Wednesday, March 28, 2007

New Albany is Broke (with plenty of money)

While 3rd district obstructionist Steve Price is busy holding up efforts to use an EDIT fund surplus to pave streets, The Tribune asked how much New Albany could pave if CM Jeff Gahan's proposal to add $500,000 of that surplus to existing funds were enacted. The answer: an estimated 18 miles.

The City receives approximately $1.5 million in EDIT funds each year. Outside of the small Scribner Place payment of $137,500, the pittance used to set Economic Development Director Paul Wheatley up for failure, and a tiny $20,000 committment to the Kentuckiana Regional Planning and Development Agency, New Albany has over $1.2 million in economic development funds at its disposal per annum, outside of the current surplus. One drain on those funds, debt service on a downtown parking garage, will end soon. The misguided jail bond is paid off already.

Mr. Wheatley has at various times provided some solid thinking on the subject of how the money might be used only to have the Council respond to his well-researched ideas with a sucking force normally saved for rare earth magnets.

In addition to Wheatley's sensible requests for funds last year to be used as a match from the City to fund a downtown low interest loan pool in coordination with local banks and the Urban Enterprise Zone and to provide preliminary design studies on vacant or deteriorating historic buildings in our downtown in an effort to encourage their rehabilitation, there are a host of other ways the money could be used.

For perspective, here's how $1.2 million might be used in a given year:

• Pay for Scribner Place eight more times

• Pave about 20 miles of streets

• Buy a city block of houses and give them away for rehabilitation

• Provide 240 years of education at IU Southeast

• Pour roughly 5 miles of sidewalks

• Award 120 historic rehabilitation grants of $10,000 each

• Subsidize the total annual interest on $18 million in home mortgages at 6.5%

We have or will soon have the money without raising taxes one cent. All we have to do is pick one and pay for it.

Other ideas?


Iamhoosier said...

"All we have to do is pick one and pay for it."

This very thought kept running through my mind while observing our Council at the last meeting.

No one questions that New Albany has been in(is still in)a financial mess. We have not been able to complete very much of anything--for whatever reasons. Would it not be nice to do something positive, complete it, then sit back and admire it for a change. There are definite psychological benefits, along with the physical and fiscal benefits, of finally accomplishing something instead of a band aid here and there. Momentum is one word that comes to mind. Positive momentum.

There is a certain radio personality, that is quoted quite often by a certain councilman, that espouses this very thing as the "snowball effect". It was strange to see said councilman advocating doing nothing and/or spend a LITTLE here and LITTLE there. I doubt the he even understands.

A Democrat in Floyd County said...

One word, tax abatements. We have $30 to $40 million going out the door for tax abatements.

Yea, Council does not have their budget back and therefore are under the obligation NOT TO SPEND until it gets here...but County still hasn't published our AV.

One Council member sits on the Legislative Committee for the State for Indiana Cities and Towns; they do not have any advice on how we are going to supplement what we need to supplement.

We are constitutionally bound to a 2% debt limit, which we surpassed with Scribner Place.

Let's mount some pressure to "freeze" all tax abatements until Council gets them in hand and put that money back into the coffers.

The businesses which receive same; most of their owners are county residents (life-long) and aren't going anywhere, even if we don't give them our money.

I hear the County laughs at us; because while we are arguing over nickels and dimes -- they're taking all the money.

Simply one idea of how to get A LOT of money BACK INTO the General Fund for all essential services -- hey, for that kind of money -- we could even afford to dream a little.

Peace, NA.

Brandon W. Smith said...

>Provide 240 years of education at IU Southeast

Now that's a fantastic economic development idea.

Realistically, assuming tuition and fees for the year at IUS is roughly $5000 for 30 credit hours, we could fund 25 kids from New Albany High School for $125,000 per year. After four years you would have, at most, a $500,000 per year obligation at present dollar values. If those numbers don't work, we could offer fewer scholarships, make them 1/2 scholarships, partner up with a donor, or however you want to slice it. Even 5 scholarships a year to the right kids would have an impact and send the right message.

G Coyle said...

