By The Gazette Editorial Board
It’s become the nation’s most popular local development tool. It’s praised and maligned. It’s often misunderstood by the public.
Tax increment financing was born in California in 1952. Today, some version of TIF is widely used in virtually every state, including Iowa.
Ironically, California shut down its 400 TIF districts last year, a move initiated by Gov. Jerry Brown, who wanted to redistribute the funds to schools and basic services, and help shrink California’s $26 billion budget deficit.
Closer to home, Coralville has become Iowa’s TIF king, although many cities and other public entities use it. As the new year began, the city had nearly $280 million of total debt with TIF accounting for about $150 million. That works out to about $14,500 of debt per resident in a community of just over 19,000 people — by far, the most of any city in Iowa.
Coralville officials say the investment is well worth the amount involved and the risks are minimal because of the quality and importance of the projects. They cite Coral Ridge Mall and multiple improvements along Highway 6 and First Avenue, Oakdale Boulevard and 12th Avenue, among others, and the additional employment opportunities created by partnerships with businesses such as Integrated DNA Technologies, CIVCO and Rockwell.
TIF has helped redevelop an old industrial area into the Iowa River Landing — now home to the Coralville Marriott Hotel and Conference Center, University of Iowa Hospitals and Clinics facility, Backpocket Brewery, Homewood Suites, and soon, a transplanted new Von Maur store and other expected businesses.
The city’s figures for 2012 claim more than 1,900 jobs linked to city support for development in the University of Iowa Research Park and other businesses in the community. With help from federal grants, they’ve redeveloped or are redeveloping several “brownfield” areas that are contaminated or blighted.
They also note that taxable retail sales indicate a growing economy. Sales soared from $166.5 million in 1997, just before Coral Ridge Mall opened, to $722 million in 2011.
CRITICS CITE ABUSE
But critics insist Coralville has abused its use of TIF. Citizens for Responsible Growth and Taxation, a group of about 50 businessmen and other residents from Coralville and elsewhere in Johnson County, say TIF is overextended and the city’s ownership of some TIF project buildings, such as the Marriott and Backpocket Brewery, is losing money and puts the taxpayer at too much risk.
They say the repurposing of TIF debt into new projects, instead of sunsetting each deal separately, is hurting local school districts’ budgets for too long and unfairly drives up property taxes for neighboring communities. And they say city leaders haven’t listened to their concerns or provided enough details about the TIF deals.
It gets complicated. But we think the bottom line on use of TIF in Coralville or anywhere in the state boils down to this: Does it bring a net benefit to the community in job and tax base growth with minimal impact on schools and other vital public services, and without excessive debt and taxpayer risk? And would these projects be completed if TIF incentives weren’t used?
Trouble is, we don’t know. State Rep. Dave Jacoby of Coralville, who is supportive of what TIF has accomplished in one of the state’s fastest-growing communities, acknowledged that problem. “I think TIF pays for itself, but we need to prove that. It’s hard to track the impact on state revenue and taxes,” he told us during a recent meeting with The Gazette Editorial Board, which met with city officials as well as the citizens group.
That lack of clear documentation is a national concern, according to Columbia University law professor Richard Briffault. In a 2011 research article published in the University of Chicago Law Review, he noted that the most important question about TIF — whether the benefits justify the cost — is largely unanswered.
One thing that’s clear, he notes, is that TIF is the local development tool of choice almost everywhere. Local government has almost complete control and does not need voter approval to access this source of revenue.
HOW IT WORKS
TIF basically works like this in Iowa and most other states: Future property tax increases (the increment) from improvements to a property are diverted to assist the development project. Some are pay-as-you-go but for large projects, cities usually issue bonds to be repaid with the increment over several years or even decades.
Cities often use TIF revenue to prepare sites and build infrastructure such as sewers, roads and parking facilities to attract private development. That was the case with Coral Ridge Mall.
Sometimes they do more. Coralville, for example, two years ago used an incentive package worth up to $16 million to lure Von Maur to build a new store there. That deal also sparked strong protests of piracy from Iowa City, where Von Maur had operated a store that will be closed.
Schools and other public entities that rely on property taxes don’t receive the TIF revenue until the TIF term expires. In Iowa, the state provides some backfill funding for affected schools but there’s also impact on the property taxes of nearby communities to help make up the loss.
Last year, after some legislators raised concerns about alleged TIF excesses and pointed to Coralville as a prime example, the Legislature did not make major changes in Iowa’s law. However, legislators did agree to require all cities and other entities using TIF to file annual reports. Public hearings and a public vote on any amendments or modifications to an adopted urban renewal plan using TIF must be held. And an “anti-piracy” provision bars TIF incentives from being used to draw a commercial or industrial enterprise not currently located in the municipality from a city in the same region unless the latter entity signs off on the deal.
Earlier this month, Coralville, Iowa City and North Liberty began discussions about such an anti-piracy agreement. That’s to their credit and supports a regional approach that could benefit all the communities.
Coralville and other cities certainly have made effective, even remarkable use of TIF. And Iowa is not California. But more safeguards for the public should be considered. Such as sunset requirements and limits on the length of TIF terms. Perhaps a ceiling on total TIF debt in any community.
Gov. Terry Branstad, during a visit with our Editorial Board this week, told us TIF is hurting school districts and that Coralville is stretching the intent, if not the letter, of TIF law.
Last year’s initial legislation was a positive step. It should bring more transparency and encourage cooperation among neighboring cities. Once the data is collected and analyzed, legislators should get a better idea of TIF’s impact statewide.
Then it’s time for a candid, objective discussion to determine what changes in the law make sense for our state. Iowa’s taxpayers, schools and other stakeholders need and deserve to know more about this tool and have more say in how it’s used.
l Comments: firstname.lastname@example.org or (319) 398-8262
MORE ON TIF:
l The Iowa Policy Project:
l 2011 University of Chicago Law Review research article by Richard Briffault, Columbia Law School:
l City of Coralville
l 2012 legislative report by David Swenson, Iowa State University economics professor:
l Citizens for Responsible Growth and Taxation