“How does this actually affect the city’s finances?”
In Indiana, the answer isn’t always intuitive. Property taxes, development districts, and timing rules can make it difficult to understand when (or if) new projects translate into new resources for a community.
This article explains how Indiana’s system works and why some development agreements are structured the way they are, using Hobart as a real-world example.
Understanding the Property Tax Levy
Cities in Indiana operate under a property tax levy. Think of the levy as a cap—the maximum amount a city can collect from property taxes in a given year.
For example:
- If a city’s levy is $25 million, that is the most it can receive from property taxes that year.
- Even if significant new development occurs, the city still only collects that capped amount.
- The levy can increase slightly each year, but the state controls that growth through legislation, including Senate Enrolled Act 1 (SEA 1).
In short: new development does not automatically mean more money for city services.
What Are TIF Districts and What Are Their Limits?
Indiana also uses Tax Increment Financing (TIF) districts, which are designated areas meant to encourage economic development.
Here’s how TIFs work:
- When property values increase inside a TIF district, the new tax revenue stays within that district.
- Those dollars do not go into the city’s general fund.
- TIF funds can only be used for specific projects and limited operational expenses that support that area.
TIFs are powerful development tools, but the funds they generate are restricted and cannot be used citywide.
The Timing Challenge: Taxes Are Paid in Arrears
Another key factor is timing.
In Indiana, property taxes are paid in arrears, meaning:
- If construction begins in 2026 and a project opens in 2027,
- The city does not receive any property tax revenue until 2028.
This creates a delay between development activity and revenue that can be used for public services.
Why Some Agreements Are Structured Differently
Because of the levy cap, TIF restrictions, and timing delays, some cities negotiate agreements that provide community impact payments outside of the traditional property tax system.
In Hobart’s case:
- The city negotiated $47 million in upfront community impact payments.
- These dollars are not part of the property tax levy and not part of a TIF district.
- They go directly to the city and can be used across the entire community.
Additional payments tied to construction milestones include:
- $10 million when the first building permit is issued
- $45 million when the first building walls are constructed
Together, these payments could total more than $102 million in the first year, an amount that exceeds the city’s annual general fund budget.
Infrastructure Costs Covered by the Developer
The agreement also requires the developer to pay 100% of infrastructure costs.
These are improvements that:
- Would have been needed over time regardless of development
- Might otherwise have been funded by utility customers or taxpayers
In this case, those costs are fully covered by the project itself.
Ongoing Payments Over Time
Community impact payments continue beyond initial construction:
- $43 million in 2027
- $40 million in 2028
- $2 million per building per year thereafter
These payments provide predictable funding that is not subject to levy limits or TIF restrictions.
Why Timing Matters Right Now
These agreements are being evaluated during a period of major change in Indiana’s tax structure.
SEA 1 reduced property tax revenues for cities statewide, though the impact varies by community. Some cities may respond by:
- Raising local income taxes
- Cutting services
- Or attempting to offset losses through new development
In Hobart’s case, the structure of this agreement allows the city to address revenue reductions without increasing income taxes, while continuing to fund essential services.
What This Means for Residents
When structured carefully, community impact payments can help cities:
- Maintain public safety services
- Repair roads and drainage systems
- Invest in parks and youth programs
- Support schools and long-term infrastructure
- Provide stability during statewide tax changes
Understanding how these financial tools work helps residents better evaluate development proposals—not just based on size or visibility, but on how they fit into the broader fiscal picture.
Final Thought
Development agreements can be complex, but they don’t have to be confusing. By understanding levies, TIF districts, and timing rules, communities can better assess how growth aligns with long-term planning and public needs.