Appendix A. PUBLIC FINANCING

FINANCING

An important aspect of community planning and service is the acquisition of funding or other resources of project implementation. This section of the report describes some of the state supported programs available to communities.

This is a very limited list, and should be used only as a preliminary guide to some of the financial options available. The programs described here include...

• Community Planning Fund (CPF)

• Community Development Action Grant (CDAG)

• Special Improvement Districts (SID)

• Economic Improvement Districts (EID)

• Tax Increment Finance (TIF) Districts

• Sales Tax Increment Finance (STIF) Districts

• General Obligation Bonds

• Tax Revenue Notes

• The Barrett Law

• Cumulative Capital Development Funds (CCDF)

• Economic Development Income Tax (EDIT)

• County Option Income Tax (COIT)

• County Adjusted Gross Income Tax (CAGIT)

• Impact Fees

Community Planning Fund

The Community Planning Fund (CPF) Planning Grant from the Indiana Department of Commerce is intended to help areas which want to focus on community-based planning. This grant money could help to expand the scope of these recommendations, if there is one area of interest which deserves a more in depth view. Like most grants offered by IDOC, it helps if the focus area is either socially or economically distressed (or both). Any county, incorporated city or town, or a not-for-profit organization is eligible to apply for this grant. Based on a one-to-one match (which means that for every dollar of grant money the applicant must provide one dollar of local support) the CPF applicant may request up to $10,000 or 50% of eligible costs, whichever is less.

To make this process easier, IDOC provides a number of grant workshops and seminars which focus on how to fill out the applications. Also, a Community Development Field Staff person is on hand to answer any questions which might arise in any part of the process. That person can be reached at [phone]. There are also several pre-determined projects which IDOC generally funds and they are as follows:

• market studies targeting specific geographic areas, industries, or workforce segments;

• site or area redevelopment and feasibility studies;

• development strategies (i.e. for small business, industry, real estate, housing, Main Street revitalization, or tourism);

• strategic/comprehensive development studies;

• targeted and comprehensive land-use planning studies;

• engineering studies for water, wastewater and solid waste treatment systems;

• other community-economic development planning not fundable through other state sponsored planning programs.

Community Development Action Grant

A Community Development Action Grant (CDAG) from the Indiana Department of Commerce assists communities when they are ready to start development or soon after. The basis of this particular grant program is to support the administration and/or program development of not-for-profits (i.e. Community Development Corporations) or multi-organizational alliances (such as the one proposed in this document).

Because the expenses targeted with this particular grant are usually much higher than those targeted with the CPF, the CDAG applicant may request up to $50,000 or one-third of eligible cost, whichever is less. Also, because this grant is administered by IDOC, the same types of workshops and seminars are available.

To help foster any ideas about what this money could be applied for, IDOC has provided that the following activities would usually be eligible CDAG projects:

• micro-enterprise/small business development technical assistance programs targeting disadvantaged business owners or business districts:

• leadership/stewardship or technical training for board members staff, residents and/or elected officials:

• rural community development corporations supporting socioeconomic renewal programs:

• business training for at-risk youth;

• community land trusts;

• community organizing for the purposes of community education and relationship-building leading to greater collective and personal power in the community;

• comprehensive downtown or neighborhood development programs;

• redevelopment commissions.

Special Improvement Districts, or SIDs, were established under I.C. 36-7-21. The specific formation of these districts come from approval of the local legislative body upon request of an established Redevelopment Commission (see Appendix). These districts are set up strictly for the redevelopment of an area; which will then benefit the property owners in the SID. These districts must, however, be set up according to the procedures for the formation of a Tax Increment Allocation Area (see Appendix).

Once established, the governmental unit may assess individual property taxes as they see fit. This assessment, however, must be based on the property owner's direct benefit of the improvement. In addition, the established Redevelopment Commission may issue notes and/or bonds which will be payable from the assessments made on the individual property owners. (Please note that a Redevelopment Commission is required for the development of a Special Improvement District, and if one does not exist, then one must be formed).

Economic Improvement District

Unlike Special Improvement Districts, does not rely on the existence of a Redevelopment Commission. Rather, an Economic Improvement Board must be established. This board usually consists of three members who are appointed by the governmental unit. At least two of these board members must own real property within the proposed EID. Once established, a special tax assessment within the district can provide for any number of economic development projects.

Similar to the SID, the Economic Improvement District tax assessment must show direct benefit to the assessed property owner. Upon assessment, the acquired funds are then paid into the Economic Improvement Fund; whereas, the board may only use these monies for the specified purposes in the establishing ordinance. The Economic Improvement Board, however, may not issue notes or bonds which are backed by the money in the fund.

