INDIANAPOLIS | The price of economic development measured nearly $58 million last year in Northwest Indiana.

Lake and Porter counties doled out $28.8 million in property tax breaks in the name of community improvement, growth and jobs. And another $29 million that might have gone to reduce the communal cost of local government and schools instead went to special projects promised to developers and employers.

Statewide, the cost of luring business topped $400 million last year. And few high-profile local projects are putting another $50 million in property tax-funded incentives on the table for upscale shopping malls in Schererville and a new hospital in Valparaiso.

Abatements and TIFs

Portions of the three region projects will be financed by the expansion of tax increment financing, or TIF, districts, which allow communities to temporarily cap the property taxes local government coffers reap from sites slated for development.

A business pays much higher property taxes once its TIF project is complete. But the new tax money initially is diverted, typically for a period of two decades, to help finance the development. In most cases, the TIF collections are used to cover the cost of street improvements, sewer and water line extensions, and other public infrastructure improvements.

Communities also lure developers by promising to ease their property tax bills for up to a decade. These abatements, which became a major issue in this year's race for Hobart mayor, allow a business to phase in the huge tax hike it will see upon developing a site.

A 10-year abatement, for instance, cuts a company's cumulative tax bill roughly in half. But the firm still pays some property tax every year, with the size of its bill ratcheting up each year as the abatement winds down.

Increased scrutiny

Both abatements and TIFs have been around for years.

But they've come under increased scrutiny in recent months as Indiana lawmakers search for ways to ease rising residential tax bills.

East Porter County School Corp. officials are among the most vocal critics of the tax incentives, and for good reason. While Valparaiso forfeits only 8 percent of its total tax base to economic development, nearly a third of all taxable property is abated or earmarked for TIF projects in the eastern portion of the city serviced by the school district.

"We're not against economic development at all," East Porter Superintendent Rod Gardin said. "We all know that economic development and good schools go hand in hand. We're saying, 'We're growing anyway. We don't need to have TIFs to continue to help us grow.' Our enrollment has increased more in the past three years than it had in the past 10 years combined."

Valparaiso's two TIF districts span 979 acres, or roughly a tenth of the 15-square-mile city. And the Valparaiso City Council has signed off on a 168-acre expansion to facilitate up to $21.5 million in tax increment financing for a new Memorial Hospital campus at Ind. 49 and Burlington Beach Road.

The Valparaiso Redevelopment Commission will hold a public hearing Friday on the project, which promises at least 800 new jobs tied to the initial construction of a $115 million facility. If the South Bend-based hospital eventually moves ahead with a $150 million expansion of the Valparaiso site, the second phase of development would add up to 1,350 more jobs.

Stuart Summers, the Redevelopment Commission's executive director, said the city had to offer tax incentives to secure the enormous private investment. Higher property taxes collected from the initial hospital campus would finance $7.5 million in infrastructure, primarily road and sewer improvements, over two decades. If the later expansion goes forward, the Redevelopment Commission would build a $14 million parking garage using property taxes generated by the private investment.

"I think it's a legitimate public expense," Summers said.

While the taxes on Memorial's new buildings would be tied up in TIF projects for two or three decades, the $50 million or more in equipment purchased by the hospital would be taxed. That would generate up to $1 million a year in new money for schools and local government. If the project is shelved, no one benefits.

"It has to be built in order to be taxed," Summers said.

Economic development leaders acknowledge the pitfalls of having their primary, if not only, recruitment tools tied to Indiana's most hated tax. But they insist their communities get much more back in investment and employment than the fistful of dollars homeowners would save if abatements and TIFs were abolished.

A Times analysis found that eliminating the economic development incentives would cut the average homeowner's tax bill by less than $72 a year in Lake County and only $44 in Porter County.

Cost of bringing business

In Schererville, the tax incentives could soon open the door to organic treats from Trader Joe's and trendy apparel at Banana Republic and Williams-Sonoma. The town put a more than $30 million TIF package together to lure a pair of upscale lifestyle center shopping malls to U.S. 41.

"The quality of the development is going to be unlike anything anybody's ever seen around here because of the type of tenants," Schererville Town Councilman Steve Kil said. "That's the reason we even entertained the idea of the TIF district financing."

The projects will be financed over two decades, with about three-fourths of the tax money going to widen U.S. 41, build a Kennedy Avenue access road and extend utilities to the sites. The remaining 25 percent will help defray the building costs of the developers, who each agreed to pay the town $75,000 a year to cover police and fire protection for the new malls.

Hammond committed $26 million in TIF money last year to land Cabela's, the mega outdoors outfitter the city is counting on to bring a hotel, water park and many more retailers to the site of the former Woodmar County Club. City financial consultant Ed Krusa says Hammond wouldn't have offered the deal to just anyone.

"Cabela's is considered a retail destination opportunity for any community that's capable of landing one," Krusa said. "Typically they are the anchor for major retail centers. After the (20-year TIF) bonds are paid off, it will more than pay for itself."

Attracting state cash

The state sweetened the Cabela's recruitment deal by pledging $7 million in road improvements and $6 million to shore up nearby levies along the Little Calumet River.

Indiana Secretary of Commerce Nathan Feltman, who serves as CEO of the Indiana Economic Development Corp., says the agency wouldn't have chipped in -- and Cabela's might have located elsewhere -- if Hammond hadn't put some "skin in the game."

"We by no means think that tax incentives, abatements or any of the tools we use are the sole reason why companies choose to expand or come to this state," Feltman said. "But it is a factor."

Feltman said local TIF financing was involved in about 20 percent of the roughly 460 job-creation deals the Indiana Economic Development Corp. has closed in the past three years. And, he added, local tax abatements were offered "about 95 percent" of the time.