Reddick and Law: TIF financing and public-private partnerships on the rise

Reddick

By Marci A. Reddick and Adam M. Law

As the state of Indiana continues to search for new and innovative ways to recruit businesses to the area and create more jobs, the use of creative financing incentives such as tax increment financing and public-private partnerships, or P3s, has continued to be essential to development.

Law

In Indiana, TIF financing is governed by two code sections: IC 36-7-14 for all counties, cities, and towns other than Indianapolis, and IC 36-7-15.1 for the city of Indianapolis. In a nutshell, TIF financing works by a unit of government, or other public body with the statutory authority to do so, establishing “TIF Districts” in areas in need of redevelopment. The TIF freezes property assessments in the area, allows borrowing against the growth in property tax revenues within the district, and then uses those borrowed funds (usually in the form of municipal bonds) to finance or subsidize development into the TIF District. Under IC 36-7-1-18, TIF funds can be used for a variety of “redevelopment” activities, including, but not limited to: acquiring real property in areas in need of development, constructing necessary public improvements, and remediating environmental contamination.

Within the last 10 years, TIF Districts (and the downtown Indianapolis TIF District in particular) have been used to assist in the financing of many high-profile project such as the Georgia Street project, the City Market, and the road construction project near IUPUI’s campus. TIF financing is currently being used to contribute to the development of the Cummins corporate office under construction at the site of the old Market Square Arena and the 16 Tech business park near the site of the former Bush Stadium – two projects expected to create numerous new jobs for the downtown area. The downtown Indianapolis TIF District, as the only exception to the 2014 law requiring all TIF Districts created before 1995 to dissolve by 2025, has received special treatment but has also resulted in a massive reserve of cash that can be used by the next mayor to strategically push growth where needed most. While both Joe Hogsett and Chuck Brewer have expressed support for many of the TIF-supported projects in the downtown area, both have stressed the need to shift the focus away from downtown and push more funding to the surrounding urban neighborhoods.

One tool that has been used to do just that, and with great success, are P3s, which have sprung up at both the state and local level in the past several decades. P3s work by advertising in the private sector for bids to deliver specific public-interest projects. Many of these P3s also receive TIF funding. One of Indiana’s most notable P3s was the 2006 lease of the Indiana Toll Road, which enabled the state to shift funds to other transportation projects statewide. Since that time, while transport projects have continued to be popular, P3s have been used throughout the state for various redevelopment projects and to help push special needs projects through that the city and the state simply do not have the funds to tackle on their own. The city of Carmel, for example, has seen great success in redeveloping its Arts & Design District through P3 investment, as well as the 2013 deal with Pedcor Commercial Development LLC to create six new mixed-use buildings in the city-center: The Baldwin, The Chambers, The Holland, The Wren Towers, The Pedcor Square Building Five, and a new parking garage to service the city-center. Elsewhere around the state, TIF financing has been used to help revitalize the Ireland Road corridor in South Bend and is a major funding source for the State Street Redevelopment Project in West Lafayette, which will redevelop State Street from the Wabash River through the Purdue campus.

Closer to downtown Indianapolis, the Lincoln Apartments, which opened in November 2013 at the site of a former iron works foundry, was made possible due to the help of investments from the Indiana Housing and Community Development Authority and the Great Lakes Capital Fund. The housing development was, at the time, the city’s first permanent supportive housing operation geared specifically for homeless veterans. While city officials have recognized the need for such projects in the past, often the skills and expertise to pull off such endeavors are lacking at the public level. Partnering with recognized private-sector developers can facilitate challenging projects for those most in need.

At the former Fort Harrison army base, as part of the ongoing effort on the part of the Fort Harrison Reuse Authority to facilitate the economic redevelopment of the former base, several exciting new P3s using TIF financing have been completed over the past few years. At the time the Reuse Authority acquired 800 acres from the Army, the land was appraised at a market value of negative $9 million, mostly due to crumbling infrastructure and the projected costs of redevelopment. To date, the Fort Harrison TIF District has issued three revenue bonds to raise funds for business and housing projects both at the Fort itself and in the greater Lawrence area. Those bond issuances, which were used to (1) build the bridge over the train tracks at 56th Street, (2) build the PX & Commissary (which provides services to military personnel, retirees and their families) and (3) contribute to the overall Master Reuse Plan at the Fort, have helped revitalize the Fort and attract numerous housing and infrastructure projects. Chief amongst those new developments have been the Lawrence Village at the Fort, which currently contains several successful projects: residential units, single family homes, The Post Office Suites, Triton Brewery, IU Urgent Care, and Jockamo’s Pizza, as well as the soon to-be-completed headquarters of software firm Bloomerang.

While TIF Districts and P3s have received their share of criticism, they present two useful tools for the state and local officials to continue to foster an environment that supports development, public-interest projects, and bring much needed jobs back to our communities.•

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Marci A. Reddick and Adam M. Law are attorneys in Taft Stettinius & Hollister LLP’s real estate and business & finance practice groups. The opinions expressed are those of the authors.