City officials not yet embracing new downtown-tax-district option from state

The Republican-dominated Legislature has given the city a way to raise money for downtown’s post-pandemic revitalization, but there appears to be little chance that Democratic city leaders will pursue it before the November city election.

The new state law would allow the council to create an economic enhancement district board that could impose a fee on property owners in the Mile Square. But even if the Democratic-controlled City-County Council does take up the issue eventually, strong constituent support likely still will be needed to persuade a majority of councilors to buy in.

Under the state legislation’s framework, the revenue could be used to fund cleanliness initiatives, homelessness outreach, safety ambassadors and ongoing costs for an eventual low-barrier homeless shelter. Such a shelter would have fewer restrictions for access than many homeless shelters and is seen as a way to reduce downtown homelessness, which spiked during the pandemic.

For now, the proposal’s primary obstacle is timing, according to IBJ’s interviews with 18 city-county councilors and numerous other players involved in the debate over the potential economic enhancement district. (IBJ reached out to all 25 councilors; 18 agreed to interviews.)

Politicians generally don’t like to endorse a new fee or tax increase shortly before an election, and Democratic Mayor Joe Hogsett and candidates for all the City-County Council seats will face the voters Nov. 7.

“I don’t think that the mayor would try to make a decision on this prior to the November election simply because he has campaigned throughout the years on not raising taxes,” said longtime Democratic City-County Councilor Monroe Gray, who won’t be on the ballot in the fall because he lost in the primary.

Council President Vop Osili also said he doesn’t anticipate any council action on the proposal until after the election, largely because he’d like the council to finish work on the 2024 city budget first.

He has said the new state law is an indication of the broad consensus about the importance of the health and vibrancy of downtown, but he said the benefits of the new fee have to be weighed against the impact on downtown property owners.

“We have to be intentional about hearing from as many [constituents] as we can, and then we’ll make a decision from there,” Osili said.

Hogsett also hasn’t committed to or ruled out the tax. His spokesman declined to say whether the two-term mayor would attempt to push for any action on the concept before the election, in which Hogsett faces a strong and largely self-funded challenge from Republican businessman Jefferson Shreve.

The mayor has been clear, however, that the city needs to find a way to continue funding downtown cleanliness and improvement efforts provided by Downtown Indy Inc. after the city’s $3.5 million infusion of American Rescue Plan Act funds runs out sometime next year.

“This particular mechanism that was put in the state budget could be that option,” said Dan Parker, Hogsett’s chief of staff. “But for reality’s sake, there needs to be stakeholder engagement and support built for that.”

Hogsett said the city’s initial investment is showing results, but he’s holding off on taking a position on the taxing district until he’s had time to gather feedback from downtown stakeholders.

“I think that we can start having those conversations whenever it makes sense to,” he said. “It’s something that I’m going to be taking a very close look at.”

A time crunch?

The Indy Chamber, which helped lead the last-minute push in this year’s legislative session for the taxing-district law, wants action before the end of the year.

“It is the business community’s hope that the City-County Council seizes the opportunity afforded to them by the state legislature to enact this enhancement district this year to begin driving dollars to the Mile Square’s vitality as soon as possible and avoid any potential efforts to remove this enabling language during legislative session next year,” Adam Burtner, the chamber’s vice president of government affairs, said in an email.

The Indiana Apartment Association lobbied hard to stop the measure in the closing hours of the General Assembly in April. The group acknowledged that the legislation could be changed or undone when the Legislature reconvenes in January.

“Any time controversial language is inserted into legislation at the last minute without any notice, testimony, or deliberation, there is always a chance that it could be revisited, and the Indiana General Assembly has the authority to modify or eliminate economic enhancement districts,” Indiana Apartment Association President Lynne Petersen told IBJ in an email. “Several legislators were caught off guard when they realized they voted in favor of an unlimited tax increase for businesses and residents living in the Mile Square.”

A few councilors have expressed a desire to move forward with the taxing district, but most of those IBJ interviewed said they are awaiting more details and feedback from downtown property owners.

Several Republican councilors said they’re waiting to hear more from the mayor.

Shreve, the GOP mayoral candidate, also hasn’t weighed in on the tax. He said he can’t react to a specific tax district proposal because the city doesn’t have one.

The mayor and council leadership should lay out their plans, he said in a text message: “That’s what leaders do.”

He noted that he opposed a similar taxing district in 2018, but he said the Legislature’s approach is somewhat different in that it envisions that a portion of the tax revenue would provide needed ongoing funding for a low-barrier homeless shelter.

“Any additional tool for the city could be helpful, [if it] is used judiciously and appropriately targeted,” Shreve said in a text.

Brian Mowery, the leading Republican on the council, said he is hesitant to support the taxing district, acknowledging that he voted against the 2018 measure.

However, he said he supports the efforts the tax would fund. Like many councilors, he said he needs feedback from downtown stakeholders before making a decision.

Rocky road

Downtown Indy Inc. led the 2018 push for an economic improvement district, but the City-County Council voted it down 15-8, with one councilor abstaining and another absent.

The 14 Democrats on the council at that time were nearly evenly split on the proposal. Republicans were mostly against it, with only one voting yes.

There was also a dispute over whether advocates had collected enough petition signatures to advance the proposal. Supporting signatures were required from more than half the property owners in the Mile Square, representing a majority of the area’s assessed value.

Today, state law requires a 60% threshold of support to create an “economic improvement district” in any community.

In the closing hours of this year’s Legislature, lawmakers came up with a slightly different approach for Indianapolis to create an “economic enhancement district,” doing away with the signatures requirement altogether and giving the City-County Council sole authority to approve it.

Petersen told IBJ the removal of the signatures requirement “looks like a blatant attempt to squash opposition from all property owners.”