Yes Fis con - we could have all the things on the list if tax abatements were reined in. We're still arguing over the crumbs while the "county" sucks the tax base out.

The New Albanian said...

Con-Dem wrote: We are constitutionally bound to a 2% debt limit, which we surpassed with Scribner Place.

We hear this repeated all the time, but is that really true?

Then, The businesses which receive same; most of their owners are county residents (life-long) and aren't going anywhere, even if we don't give them our money.

Any empirical evidence to back that one up?

ceece said...

instead of going crazy in one way or another lets consider Charlie's idea of upon approval of these abatements if the business' end of the bargain isn't held up (IE new jobs) then there should be consequences such as remittance of the taxes etc.

na girl said...

There is a lot of misunderstanding and misinformation on how tax abatements work.

Here is a link that explains it as clearly as anything that I have found.

From the above explanation:

"Does local government lose
revenue due to abatement?
• No. The budget is not controlled by increasing or decreasing assessed value. Assessed value determines each taxpayer’s portion of the taxing body’s budget. Therefore, an abatement, which
phases-in new assessed value on a
sliding scale, does not affect the amount of money that can be raised for the government budget. (tax levy). Assessed value influences the tax rate that is charged to fund the budget. The amount of money raised by local government is controlled by state statute. Basically local governmental
units are allowed to increase their
budget (tax levy) by up to 5% each year. The formula is: budget divided by assessed value equals the tax rate."

Also, the term abatement can be misleading. When dollar figures are thrown around it is important to know if that amount is the amount of the abatement (assessed value) or the dollar amount of the tax payable. A big distinction.

na girl said...

Sorry, the link in the above comment doesn't work.

You can go to

Click on Tax & Incentive Profile near the top left of the page. Then look for Understanding Tax Abatement in a list in the center of the page for the link to the pdf.

Iamhoosier said...

You are correct na girl.

Another simple way to look at is:

10% of 0=0
0% of 10=0

Tax abatement is on the IMPROVEMENT only. If the improvement is not done, obviously there is no increased valuation therefore no new taxes($0).

If an improvement is done and abatement is granted, the new taxes are still $0 BUT only for a while. I believe most are phased in over the time period of the abatement. 10% a year for 10 years, 20% a year for 5 years, etc.

So, an abatement does not take away tax dollars. It adds tax dollars on a deferred basis.

na girl said...

Lafayette FAQ on Tax Abatement

A Democrat in Floyd County said...

Yes, on both counts. Thanks for asking. Hope you get well soon, New Albanian.

The New Albanian said...

I asked: Any empirical evidence to back that one up?

The response was: Yes.

Not exactly what I had in mind. Is there "evidence" that "proves" most tax abatements go to people "who aren't going anywhere"?

And, does it matter, given Mark's and NA Girl's clear elucidation of the principle of tax abatements?

Has anyone ever noticed how the error always makes the front page, but the retraction is buried in page 13?

G Coyle said...

"So, an abatement does not take away tax dollars. It adds tax dollars on a deferred basis."

which ever way you call it, it's still an "economic benefit" going to businesses that would do the same thing anyway. NOT WHAT THE LAW WAS INTENDED FOR.

If NA brings in, say Google, to downtown to renovate a whole block of historic buildings and create a 100 new jobs, then yeah, tax abatement would be a tool I'd hope local gov't would use. But here the smart people in town who know how to use the tax codes to their advantage are taking these abatements. Those people live in the county. I've seen the lists for the past three years.

For one aunt and uncle recieved $500,000 tax abatement as owners of 222 E Market St. It was added on to a couple years ago. Would Monroe Shine, or my aunt and uncle be leaving town or not expanding that business without the abatement? NO. Absolutely NOT.

So as I read the law, they are not entitled to an abatement. And when they don't pay that $500,000 - all the other tax payers (me) do as we are the remaiming tax base. Doesn't seem fair. My aunt and uncle are very wealthy, so I know they don't really need the extra benefit from the government.

Further, it is not sound economic policy for any government body to give advantages to one sort of business or another.

G Coyle said...

