Milking the TIF cash cow?
CORALVILLE– Peter Fisher of the Iowa Policy Project was surprised by the number of local residents willing to sit through two hours of discussion on something as mundane as property taxes.
“I thought there would be a few really wonky types like me,” Fisher told the standing-room-only audience that gathered at the Coralville Public Library Jan. 4 to hear a presentation and panel discussion on Tax Increment Financing (TIF).
As it turned out, more than 190 people signed in at the forum co-hosted by State Sen. Joe Bolkcom (D-Iowa City) and State Rep. Tom Sands (R-Wapello), both chairpersons for the Ways and Means committees in their respective sides of the aisle in Des Moines. The event was a precursor to discussions of TIF reform expected to be brought forth in the new legislative session that began Jan. 9.
“I anticipate there will be legislation introduced to address some of these issues,” Bolkum said last week, but added he could not speculate which specific measures would be discussed or what kind of support they might have in either chamber. The forum was also an opportunity to learn about a report authored by Fisher and published by the Iowa Fiscal Partnership published in November. Fisher is Research Director at the Iowa Policy Project, a nonprofit, nonpartisan organization that provides information on tax and budget issues and energy, environmental and economic policies.
The document provides actual numbers of TIF valuation in nine Johnson County municipalities, and illustrates the financial impacts of TIF on other local taxing jurisdictions.
TIF is a method of financing major projects written into Iowa law in 1969. It allows cities to assign a TIF designation to an area where a development project will occur, and then capture all the taxes on the area’s increased value generated by the new development for a specified period of time, rather than share the additional tax revenues with other taxing entities like the county and local school districts. The law was originally intended to help cities recoup costs of risky investments and offer financial incentives to investors willing to rehabilitate properties in neighborhoods with depressed property values. In the 1980s, the law was relaxed to allow cities to create TIF districts for the broader purpose of economic development in non-blighted areas as well.
Many, including Fisher, feel that contemporary TIF practices of Iowa’s towns fall a long way from the original purpose and spirit of the law, to the detriment of school districts, county governments and taxpayers themselves.
“Much of TIF spending has little or nothing to do with economic development,” said Fisher. “In many cases, TIF is used as a cash cow to finance city spending that could be financed in other ways. It shifts city taxes to taxpayers outside the city. It has been used to pirate businesses from neighboring communities. I don’t think any of those things are what legislators had in mind when they first created the TIF law.”
Fisher noted that three of Johnson County’s towns have over half their entire property tax base designated as TIF districts: Tiffin (56.7 percent), Shueyville (55.4 percent), and Oxford (50.7 percent). North Liberty ranked seventh, with 18.6 percent of its tax base within TIF. Solon ranked eighth, with 18.5 percent of its tax base in TIF. Though Iowa City is the county’s most populated city, it has just .9 percent of its tax base placed in TIF. Coralville, with 39.7 percent of its own tax base designated for TIF, accounts for more than two-thirds of the county’s total TIF valuation. Countywide, more than $759 million worth of taxable property is now part of a city TIF increment.
It adds up to a great deal of money diverted away from other taxing entities and back into city coffers, Fisher said, and those shortfalls force schools and counties to increase their property tax rates in order to meet their own expenses.
Fisher used the Coral Ridge Mall project and Coralville’s recent move to bring the Von Maur department store to the Iowa River Landing– away from Iowa City’s Sycamore Mall– as examples. The two projects fall into an expanded TIF district Fisher dubbed the “Mall/Hwy. 6 TIF.” The expansion allowed Coralville to use TIF revenue from the Coral Ridge Mall– $10.5 million in FY2012– to finance projects in the Iowa River Landing area. Because of the Mall/Hwy. 6 TIF, Johnson County loses about $2.67 million a year, and almost $328,000 is diverted away from Kirkwood Community College.
Portions of both the Iowa City Community School District (ICCSD) and the Clear Creek Amana (CCA) School District are also within that Mall/Hwy. 6 TIF area, Fisher noted, and it means nearly $5 million in property tax revenues is diverted from the two school districts a year. Though the state’s school aid formula backfills some of what school districts lose to TIF, it only offsets about 44 percent of the revenue lost to these two districts.
Therefore, Fisher calculated, the school tax rate for property owners in the Iowa City school district is $.56 (per $1,000 of assessed value) higher, and CCA’s is $2.83 higher. With a forced increase to other countywide taxes due to the Mall/Hwy. 6 TIF, the overall effect for the owner of a home worth about $200,000 is an additional $80 in taxes each year in Iowa City (slightly more for those living outside the city limits), and $319 for those living within the CCA district (not accounting for the state’s residential rollback).
When tax rates increase in other jurisdictions, it has the effect of shifting the financial burden of a city’s projects to taxpayers outside city limits, Fisher argued.
