Should Coralville funnel funds to private business?
Since the mid-2000s, the City of Coralville has been engaged in significant economic development projects that have been both hailed as visionary and necessary for the community’s growth, and criticized as unfair and irresponsible to taxpayers. In more recent years, the city has fallen under greater scrutiny for its TIF practices and continued participation in providing financial incentives to private enterprise. This is the third in a three-part series examining the city’s current fiscal status, its economic decision making and the concerns of area citizens who question both.
CORALVILLE– Since a 2012 lawsuit was launched against the City of Coralville by a local citizens’ group– the Citizens for Responsible Growth & Taxation, or CFRG&T– Coralville’s financial practices have been more criticized than ever before. In light of the city’s large debt load, nearing $300 million in fiscal year 2013, CFRG&T members question the city’s decisions to use public funds to provide incentives to private businesses. The city’s response has been that its participation in economic development has been necessary, responsible and good for the community.
City officials and the citizens’ group may never see eye-to-eye on the city’s continued financial support of private enterprise. Some local business owners, like Tom Bender, see it as a direct competition with private individuals when the city tries to sell or lease commercial property; for example, Coralville owns the second floor of Plaza on 5th, a condominium enterprise that houses the Coralville Center for the Performing Arts.
“From a property owner’s perspective, the activity of Coralville has sucked a lot of the growth their direction, and for those of us who pay the full boat in commercial property taxes, and full city taxes paid by our tenants, it feels like unfair competition,” Bender said. “They make the
rules, and they are using our money to incentivize business. At a gut level, it doesn’t feel right to be at the table and have somebody there who plays by a different set of rules.”
But Coralville’s Director of Finance Tony Roetlin, who has been on the job six months since replacing the now retired city financial director Terry Kaeding, said growing good business is good for everyone.
“Is a person who feels competed with in the short run better off in the long run, by virtue of that building being there?” Roetlin asked. If the city’s financial assistance brings into existence a building that creates residential space and furthers the city’s fine arts mission, it will likely create economic activity in surrounding businesses. “I think if you just focus on the short run, and just focus on one portion of the constituencies, then you have a tougher time justifying it. If you went back in the history of Coralville there are various developers who have received an incentive, and there have been reasons for those. That’s one thing that happens in city government; businesses ask for subsidies, and you have to make difficult decisions because you are dealing with public funds. I happen to think the city (has) made principled decisions.”
Even if those decisions have been sound in principle, they are creating financial principal that is much too much for CFRG&T members like local business owner Kevin O’Brien to accept as healthy for the city and its taxpayers.
“The city may say, ‘look at what has happened under the current leadership; the Coral Ridge mall came in, and the city is booming and you have all these great services.’ Terrific, the mall was a home run,” O’Brien said. “The city of Coralville spent just under $10 million in infrastructure costs on that project, they used Tax Increment Financing (TIF) it to get the mall to come in, it generated 2,000 jobs and the result was that the taxpayers get their money back every year, all their money back.”
However, Coralville expanded its urban renewal area, or TIF district, eastward along Interstate 80 to include the city-owned revitalization project, the Iowa River Landing (IRL). The city used the designation to allow the use of TIF in the IRL project to subsidize more private businesses they wanted to locate there, including the 80,000 sq. ft. Von Maur department store that opened this past weekend. Depending on who you ask, that deal alone cost the city– actually, its taxpayers, O’Brien noted– between $10 million and $16 million.
“The city will have spent more on Von Maur than they did on the entire Coral Ridge mall, and they’ll add maybe 200 jobs? Von Maur’s property tax is capped at $160,000 per year. If you divide that (investment of) at least $10 million and you’re only getting $160,000 back a year, that same money that went into the Coral Ridge Mall that is giving back between $9 million and $10 million every year… is that a sound investment?”
According to that math, with a 0.6 percent return on investment, it will take 62 years to realize any financial benefit of the deal, said Bender.
“If indeed there is a pay off from this, some of us around here won’t be alive to see it. Is that what we want?” Bender asked. “When I explain it to people, everybody is shocked by the numbers.”
But it takes a great deal of explanation to help most people comprehend complex financial funding streams like TIF and municipal bonds. What O’Brien and his colleagues most want people to understand is the impact it has on property taxes, and taxing entities like the county and school districts, which have not benefitted from tax revenues when they are captured by a city employing TIF.
Besides Von Maur, the City of Coralville has also provided financial incentives to other IRL businesses like the Backpocket Brewery, 30Hop Restaurant, and the University of Iowa Hospitals and Clinics, the latter receiving a loan to purchase land for a parking ramp at IRL.