Tax Increment Finance

In general, Tax Increment Finance (TIF) districts provide for the temporary allocation of money to designated redevelopment districts. These monies come from the increased tax proceeds from this district, which are generated by the increases in the district's assessed valuation due to the initial redevelopment investment. In short, TIF districts permit municipalities to use increased tax revenues, which are stimulated by redevelopment, to pay for the capital improvements needed to induce the redevelopment. (Please note that as with SIDs, the formation of a Redevelopment Commission will be required for the usage of a Tax Increment Finance district).

The designated area, an allocation area, does not require the finding of blight, but the area must provide evidence of new job opportunities. Property assessment are froze at pre-development level, in the allocation area. Municipal bonds are then issued to finance a portion of the redevelopment. As property values, and assessments, in the allocation area increase, the municipality uses the "increment" in tax revenues to meet debt service on issued bonds. TIF districts are highly flexible because no petition approval is necessary (unless other "special" taxes are to be levied as well), there is local control, and no debt limitation applies (unless other "special" taxes are to be levied, in which case the debt limit, by statute, is 2% of the net assessed valuation). TIF district monies are commonly, and most easily allocated, for infrastructure improvements; although, infrastructure improvements are not the only possibility for such monies.

Sales Tax Increment Finance

The purpose of establishing a Sales Tax Increment Finance (STIF) district is to provide municipalities with a means of financing local public improvements needed in connection with retail projects that would hopefully generate a significant amount of sales tax to pay for the improvements. STIF districts work just like TIF districts, but rather the "increment" in sales taxes, rather than property taxes, would be used. In other words, all of the increased sales taxes generated in the district would be used to pay for the bonds or notes issued which paid for the initial improvements.

The original version of this piece of legislation was repealed, but the overall concept intrigued many local governments and was later adopted as I.C. 36-7-26. This code was established for a trial community (Hammond) to set up an economic development project district, and use the STIF ideals. In order to establish this type of district, a municipality would follow the same guidelines for declaring an area blighted but an additional requirement, of getting approval from the State Board of Finance, was added. The fundamentals for the formation of a STIF district lies in the fact that the established Redevelopment Commission must be able to prove that the district has....

• attracted new business enterprises and/or retained or expanded existing businesses in the district;

• benefitted the public health and welfare by serving as a public utility or benefit;

• protected and increased state and local tax bases or revenues;

• resulted in a substantial increase in temporary and/or permanent job opportunities and private sector investment.

General Obligation Bonds

The issuance of general obligation bonds is an option to any municipality for the funding of public improvements. In general, general obligation bonds are a form of public debt which are payable out of ad valorem taxes (or taxes which are based on the price of goods) levied and collected on all of the taxable property located within the proposed redevelopment area. These bonds, however, are subject to state statute and must be administered carefully. The following requirements must be satisfied before the issuance of any general obligation bond:

• the total indebtedness of the municipality (including the proposed general obligation bonds) may not exceed 2% of the net assessed valuation of taxable property. This is based on the last complete and final assessment for the municipality;

• the issuance of these GO bonds is completely subject to a petition/remonstrance process;

• the whole process is also subject to approval from the State Board of Tax Commissioners;

• general obligation bonds usually must be sold at public sale.

Tax Revenue Notes

Rather than issuing general obligation bonds, cities, towns, or counties may opt for the issuance of the revenue notes (which are repayable in five years). Just like GO bonds, these tax revenue notes may be used for a wide variety of public improvement projects (so long as it's for a valid public purpose). There is, however, a limit to how much money can be raised by the issuance of such notes and the general rule is usually 5% of the municipality's total tax levy for the current year.

Although this limit to the amount may discourage some municipalities from issuing tax notes, the fact that there is not petitioning/remonstrating process or because they are not subject to the State Board of Tax Commissioners, makes the use of this option a lot more popular than that of issuing general obligation bonds.

The Barrett Law

The Indiana Barrett Law, as provided by IC 36-9-18, allows municipalities to construct or repair infrastructure by assessing only those landowners who directly benefit from the improvements. The legality of the Barrett Law lies in the fact that the municipality which uses this option holds a lien against each individual property owner and may foreclose on any individual who defaults on their payment. In order to assist in the actual improvements, the municipality may issue notes or bonds in anticipation of the collection of the tax revenue.

Each individual property owner, however, has two chances to remonstrate against this action. First they may remonstrate against the initial decision to make these improvements and the amount to be charged to "benefitting" landowners. Secondly, they may remonstrate against the specific amount being charged to them. Although it is a fair way to raise money to make needed improvements, the Barrett Law is not the most preferred method.