Other problems Fisher sees with the current TIF law are that it has no time limits for blight or slum projects and a 20-year limit for economic development projects, allowing cities to continue to capture TIF revenues long after the project costs have been recovered. TIF projects are exempt from public referendums, giving taxpayers and taxing jurisdictions affected by the project no vote or say in the decision. There are no size limits or contiguity requirements for TIF areas, nor restrictions on how much of a city’s land may be designated as a TIF district.
Finally, Fisher said, current TIF law is written too loosely to prevent the piracy of one city luring business away from another with incentives funded through TIF revenues, as perceived with Von Maur’s move from Iowa City to Coralville.
“It’s real money,” said Fisher. “If we don’t reform TIF, I think we are looking at a future where property taxes will become increasingly unfair and a lot of money will be wasted as more and more cities have to react to this competitive warfare for the tax base with their neighbors.”
Fisher’s report, which can be viewed in its entirety at www.iowafiscal.org, does include his suggestions for TIF reform, and a number of state legislators in attendance at Wednesday’s forum took note as they head into the new 2012 legislative session.
Several of them were allowed to take the microphone to offer their own positions on TIF.
Representative Dave Jacoby (D-Coralville) said he felt the arguments surrounding TIF represented differences in ideology.
“I thought this meeting might be a thank you for the growth and development and risk Coralville took in providing over 2,000 jobs in our county that pay over $50,000 a year,” said Jacoby. “I know that the families with young children in our school district needed those jobs now. They couldn’t wait,” Jacoby said. “And they are the ones funding our schools, so I think it’s important we remember that.”
State Senator Bob Dvorsky (D-Coralville) also offered positive examples of municpal use of TIF, specifically Shueyville’s renovation of an old school into a city hall and community center.
“I don’t think they could have done it any other way,” said Dvorsky. “TIF has done a lot to bring industrial and commercial development to the area.”
Because every community is so different in its tax base, Dvorsky said making a one-size-fits-all law for TIF will be problematic.
“If we can have a legitimate discussion in TIF, on ways we can fine tune it and make it better for everybody across the state, I’m all for that. But we need to bring everyone to the table.”
Dvorsky also said Fisher’s report neglected to show the benefits of TIF and the revenues generated through economic development projects TIF brings.
A panel of local leaders were also invited to comment, including Mayor Tom Salm of North Liberty, who outlined the ways North Liberty has used TIF for a number of years for projects throughout the community.
“For 2013, we have $220 million increment available. Of that $220 million, we are going to use 51 percent of it. That means 49 percent of it is going back into the normal tax rolls. So we are not using all the available TIF,” said Salm.
Salm listed examples of North Liberty’s TIF projects, including improvements to Highway 965, Penn Street, Golf View and Jones Boulevard, all roads used by local residents and visitors. Also, the city purchased property near the fire station for a future city hall location, which Salm described as a “blighted area, with older homes in the older part of town.” The city will use TIF funding to help pay for a new public works maintenance facility and expansion of the community library. North Liberty has also used TIF to fund expansion of its trail system, parks projects and contributions to two elementary school gymnasiums the city can use for additional city programming. Finally, Salm said, there are six current economic development projects TIF is helping to fund in North Liberty, including the eight-year, $5.4 million maximum agreement to rebate taxes back to the proposed University of Iowa Community Credit Union headquarters to be built this year.
“We think we are doing the right thing here,” Salm concluded. “TIF is here to use, it’s legal to use, and I think we are going to keep using it until someone tells us we can’t.”
Salm’s final comment drew a single response from an audience member.
“Just wait,” the man said.
Other panelists who spoke were former Coralville councilor Jon Weih, Iowa City Mayor Matt Hayek, Johnson County Supervisor Rod Sullivan, ICCSD board member Patti Fields and Superintendent Denise Schares of the CCA school district.
Schares’ district is probably the single entity most impacted by Johnson County TIF districts, as more than 40 percent of the CCA’s taxable valuation lies within TIF areas, the highest in the state.
“It is a very complex and controversial issue, and yet our actual voice in the decision isn’t there,” said Schares. “School districts recognize the advantages of economic development. You will see we are very blessed with beautiful facilities, growing enrollment and supportive families and community members. Yet the challenges we face with enrollment growth and the great percentage of our property valuation being diverted, we just don’t see that additional (revenue) right now.”
Although, Schares added, she was glad to learn the University of Iowa Community Credit Union project goes off the TIF roll in fiscal year 2019, just after the Coral Ridge Mall TIF expires. Both projects are within CCA’s boundaries, and the mall alone carries $192 million in valuation, she said.
“That’s going to be a very good year,” she said.
“We understand fully the intent of TIF,” Schares added.. “It may be a well-intended economic growth tool, but when used differently than its intended purpose, there can be unintended consequences that take away from what we can do for kids.”
Schares said she looks forward to upcoming discussions of TIF and possible reforms.
“Coming to the table with those people will be so critical for us,” she said.
Another public forum on TIF will be held Jan. 21 at 10 a.m. at the Johnson County Health and Human Services building.
Graph reprinted with permission by Peter Fisher, Iowa Policy Project.