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Rural Indiana Looks to Tax Increment Financing to Build Fiber Networks

| Written by ILSR Admin | No Comments | Updated on Jul 30, 2014 The content that follows was originally published on the Institute for Local Self-Reliance website at https://ilsr.org/rural-indiana-looks-to-tax-increment-financing-to-build-fiber-networks/

Wabash County, Indiana wants to expand its access to high speed internet through a fiber optic network build out, and is planning to use a distinctive financial tool to do so. The Wabash County Redevelopment Commission has begun the process of assigning a special Economic Development Area designation for the purpose of helping to finance new fiber deployment through parts of the mostly rural county of 33,000 people.

Tax Increment Financing (TIF) is method of public financing that uses future gains in property or sales taxes within a defined area to subsidize a redevelopment or infrastructure project. A local jurisdiction can borrow money up front, build the project, and then use the increased tax receipts it generates to pay off the debt over a period of years. The concept is actually pretty simple: capture the value that something will have in the future to build it now.

TIF  has been a popular approach among local politicians around the country for decades as a way to work around tight budgets and finance improvements in blighted areas, often in the form of public infrastructure. It has sometimes drawn criticism, especially in cities like Chicago where it is very heavily used. One downside is that it effectively takes properties off the general tax rolls. 

More important for our purposes, however, is that the use of TIF for next generation fiber optic networks is a fairly new phenomenon. While municipal networks around the country have used a wide range of financing approaches to cover upfront costs, most have revolved in some way around bonds that are repaid from network revenue. Using TIF to capture the increased property value that a fiber optic network would create is an interesting approach.

In the case of Wabash County, it’s not yet clear exactly how the funds would be used. There is a local private incumbent provider, Metronet, which received $100,000 last year to match its own $1 million investment to bring fiber to a town on the north edge of the county. The county also has a cooperative utility (Wabash County REMC) that provides power and telephone services in rural areas and has expressed interest in using TIF to build out a fiber network. Whichever entity ultimately receives TIF money, it does not appear that the county is interested in owning the network itself. 

Wabash County is not alone it its pursuit of TIF-backed fiber networks. Other counties and municipalities in rural Indiana have been moving along the same lines, from Chesterton in the north to Dubois County in the south. The Indiana  Association of Cities and Towns, meanwhile, recently helped defeat an attempt by telecom industry lobbyists (ahem, AT&T) in Indianapolis to pass legislation eliminating the authority of local governments to use TIF – but only for fiber optics and other telecommunications equipment.  

Whether or not TIF eventually proves to be a good tool for building high speed fiber optic networks in rural areas and small towns remains to be seen. Taking a broader view of the value of a the public and private value a municipal network creates, beyond a simple glance at network revenues, is a step in the right direction. In any case, the right of local communities to make their own choices about how best to finance, plan for, and pursue their shared needs is paramount.