“Rather than working with property owners downtown to listen to their concerns, draft a plan, and gain their support, supporters of the EED just cut them out of the process and removed any accountability,” Petersen said in an email.

“At the point that this language became public, which was roughly 32 hours before a final vote, we were told by leadership that it was too late to make any changes,” she wrote.

Through interviews with at least 10 people involved in the last-minute swirl of activity, the picture that emerges is that the tax district proposal was born out of a desire by Gov. Eric Holcomb’s office to find a way for Indianapolis to pay for the operating costs of a proposed low-barrier homeless shelter.

The pending state budget already included a $20 million low-barrier-shelter statewide grant fund, from which Indianapolis could obtain a one-time infusion of cash. The Hogsett administration also has set aside $12 million to build the shelter.

To meet the shelter’s ongoing operating costs, Republican State Sen. Kyle Walker, who represents portions of Marion and Hamilton counties, proposed language in conjunction with Indy Chamber to allow the city to create a downtown taxing district without a petition requirement.

When Downtown Indy Inc. officials learned about the potential tax district, they worked with Indy Chamber to be involved in the discussion.

Taylor Schaffer, CEO of Downtown Indy Inc., has said the legislation offers a “once-in-a-generation opportunity” to keep downtown humming as an economic and cultural hub but acknowledged that it will require many stakeholders to come together around a shared vision.

As the legislation progressed, Walker said, he also looped in the city’s lobbyist, Andrew Miller.

“I can’t speak to how much advocacy [the mayor’s office] did,” Walker said. “Andy Miller at Bose Public Affairs—he’s who I worked with and talked with and made sure they’re good with this.”

Miller declined to speak publicly about those discussions. Parker, the mayor’s chief of staff, acknowledged that Miller participated in the tax district talks but said he did not lobby for the concept.

“This particular issue was not part of the mayor’s legislative package, and he was not lobbying legislators for it,” Parker said. “We didn’t even know about it until the end of the session.”

Walker envisions the taxing district as a way for GOP-dominated state government and Democratic-led city government to work together to help the state’s capital city—a development many would welcome after years of partisan bickering over issues such as transit funding.

“Everyone in the state of Indiana has some level of ownership in downtown Indianapolis, and it is an economic driver. It’s hugely important to the success of our state,” Walker said. “I think there’s an acknowledgement that we need to be able to provide the city with the tools to be successful. And so I think this is one of those times when pretty much all parties came together and looked for a way that we could have a system that is flexible with a lot of guardrails, but provides the ability for the city to operate a low-barrier shelter.”

How it would work

The legislation allows the City-County Council to establish an economic enhancement district. A board would then be created to oversee it and would impose a fee on property owners in the designated area.

The board would consist of four city-appointed members and four state-appointed members. The mayor, the City-County Council and the governor would each appoint two members. Leaders of the House and Senate would appoint one member each.

Only property in the Mile Square could be taxed, and the revenue could be used only for the homeless shelter and for services in that district that are now provided by Downtown Indy Inc.

Among other responsibilities, Downtown Indy’s safety ambassadors would be tasked with deterring “aggressive panhandling and other nuisance behavior,” communicating with police to report ongoing problems and providing “safety escort services,” according to language in the budget.

Under the framework created by the Legislature, the economic enhancement district board could impose an “annual special benefits assessment” on all taxable property in the Mile Square “based on the relative benefits to be received by each type of property.”

Factors used to determine such benefits could include:

◗ proximity of the property to any projects funded by the tax;

◗ accessibility of the parcel to those projects;

◗ true cash value of the parcel;

◗ true cash value of any improvement on the parcel;

◗ age of any improvement on the parcel;

◗ other similar factors.

What’s next?

But such a district won’t begin to take shape until a councilor proposes legislation to create it. And most councilors told IBJ they need more information and more constituent feedback first. That includes Osili, the council president, who represents a large swath of downtown.

“We on the council would want to flesh out a number of structural details and create a framework for the enhancement district,” he said. Osili supported the similar district fee in 2018.

Of course, a lot has changed since that measure failed. The composition of the council is more solidly Democratic, with the party now holding a commanding 19-5 advantage over Republicans. One councilor is an independent.

Fallout from the pandemic—ranging from reduced occupancy in downtown office buildings to a spike in homelessness—also has created more urgency for downtown aid.

Unlike his mostly uncertain colleagues, Council Vice President Zach Adamson is bullish on getting the district in place immediately. He is not on the fall ballot because he lost his primary re-election bid.

Adamson said the council should take action on the proposal before November, since neither the council nor Hogsett himself would directly dictate the dynamics of the downtown property fee.

“There’s not a tax that’s being created [by the council]; we’re creating an organization that could impose a tax,” Adamson told IBJ. “I think it’s an important distinction.”

The Indy Chamber wants quick action to help accelerate downtown’s recovery and to give the city a revenue tool that most large cities already have. Burtner, Indy Chamber’s vice president of government affairs, said Indianapolis is the largest city in the nation without a special downtown taxing district.

For the next several months, the issue will likely continue to percolate through the mayor’s race and City-County Council contests.

The Indiana Apartment Association plans to hold a fundraiser for Shreve on June 29. Both the Shreve campaign and the association said the event has nothing to do with the group’s position on the tax district legislation.

“The event for Mr. Shreve is in no way related to the Economic Enhancement District,” Petersen said in an email.

“IAA has supported Mayor Hogsett by donating nearly $10,000.00 to his campaign over the years,” she added. “If Mayor Hogsett would like to come speak to our members, we would welcome the opportunity. The state law makes it very clear that the [City-County] Council has the authority to approve the Economic Enhancement District, not the mayor.”•