The primary responsibilities of cities and towns include maintaining their communities and their downtowns as attractive places in which to live, work and raise a family, and improving the quality of life available to their residents. Cities and towns are also deeply interested in economic development, whether it is the attraction of a new business or industry to the community, or the retention or expansion of an existing industry. Over the last fifty years or so, the General Assembly has provided a variety of mechanisms to enable cities and towns to maintain and revitalize their communities and to undertake economic development.
THE REDEVELOPMENT COMMISSION
After World War II, municipal officials took a look at the health of their downtowns and inner-city neighborhoods. What they saw gave them cause for alarm. Basic infrastructure was decaying, commercial businesses and industries were abandoning their downtown locations for the suburbs, and older neighborhoods were rapidly deteriorating. In response to these conditions, municipalities sought a vast array of powers to undertake the redevelopment of their downtowns, to eliminate blight, and to revitalize their communities. (An area needing redevelopment is an area in which normal development and occupancy are undesirable or impossible because of: lack of development; cessation of growth; deterioration of improvements; character of occupancy; age; obsolescence; substandard buildings; or other factors that impair values or prevent a normal use of development of property). Over a half-century later, Indiana cities and towns are still involved in traditional redevelopment activities.
A municipality that desires to undertake redevelopment must adopt an ordinance establishing a department of redevelopment, governed by a five member redevelopment commission (IC 36-7-14-3). In cities, three of the five members of the commission are appointed by the mayor, and two members are appointed by the city council. In towns, three members are appointed by the town council president, and two members are appointed by the town council (IC 36-7-14-6.1). Members of the redevelopment commission serve a one year term, and may be appointed to successive terms (IC 36-7-14-9).
The primary duties of the redevelopment commission with respect to the redevelopment of areas needing redevelopment are to:
- Investigate, study, and survey areas needing redevelopment within the corporate boundaries of the municipality;
- Investigate, study, determine, and , to the extent possible, combat the causes of blight; promote the use of land in the manner that best serves the interests of the municipality and its inhabitants;
- Cooperate with the municipality’s other departments and agencies, and with other governmental entities, in the manner that best serves the purposes of combating and eliminating blight;
- Make findings and reports on their activities, and keep those reports open to inspection by the public at the offices of the department of redevelopment;
- Select and acquire the blighted areas to be redeveloped; and
- Re-plan and dispose of the blighted areas in the manner that best serves the social and economic interest of the municipality and its inhabitants (IC 36-7-14-11).
The redevelopment commission possesses a vast array of powers in order to perform these duties. It may:
- Acquire, by virtually any method, any personal property or interest in real property needed for the redevelopment of areas needing redevelopment located within the corporate boundaries of the municipality;
- Hold, use, sell, lease rent or otherwise dispose of property acquired for use in the redevelopment of areas needing redevelopment on the terms and conditions that the commission considers best for the municipality and its inhabitants;
- Sell, lease, or grant interests in all or part of the real property acquired for redevelopment purposes to any other department of the municipality or to any other governmental agency for public ways, levees, sewerage, parks, playgrounds, schools, and other public purposes on any terms that may be agreed on;
- Clear real property acquired for redevelopment purposes;
- Remodel, rebuild, enlarge, or make major structural improvements on structures acquired for redevelopment purposes;
- survey or examine any land to determine whether it should be included within an area needing redevelopment to be acquired for redevelopment purposes and to determine the value of that land;
- appear before any other department or agency of the municipality, or before any other governmental agency in respect to any matter affecting either real property acquired within the jurisdiction of the commission;
- institute or defend (in the name of the municipality) any civil action;
- use any legal or equitable remedy that is necessary or considered proper to protect and enforce the rights of perform the duties of the department of redevelopment;
- exercise the power of eminent domain the name of and within the corporate boundaries of the municipality;
- contract for the construction of local public improvements or structures that are necessary for redevelopment of areas needing redevelopment or economic development within the corporate boundaries of the municipality or any structure that enhances development or economic development;
- accept loans, grants, and other forms of financial assistance from the federal government, the state government, a municipal corporation, a special taxing district, a foundation, or any other source;
- provide financial assistance (including grants and loans) to enable certain individuals and families to purchase or lease residential units within the municipality; and
- provide financial assistance (including grants and loans) to neighborhood development corporations to permit them to provide financial assistance to enable certain individuals and families to purchase or lease residential units within the municipality or to construct, rehabilitate, or repair commercial property within the municipality (IC 36-7-14-12.2).
The redevelopment commission may hire and appoint employees, consultants, attorneys, an executive director. It may establish a personnel system and provide a pension system for its employees, and it may rent and equip office space (IC 36-7-14-12.2).
