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INTRODUCTION
Declining revenues from both federal and state funding sources are forcing communities to assume responsibility for financing economic development projects. State laws, fortunately, provide communities with mechanisms to raise the needed revenue, Typically, these mechanisms allow communities to raise existing taxes or impose new taxes. Given the wave of the "no new taxes" movement at all levels of government, local elected officials are placed in a unenviable position. Local leaders are attempting to find revenue sources without having to increase taxes. Tax increment financing is one option that communities have. Before pursuing tax increment financing, however, local elected officials ad the public need to understand the advantages ad disadvantages of this financing option.
BENEFITS OF TAX INCREMENT FINANCING
There are four benefits of using tax increment financing. First, tax increment financing is not s direct tax. Second, tax increment financing is a flexible tool. Third, tax increment financing debt is generally not included in debt limitations, such as Indiana's two percent debt limitation. Fourth, TIF is more controllable than other economic development incentives.(1)
NOT A DIRECT TAX
In Indiana, as in most states, tax increment financing is one financing option identified that is not a direct tax on the income or property of the public. This does not mean that TIF is the best financing option. Since TIF is not a direct tax increase, TIF is a more acceptable type of financing to local elected officials. Although approval of a tax increment financing project in Indians requires a public hearing, the process does not afford opponents the same ability to remonstrate as it allows for other financing options (e.g., general obligation bond financing).
FLEXIBLE
Tax increment financing is a flexible tool. Most states with TIF legislation now allow local governments to use TIF to finance more types of projects. The original intent of TIF was for urban renewal projects, but states are changing the legal definition to cover more than just slum and blight projects.(2) Also, TIF can finance projects in different ways. In Fort Wayne and Allen County, Indiana, tax increment financing revenues are repaying a state loan, retiring a bond, and covering lease payments.
NO IMPACT ON DEBT LIMITATION
Tax increment financing relies only on the increased tax revenue of a...