a very local, very effective economic development tool that we have at our disposal,” Finkam said. “(The TIF districts created) recently are project-specific TIFs, where usually the developer has skin in the game, as compared to the big TIF that Mayor Brainard did early with the Palladium, for instance. So, I definitely prefer the smaller site-specific TIF opportunities that we have available to us.”
Learn more about how Carmel uses TIF through a series of videos created by the city at choosecarmelin.com/tax-increment-finance.
SOURCE: Current Publishing