Cumulative Capital Development Funds

If the project which needs funding is for infrastructure or parks and recreation facilities, municipalities have another option by using Cumulative Capital Development Funds (CCDF). A CCDF, which is a special tax rate, can be established for a period up to three years, and may thereafter be reestablished every three years. The establishment and/or reestablishment does, however, require public hearings as well as approval from the State Board of Tax Commissioners. (Please note that if the proposed taxing district has more than 50 objecting petitioners, the State Board of Tax Commissioners will, more than likely, hold special hearing specifically for the objections).

The basis behind what rate the municipality may charge for this special tax lies in whether or not the county is an adopting county and the time period they have had the CCDF in effect. The term "adopting county" refers to whether or not the county has adopted either the County Adjusted Gross Income Tax (CAGIT) or the County Option Income Tax (COIT).

Economic Development Income Tax

The Economic Development Income Tax (EDIT) may be imposed by the county income tax council by passing an ordinance which imposes EDIT. The formalities behind this ordinance (see the Appendix) lies public hearings and a majority vote by the county income tax council. There are also certain restrictions to how much the tax rate can increase. EDIT may be imposed at the rate of 0.1%, 0.2 %, 0.25% 0.3%, 0.35%. 0.4%, 0.45%, or 0.5% on the adjusted gross income of county taxpayers.

One thing that needs to be kept in mind are the two other county income taxes available to counties. These are the County Option Income Tax (COIT) and the County Adjusted Gross Income Tax (CAGIT). This is important because if another one of these county income taxes are imposed within the adopting county, then the overall tax rate for the county will be held at a maximum. If CAGIT is in effect, then the total county income tax rate may not exceed 1.25%; and if COIT is in effect, then the total county income tax rate may not exceed 1%. One last item of interest for the legalities behind EDIT, COIT, or CAGIT, is how a "county taxpayer" is defined. The state defines a county taxpayer as a "resident of the county or one who maintains a principal place of business or employment in the county and does not reside in another county in which EDIT, COIT, or CAGIT are in effect."

The one requirement for how these monies can be spent is that the adopting county must have a capital improvement plan identifying each and every project which EDIT funds will be funding. The capital improvement plan must deal with a time period of no less than two years and must deal with projects that cost at last 75% of the EDIT revenue received by the county.

County Option Income Tax

The County Option Income Tax (COIT), however, is used primarily for the repayment of any notes or bonds which the municipality might have issued. By following nearly the same guidelines as for the Economic Development Income Tax, COIT may easily be established within a county. The ordinance imposing COIT must, however, be passed after January 1 or a year but before April 1.

The basis of COIT (Appendix), is for the monies generated by the tax (a homestead credit up to 8%) to replace any revenue lost due to this increased homestead credit, and then any money left over in this "coffer" can be used to pay off any outstanding notes and/or bonds. The term the state uses to describe this action is "fixing one's budget."

County Adjusted Gross Income Tax

The County Adjusted Gross Income Tax (Appendix), as compared to the County Option Income Tax, can only be imposed if the COIT has not already been imposed in the county. The opposite holds true for the County Option Income Tax. Once again, the use of the CAGIT is for a completely different purpose than that of EDIT or COIT. When CAGIT monies are received by the county then the monies are distributed to civil taxing units as property tax replacement credits or to school corporations as property tax replacement credits.

This certain county income may only be imposed at a rate of either 0.5%, 0.75%, or 1%. Similarly to both the EDIT and COIT, the County Adjusted Gross Income Tax must follow the guidelines as established by the state for passing the appropriate ordinance describing the CAGIT. Unlike both the EDIT and the COIT, the CAGIT may not result in immediate monies for the county. At least not in the first year of its imposition. For the most part the CAGIT monies, as authorized by IC 8-18-22, repay notes or bonds for the construction of county highways and/or bridges.

Impact Fees

The impact fees, as mentioned several times throughout this document, are not only a prime way to help restrict growth but also a great way to help get infrastructure, and other such public improvements, completed. The purpose of the impact fee is to offset the cost of infrastructure improvement to a new development. The fees are in fact charged to this new development. Their manner is left up to agreement between the municipality and the developer.

There are certain restrictions, however, that dictate how the establishing ordinance must be set up, and by when. For a municipality to use an impact fee ordinance the municipality must establish two separate "impact zones," and must incorporate the usage of a "zone improvement plan." This ZIP reviews the current infrastructure status, what that status might be in ten years, and what it will take to improve these conditions.

(Prior Code, Comprehensive Plan)