The Wabash City Redevelopment Commission last Tuesday approved a $200,000 loan for a new business that will be repaid through tax increment financing, also known as TIF.
The loan is being offered as an incentive for 10X Engineering Materials LLC to make building improvements at its future location at 1162 Manchester Ave., Wabash.
TIFs work by capturing a portion of a business’s property taxes, which are used to repay the original loan and other expenses as determined by the Redevelopment Commission. These incentives are sometimes offered as an alternative to tax abatement, which allows companies to write-off some of their property taxes over 10 years.
Why was a TIF loan offered in this case? Keith Gillenwater, president and CEO of the Wabash County Business Alliance, which helped develop the 10X project, told the Plain Dealer last week that 10X representatives asked for a portion of what they would have received from abatement upfront.
Gillenwater says 10 percent of the TIF revenue captured from 10X will go toward paying off the City’s Synergy MetroNet project and another 10 percent will go toward the Redevelopment Commission’s general fund, while the remaining 80 percent will go toward paying off the loan.
Gillenwater defended the loan as a way for the City to capture more tax revenue in the long-term, as 10X will be making improvements to the Manchester Avenue property that raises the assessed value. But critics like Ball State economist Michael Hicks say using TIFs to lure new business is risky.
“That’s not a loan; it’s a form of abatement,” Hicks told the Plain Dealer. “A loan would be something that I would pay back … but what you’re doing is actually repaying that initial loan through the property tax payments that the business pays to the local government within that TIF district.”
That means lost revenue for local schools, libraries and other entities, Hicks said.
“If the company goes bankrupt, that money is gone because it’s being paid by the proceeds that should have come through this,” he said. “If the company is 100 percent successful and pays off the loan, the local schools are no better off financially, the city is no better off because not all of that incremental tax dollars are going to them.
“So even if the company is successful, this is probably not a win for the community.”
But Hicks says there are appropriate uses for TIFs, like when cities need to make general improvements to improve quality of life.
What will 10X Engineering do?
The company plans to recycle waste materials for Thermafiber, crushing byproduct into fiberglass installation. The rest of the product will be used for industrial sandblasting, the Redevelopment Commission learned last week.
Gillenwater estimates the process will divert 36,000 cubic yards of material from the landfill. The project itself is expected to create 26 new jobs.
But before the loan and TIF repayment structure still need to be approved by the Wabash City Council, which is expected to consider the agreement soon.