IOWA CITY – Johnson County’s supervisors plan to have the county borrow more money than it typically does in an effort to wring extra cash out of the tax increment financing districts they frequently criticize.
That would save taxpayers money at the expense of cities and it possibly would be a novel approach in Iowa.
The idea comes after a couple of years of intense debate both locally and at the Statehouse on tax increment financing, or TIF, following the city of Coralville’s use of the economic development tool to attract a Von Maur department store.
Board of Supervisors chairwoman Janelle Rettig signaled how she feels about TIF use in Johnson County when she said the county would be “bonding to offset the damages of TIF.” The county is missing out on $4.5 million worth of tax revenue this year because of property in TIF districts.
Bonding is a common way for governments to borrow money, and the budget for the upcoming fiscal year, which the supervisors will vote on next month, calls for the county to borrow nearly double what it normally does.
Under a TIF deal, the new property taxes, or increment, generated by a development go back to that project for a certain period of time rather than to tax-collecting bodies like a school district, city and county.
But local governments can collect debt levies, used to pay off bonds, on the increment. By increasing its use of bonding, the county would be able to collect more revenue from the $739 million worth of property in TIF districts in its boundaries.
Tax bills would be about $19 lower for every $100,000 of valuation than if the county did not do the extra bonding, County Treasurer Tom Kriz said.
Even though borrowing money means interest must be repaid, county officials said bonding for the fiscal year that starts July 1 makes better financial sense now because interest rates are at historic lows and TIF use is, in their opinion, so high. They say its fairer to all taxpayers, too.
“It is in essence, do you have a thousand people pay $2 on their taxes, or do you have 2,000 people pay a dollar,” was how Kriz put it.
The current draft of the budget calls for the county to bond for $9.9 million next fiscal year. In a typical year, that figure is closer to $5 million, Kriz said.
The traditional use of bonding is for large infrastructure projects, like a road or a bridge. But Johnson County would borrow $6.5 million for insurance costs and $559,000 for technology expenses like hardware and software.
The bonds for those last two items would be repaid within 90 days, keeping interest to a minimum, Kriz said. Also, because it’s short-term debt, the county’s bond rating should not be affected, he said.
It’s rare to bond for insurance and technology, although Johnson County has previously done it to a smaller degree for insurance. Bill Peterson, executive director of the Iowa State Association of Counties, said he was not aware of other counties doing what Johnson County plans to, but his organization does not track county budgets.
Officials in other Iowa counties were surprised at Johnson County’s proposal and curious about the details.
Linn County Finance Director Steve Tucker said that he was not criticizing Johnson County, but he would not recommend bonding for insurance and technology because it’s borrowing money for operational costs.
Deb Anderson, budget officer for Polk County, said Johnson County’s proposal is a “pretty clever” way to access TIF districts.
Johnson County would receive about $300,000 in taxes from the TIF districts under a “normal” budget, Kriz said, but by bonding more, the county would get $1.3 million. The county would otherwise have had to collect that $1 million from property owners not in TIF districts, so that’s how taxpayers save, he said.
The taxes for the property owners in the TIF districts would not be affected. Instead, it would be the cities that get less from the TIF districts, Kriz said.
Sending a message?
Iowa City Manager Tom Markus said the city would be affected to an unknown degree but said he understood why the county wanted to do it. He also said he thought the county was trying to send a message.
“They’re not pleased with having to absorb the loss of revenue as a result of TIF,” he said.
About $4.5 million will be diverted from Johnson County this fiscal year by TIF projects, and the total is $22.2 million for all tax-collecting bodies in the county, according to the Johnson County Auditor’s Office.
County Supervisor Rod Sullivan disagreed that a message was being sent, saying nothing has changed the cities’ behaviors yet. He said TIF use in Johnson County is out of control.
“I think it has its place, but I think that its place is probably 5 percent of what it’s actually getting used here,” he said.
Coralville City Administrator Kelly Hayworth said he did not have a problem with the county’s budget proposal. But he did say Rettig’s comment on the county trying to offset the damages of TIF was a “ridiculous statement.”
TIF helps redevelop properties and increase their taxable values, he said, and all of the taxes eventually goes to tax-collecting bodies.“A lot of these things would never happen to begin with if they did not have the TIF, so (the county) wouldn’t have that revenue,” he said. “It’s really easy to play Monday morning quarterback, and that’s kind of what they’re doing.”