READI 2.0: Insights for Indiana’s Real Estate Community

In 2021, Indiana launched the Regional Economic Acceleration and Development Initiative (READI), dedicating $500 million in state funding to promote strategic investments in regions throughout the state. The program was such a boon – returning more than $8 billion to the state’s economy – that Gov. Holcomb petitioned the state legislature for a second round of funding, known as READI 2.0, which is currently being considered by the Indiana General Assembly. If approved, the funds will be in high demand.

To help Indiana’s real estate community prepare for this anticipated second round of READI funding, Katz, Sapper & Miller and KSM Location Advisors co-hosted a panel discussion to provide insights on what to expect, steps that should be taken now, and how best to leverage funds in a project. Panelists included:

• Luke Bosso [Moderator], Former Chief of Staff, Indiana Economic Development Corporation (IEDC)
• Jake Adams, Executive Director, Carroll County Economic Development Corporation
• Vincent Ash, Vice President of Development, IEDC
• Katie Culp, CEO, KSM Location Advisors
• Chad Halstead, Partner, Real Estate Services Group, Katz, Sapper & Miller

What’s Changing? What’s Not?

While success metrics for READI 2.0 are still being solidified, Vincent Ash stated that two things are certain to remain the same: The READI program will continue to be administered by the IEDC, and the goal of the program will still be “to promote strategic investments that will make Indiana a magnet for talent and economic growth.”

The primary differences between the first and second round of READI funding are the source of funds and ongoing compliance. Originally, the READI program was funded through the American Rescue Plan Act, which restricted project eligibility to those directly related to pandemic recovery. The second round of READI funding will come solely from state funds, thereby broadening eligibility.

Luke Bosso, former chief of staff at the IEDC during the development and implementation of READI 1.0, said, “The biggest news in READI 2.0: No federal compliance. We won’t have to worry about ARPA or the rules that came with it.”

What Types of Projects Will READI 2.0 Fund?

When asked what types of projects READI 2.0 will fund, Ash said that projects will largely fall into the same three classifications as the first round:

1. Quality of place, which will include housing, mixed-use development, and growth infrastructure such as water, sewer, and broadband
2. Quality of life, such as trails, parks, entertainment, and cultural initiatives
3. Quality of opportunity programs, which will focus on innovation and entrepreneurship and related wrap-around support services for these programs (e.g., childcare)

The program will follow the same regional structure that contributed to the success of the first round of READI funds, with local plans being created by the seventeen regions that came together in 2021 to set priorities for their communities.

How Soon Is Too Soon To Begin the Conversation?

When should developers begin talking to local and regional officials about projects that could potentially qualify for READI 2.0 funding? Adams replied that these conversations should be happening now because it takes time to get a proposal aligned with local initiatives and regional priorities. Bosso stressed the importance of early contact with officials like Adams in the 92 counties around the state as a key starting point for getting READI funding for a project.

Assuming funding is passed before the Indiana General Assembly concludes the 2023 legislative session on April 29, Ash laid out a timeline for implementation that mirrors the 2021 READI schedule. Regions would develop strategic plans over the summer, and the IEDC would visit the regions to learn more about the plans through the fall. Allocation decisions will be made based on what the IEDC learns during the visits and are expected to be finalized in Q4 of this year.

Will There Be a Geographic or Economic Focus?

Both Ash and Adams stressed the importance of funding development in rural parts of the state. Adams pointed out that in some counties a proposal that adds 60 jobs to the local economy could mean employment growth of 1%, while other communities in the state might have to add 1,800 jobs to have the same impact. Ash noted that the regional plans would reflect the different priorities of the varied communities, with regions in central Indiana perhaps focusing less on basic housing development than some of the state’s more rural areas.

Culp countered that the flexibility in the program allows local officials some leeway and that the goals of the initiative make it “worth the ask” for a wide variety of projects. She noted that some communities may have identified specific types of housing like senior living as a priority, and projects that meet the need could be awarded funding even in an area that isn’t seeking overall housing growth. Culp also pointed out how significantly different the READI goals are from most state incentive programs. For example, while many incentive programs involve job creation requirements, READI does not and can therefore support non-traditional projects like daycares, recreation centers, and sports complexes that improve quality-of-life and quality-of-place for communities.

What Are the Tax Implications of Funding a Project With READI?

Real estate deals are getting harder to structure because of higher interest rates and other costs, according to Halstead. In order to finance projects, he said, developers may need to utilize a variety of incentives available in Indiana, including, for example:

• Tax Increment Financing (TIF) districts that provide access to funds supported by specialized government debt
• Redevelopment Tax Credits (RTCs) that support the redevelopment of vacant and underutilized land and buildings
• Build-operate-transfer (BOT) financing that reduces the tax impact of deals to build transportation and infrastructure projects

READI funding joins this list of incentives as another way to add funds to a deal’s capital stack. However, each of these incentives has an effect on a developer’s federal and state taxes. In some cases, an influx of funds at the beginning of construction can result in a tax liability long before a project generates actual income. In recent years, developers have been helped by 100% bonus depreciation rules, but that percentage drops to 80% for 2023 and to 60% in 2024, eventually phasing out completely in 2027 (under current law). Effective tax consultation at the outset can help to avoid surprise liabilities and make sure that plans are in place to pay for taxes as they come due.

Don’t Hesitate To Think Big

Ash summed up the goal of READI 2.0 when he pointed out to attendees, “Quality of life and talent attraction starts with real estate development. By all means, don’t hesitate to think big. Don’t be afraid to be visionary.”

For more information about READI funding, contact your KSM advisor or fill out this form.