“Even if you don’t have any kids in school, and you kind of like driving down there and looking at all the cool things down at the IRL… (you have to realize that) what funds that is your property tax,” said O’Brien. “And everybody’s property taxes– whether you own a house or a farm or a business– are going up. Our property taxes would be going down if not for this. The city may come back and say, ‘yes but we’ve planted all these seeds and they’re going to sprout.’ Well, not if 30Hop is getting a $400,000 break on their taxes, and Von Maur is only paying $160,000, and the University is paying $1 million a year but it goes to pay back the loan of $30-some-million they bought they land with.”
Coralville City Administrator Kelly Hayworth said he believes the city will continue to be involved in providing such incentives to businesses. Recently, for example, the city council approved a $413,000 forgivable loan to a company called MediRevv, a healthcare revenue cycle management company, which is constructing a $3.2 million facility in Coralville with the promise of adding 80 new jobs.
“I think the council is very committed to assisting good companies like MediRevv, in growing in our community, and it’s a great investment from the city’s perspective,” said Hayworth. “The financial investment payback of companies like that is very rapid.” Typically, the city will realize payback on its investment within seven years.
When a business approaches Coralville to seek incentives, it must provide information on its expected creation, the value of those jobs and the accompanying benefits, a minimum assessment value on any proposed facility. It also must indicate a specific need the city can help fulfill. “The idea is not jut to give free money to somebody, but to fill a need that company is looking for,” said Hayworth. “So in seven years, you’ve paid off the community’s investment and you have a long-term asset in paying property tax, a job generator and all the other benefits you see, whether creating additional homes or users of other businesses in the community; there’s just a wide variety of reasons you want to create that type of economic development.”
If the jobs don’t transpire or the minimum assessment agreement is not fulfilled, the incentive money must be paid back to the city. So far, Hayworth said he cannot recall any situations where the city has not recouped its investment.
On April 30 of this year, as part of its process in updating its community plan, the City of Coralville held a public forum to gain input from business leaders and hear from local business owners about the strengths and challenges of operating and growing a business in Coralville.
“It’s important that the business community let us know what they like and what they dislike, and let us have an opportunity to incorporate everything into the plan,” said Coralville mayor Jim Fausett. Overwhelmingly, the major concern of the business people in attendance was the city’s municipal debt and financial health, followed by infrastructure needs, property taxes, controlling growth, developing and marketing a community identity, and the city’s positioning itself to compete with private development.
The city does plan to address those concerns as it moves forward on the community plan. Hayworth said. However, the city has only just begun to collate its community input and will now begin its visioning process, so he was unable to say how. Information on the community plan, its public input sessions and more can be found on the city’s website.
In the April meeting, it was evident that not everyone sees Coralville’s support of economic development as a drawback.
“I would like to see the city continue to run with the same entrepreneurial spirit it has, but perhaps with more transparency,” one unidentified participant said.
“Coralville leaders are risk takers, and that’s something hard to find in government,” said Johnson County supervisor Terrence Neuzil.
Roetlin acknowledged that Coralville and its council has made some bold decisions.
“Are we in a situation where we have assumed more risk than some cities? I would say yes, the city council has been willing to take some risks that other cities choose not to,” he said. “On the other hand, the city works very hard to manage those, and takes very calculated risks, and not irresponsibly so. People can disagree with those decisions, and there are council meetings and work sessions open to the public; people should avail themselves of those opportunities, especially if they are impassioned about it.”
Local business owners like O’Brien and Bender do hope to encourage people to take advantage of the opportunities Roetlin described; to become engaged in city government, attend meetings, and perhaps run for council as well. Meanwhile, they and others will continue to educate the general public about Coralville’s decisions.
Another goal, added O’Brien, is getting the city back to the business of running the community in a role more suited to municipal government. To that end, the citizens’ group will continue to lobby for change.
“Our goal is to get this project in private hands. IRL should be privately owned and off the taxpayers’ backs. The city should go back to being a city and provide infrastructure– streets, sewers, lighting and things like that– and not be building Von Maur’s building. They should not be a developer. We want get the taxpayers out of funding a project we are not sure is going to be viable. That’s our goal,” said O’Brien.
However, O’Brien admitted it is going to take more time and effort to effect such change.
“We’ve been doing this about 18 months, and the city’s been doing this for 15 years, so moving this giant dinosaur is going to take time. We’re committed to investing the time. We’ve all get very deep roots in this area,” O’Brien concluded. “Our goal is not to make anyone look stupid or ignorant. Our goal is to get it in private hands so it can be successful that way, so it generate tax revenue that will help pay for schools and lower our property taxes, which are some of the highest in the country.”