Cities explain: Local governments approved $318M in tax breaks last year

Local governments approved more than $300 million worth of tax breaks last year.

At any given moment, it is likely a local city or town is considering giving a company a tax abatement, or break, as an incentive to build or expand in their community. Tax abatements are tax payment deferrals over time.

Across the county, about $318 million worth of abatements were given in 2021, primarily in Franklin and Greenwood, but also in Bargersville, Edinburgh and Whiteland. Greenwood approved nearly $211 million, and Franklin approved $68.6 million in abatements, according to data from the Johnson County Auditor’s Office.

Compared to 2014, the dollar amount Franklin abated is up 17.5%, while Greenwood’s is up 211.6%. In total, the dollar amount of tax breaks given across Johnson County is up 148.3%, data shows.

Over the same period, the county has grown substantially, in part due to the tax breaks that were given.

Deferred taxes is money that would otherwise flow to cities and towns for services, such as police and fire departments, libraries and schools. But without using tax abatements as an economic development tool, companies would be less likely to settle locally, and less money would flow to cities and towns in the long run, officials say.

How a tax abatement works

Companies can request tax abatements for new buildings and equipment or expansions.

Each city and town has its own processes for approving or denying abatements. Communities first evaluate the companies to determine whether they’re a good fit, said Dana Monson, community development specialist for the city of Franklin.

“We don’t just open arms (for) whoever wants to show up. We do our due diligence to make sure that there is going to be a company that is beneficial to our community,” Monson said.

The difference in the number of abatements for Franklin and Greenwood is partially based on the number of speculative, or shell, buildings available. For example, when companies want to relocate, they look for existing buildings or buildings they can move into quickly because time is of the essence, said Monson, who formerly ran the Johnson County Development Corporation.

From 2014 to 2019, Greenwood had a larger number of speculative buildings compared to Franklin, so when companies set their sights on Johnson County, they looked at available buildings and location. Several companies chose to be closer to Indianapolis, Monson said.

“Franklin has always been a place that companies, when they choose to come here, they stay here,” she said. “It was just a case of Greenwood had some of the amenities ready a little bit faster (and had) a little bit more available.”

In the last few years, developers have built several speculative buildings in Franklin, to attract the attention of companies thinking about moving to the area, Monson said.

Colorado-based OrthoAmerica moved into the former G&H Orthodontics building on Earlywood Drive, and G&H moved into a speculative building on Linville Way as part of an expansion. Other companies are planning to move into shell buildings soon, including Amazon, which is moving into a Sunbeam Development Corporation building northeast of Franklin’s Interstate 65 interchange.

“It’s a tool that cities use, and every company looks at it (when looking to locate), and often they choose a city that gives them a good deal,” said Mike Campbell, a member of Greenwood’s city council and redevelopment commission.

Local cities and towns have approved several major abatements in the last few years across the county.

Franklin approved a $3.5 million tax break for a speculative warehouse by Indianapolis-based Peterson Property Group near Mitsubishi Parkway and Jim Black Road.

Greenwood approved a $1.4 million tax break for ERMCO, INC, which is moving its headquarters to the city. The company is investing $18 million, relocating 150 jobs from Indianapolis, and adding 30 new ones.

Whiteland approved a $16.3 million tax break for the now under-construction Mohr Industrial Park.

Bargersville approved a nearly $170,000 tax break for Centurion arms, a firearm manufacturing company which is planning to invest $1.4 million in its new Bargersville facility.

From application to compliance

In Franklin, the tax abatement process starts with an application.

The Department of Community Development reviews it, then sends it to the Franklin Development Commission. Next, it goes to the Franklin Economic Development Commission, which reviews the application, and makes a recommendation to the Franklin City Council about whether to approve it. The city council generally decides to grant the abatement within a single meeting, unless the property is in an economic revitalization area.

Once an abatement is approved, the city monitors the company’s compliance for the duration of the abatement, doing yearly check-ups, which typically occur around the start of the year. Companies must complete forms to show whether they have done what they said they would do in terms of growth and jobs, and the report is sent to the EDC and the city council for review.

In some instances, companies have not complied, and they have been asked to meet with the EDC to explain what is going on, Monson said.

If a company remains non-compliant, the city can rescind an abatement and require a company to pay the full amount of taxes owed.

“For every year they’re found not in compliance, they do not get the tax abatement, so they would have to pay the full tax liability,” Monson said.

In Greenwood, companies wanting an abatement approach Mayor Mark Myers’ office first. His office asks the company questions about their plans, including amount of investment, number of jobs and salaries for the positions. The mayor’s office determines if the city should offer a company an abatement, Campbell said.