"Taxes in Indiana, and particularly in Lafayette - West Lafayette, are significantly lower than in other states. Indiana also sets up the perfect foundation for businesses with a range of tax credits and abatements that make great financial sense."

ummm, wonder what you could do with those extra taxes? Like I said...the people on the lists here in Floyd County who have taken abatements are in many cases just not who the law intended to benefit.

Jeff Gillenwater said...


As scrwed up as it it is, there's no direct causal relationship between the size of the budget and the size of the tax base.

I wholeheartedly agree that abatements could be much better targeted but the answer to ...wonder what you could do with those extra taxes? under current circumstances would be "Donate them to the state".

na girl said...

In theory I am against tax abatements as an economic development tool. Communities are bidding against each other for jobs with tax abatements and that doesn't make a lot of sense to me.

As long as abatements and similar tax incentives are commonly used, if we don't play along New Albany will be at a competitive disadvantage.

We need to be careful not to throw out the baby with the bath water. And we need to understand how tax abatements work if so that we can suggest appropriate uses for them and maybe shape policy in some fashion.

While tax abatements are administered at the local level they are legislated at the state level and most of the policy regarding eligiblity is set by the state. Even so, there appears to be some flexibility at the local level and certainly there should be careful oversight to make sure that abatements are only granted to those businesses that meet a set of objective requirements.

Since I don't know Gina's family, their business, or any of their partners/stockholders I certainly defer to her regarding their motivations and the appropriateness of their tax abatement. However, their case makes a great example.

If an eligible business builds an addition to their building and the addition results in their property tax assessment going up by $500,000 they could get an abatement of that $500,000 in assessed value.

For purposes of an easy example say the property tax rate is 1%. The incremental tax would be $5,000 a year. A 10-year tax abatement would phase in the tax increase gradually.

Year 1 $0
Year 2 $250
Year 3 $1000
Year 4 $1750
Year 5 $2500
Year 6 $3000
Year 7 $3500
Year 8 $4000
Year 9 $4500
Year 10 $4750

So they would end up paying $25,250 over 10 years instead of $50,000. This is in addition to whatever they were paying prior to the increased assessment.

Gina knows her family is loyal to New Albany but for most companies the decision is not made based on loyalty but on numbers alone. In that case they might move jobs to their Louisville office (especially if they got a tax benefit there) and New Albany could lose edit taxes as well as the potential for additional property tax in the future.

G Coyle said...

Too bad the state takes all the tax money and controls how it's given back. I'm new to Indiana politics, so I don't understand the budget formulas et al. NA girl does make her point well and I'm wrong to suggest the $30 million in 2005 for abatements is, in effect, $30mill more in taxes. I realize it's more like a waver on the increase in assessment for a period of years. It's still a benefit and it's randomly, not scientifically, applied.

Over the last 30 years taxes on businesses, corporate taxes, have gone down while personal taxes have gone up. These abatements are part of that trend. And it's a zero sum game in the end. As NA girl states - it's locality competing against locality to give up the most. It undermines everyone in the end.

maury k goldberg said...

I have been following the dicussion taking place. I have a question as follows:
How much more money will the City of New Albany will have if we did not have any tax abatement?
Will the this correct the current budget deficit?


A Democrat in Floyd County said...

This would be the problem -- lack of oversight. We've recently found ones due to expire and they still hit Council agenda.

There are no checks and balances; no one saying boo about whether they even qualify.

It's an extremely "political" tool, especially for votes on the State level, which of course trickles down to those who support same on our level.

Ours' is strictly out of whack; with no checks and balances.

Iamhoosier said...

Just to be clear, I also think that abatement's are not always judged and used correctly. Like others here, just trying to help clear up some misstatements.


Iamhoosier said...

"A Democrat in Floyd County said...
One word, tax abatements. We have $30 to $40 million going out the door for tax abatements."

Would you now agree that your statement is rather misleading?

The New Albanian said...

I'm still waiting for the list of county residents who own all the businesses and aren't going anywhere, anyway.

Remember the Calvin and Hobbes strip where they're playing a game where the rules are remade to greet each new variable? That's what it's like havig a discussion with people who don't acknowledge basic standards of argumentation.