The redevelopment commission is also authorized to issue bonds or to enter into leases (in the name of the municipality), in order to finance the acquisition and redevelopment of real property IC 36-7-14-25.1; IC 36-7-14-25.2), and to undertake redevelopment activities in the municipality. Bonds and leases may be payable from revenues of the redevelopment commission, a special benefits tax levied on all taxable property within the redevelopment district (see Chapter 10 – Debt Financing), local income taxes, or tax increment (as discussed below).
In the 1980’s, municipalities began to focus on job creation and job retention efforts, and in the need to attract and retain businesses. The traditional redevelopment function, with its emphasis on the elimination of blight and the condition of real property was not a good fit for a community that was more interested in encouraging new investment than in rehabilitating existing property. The traditional redevelopment function also failed to address the concerns for newer cities and towns, which did not have older urban problems to address. In response to both of these concerns, the powers and duties of redevelopment commissions were expanded to include economic development (IC 36-7-14-41-43). The redevelopment commission may establish an economic development area using the same procedures applicable to the establishment of an area needing redevelopment (IC 36-7-14-41). An economic development area, in contrast to a redevelopment area, is an area in which the use of the redevelopment powers will: provide gainful employment for the municipality’s residents; attract a major new business enterprise or retain or expand a significant existing business; the lack of public improvements, or the existence of other conditions may lower the value of land; and improve and diversify the municipal tax base. The redevelopment commission may exercise virtually all of its redevelopment powers in an economic development area except the power of eminent domain (IC 36-7-14-43(a)(7).
Tax Increment Finance
Tax Increment Finance or “TIF” is a means of financing that allows a local government, including a municipality, to develop or redevelop an area by collecting property taxes attributable to increases in assessed value resulting from new development within the area. (TIF generally cannot be generated from increases in the assessed value of residential property). TIF generally cannot be generated from increases in the assessed value of residential property). TIF is used to finance infrastructure or capital improvements that are in, serve, or benefit the area to be developed.
To collect TIF revenues, the redevelopment commission must establish an allocation area (sometimes referred to as a TIF area) within a redevelopment area or an economic development area, after a public hearing with notice to taxpayers and overlapping taxing units (including schools) in the area to be developed or redeveloped (IC 36-7-14-39).
Legislation authorizing the use of TIF to finance the redevelopment of blighted areas was enacted in the mid- 1970’s, and was upheld by the Indiana Supreme Court in 1981. In 1987, the General Assembly authorized redevelopment commissions, with the approval of the local government’s legislative body (city council or town council, for municipalities) to establish economic development areas and authorized the use to TIF to finance economic development in, serving, or benefiting those areas. TIF revenues may be used to pay debt service on bonds, to pay lease rentals on leases, to pay for improvements on a pay-as-you-go basis, to reimburse the local government for capital costs incurred in the TIF area, and to pay for job training. TIF may also be used to pay an additional credit – a property tax replacement credit in an amount equal to the State-funded property tax replacement credit, because the State does not provide the property tax replacement credit to taxpayers located in a TIF area (see Chapter 9 – Revenue Sources).
Originally, TIF could be collected from real property increment only. In 1992, the General Assembly extended to all local governments the authority to collect TIF revenues on the depreciable personal property of designated taxpayers. A designated taxpayer’s property must consist primarily of industrial, manufacturing, warehousing, or similar projects, and must not consist primarily of retail, commercial, or residential projects (JC 36-7-14-39.3).
Municipalities may undertake joint economic development or redevelopment projects with counties or other municipalities in contiguous areas (and may capture TIF) from those joint and contiguous areas (IC 36-7-25-4).
TIF revenues generated in these allocation areas are not property taxes which would be otherwise available to other taxing units in the area for two reasons. First, the statute requires the redevelopment commission to find that new developments generating TIF revenues would not occur but for the use of TIF. Second, the current system of property tax controls limits the growth of each taxing unit’s general fund property tax levy. Even if such development, and therefore additional assessed value, were created without the use of TIF, that additional assessed value would not necessarily generate additional general fund revenues for the taxing units, because the amount of each taxing unit’s general fund property tax levy is limited. The primary effect of additional assessed value would be to lower the property tax rates in those units. (There is some impact on rate-capped funds. Increases in revenues for those funds are attributable solely to increases in assessed value; if there is no increase in assessed value, there is no increase in revenues.) Under Indiana’s controlled levy system the assessed value and tax rate may change, but the growth in the levy is determined by a formula that is generally not tied to the growth in assessed value. Of course, lowering the tax rate is a very positive step and should occur when TIF areas expire, but the growth would not occur in these cases for the use of TIF.
TIF BOARD MEMBERS