The number of jobs and salaries are especially important when the mayor’s office is considering an abatement. For the last several years, the mayor’s office has focused on giving abatements to companies that pay, at minimum, the county’s average wage, which is around $70,000 a year.

The mayor’s office staff negotiates the details and determines if the company should receive an abatement. If the mayor’s office decides a company should, they submit an application with the city. The Greenwood Redevelopment Commission reviews the application, and makes a recommendation to the Greenwood City Council about whether to approve it.

If the property is not within an economic revitalization area, applicants only need approval from the city council. However, if it is not located within a previously established revitalization area, the abatement needs approval from both the RDC and city council, and must include a public hearing, according to the city of Greenwood.

Tax breaks are often misunderstood

Tax abatements are often misunderstood, but officials all agree on one thing — it’s not a hand-out.

“We don’t just hand someone an abatement. The company has to perform — they have to do what they say they’re going to do,” Monson said.

Tax breaks also do not mean companies aren’t paying taxes. The companies still pay taxes, but the amount of taxes they pay is phased in over time, similar to a homestead credit. Eventually, the abatement goes away, and the company pays full taxes, she said.

While the companies pay fewer taxes initially, most pay a few million dollars in property taxes, depending on the property’s assessed value, over the life of an abatement, Campbell said, and it is more money than a city or town would get if the property weren’t being developed.

Tax breaks can get complicated, especially when it’s a multi-year abatement. Because of this, Franklin is moving away from multi-year abatements, rather asking companies to apply for abatements each year, said Krista Linke, director of community development for the city of Franklin.

“We can’t guarantee them anything because we’re not the EDC or the city council, but we can make a recommendation based on the information they are providing us,” Linke said. “Usually it’s pretty close, but there have been some cases where maybe what they initially told us they were going to invest changes … and the abatement changes along with that.”

Another misconception is that 100% of taxes are abated for the entirety of a tax break.

During Greenwood’s standard 10-year abatement, it often works out to be a 50% discount on the taxes paid overall, Campbell said.

If an abatement is shorter than 10 years, a company often does pay taxes the first year, just at a reduced rate, he said.

Abatements are a strong economic development tool, not just to attract business, but also retain them. Cities and towns want companies that are invested in their communities to stay, and that requires incentives. Nearby Illinois and Ohio, for example, don’t have personal property taxes.

“Sometimes it’s not a level playing field,” Linke said. “For us to stay competitive, we sometimes have to incentivize things that we normally wouldn’t just to level the playing field.”

The partial property taxes a company does pay during the life of an abatement is additional income that can be used to pay for city services, and can help lower the impact on residents’ taxes, Monson said.

TIF’S EXPLAINED

What is a TIF district?

TIF stands for tax increment financing, and TIF districts are defined areas for economic development or revitalization.

Per state law, TIFs remain active for 25 years before expiring.

Here’s an example of how it works: A farm field in a TIF district is assessed for $100,000, and the taxes collected are the base. Once collected, the taxes are sent to all taxing units with jurisdiction over the property. If a developer were to build something new on the land, a TIF would capture the increase in assessed value to spend on development and infrastructure improvements within that TIF district.

How are TIF districts created?

There are three types of TIF districts — economic development target area, economic revitalization area and residential.

Economic development target areas tend to attract commercial developments, while economic revitalization areas tend to attract industrial developments.

Residential TIFs require a city or town declare an area as blighted or distressed. A notable example of this is the Fall Creek area in Indianapolis. The area was blighted because it had an 80% vacancy rate, no sidewalks and its roads were falling apart. To get the money needed to revitalize that housing area, the city had to do something to attract developers to invest money and create incentives for people to live there.

Another example is Princeton, Indiana. Town officials wanted more industrial development, but there was no workforce housing available and no developers wanted to build there. So, they created a residential TIF to build a housing addition to add more people, part of which resulted in Toyota building a facility in the town.

Local officials have stayed away from this type of TIF because it is difficult to say anything in Johnson County is blighted or distressed.

How are TIF districts used?

TIF dollars can be used to make road and sewer improvements. For example, Franklin used TIF revenues to build out its roads to get larger companies to move in.

TIF dollars can also be used to build amenities to attract and retain companies and people.

The goal of a TIF district is to spur development.

Does a TIF district increase taxes?

No. TIFs change how tax dollars are allocated. TIFs capture changes in assessed value in a particular area.

Can tax abatements be given in a TIF district?

Yes, but they come with a caveat. If a tax break is awarded to a developer building on a property within a TIF district, the city or town delays its own income from the district, and as a result, delays improvements to the area.