A consensus seems to be developing to reform tax-increment financing, or TIF. This represents an understanding that responsible use of taxpayer funds is not a partisan issue. The iron is hot for reform, now.
And it is reform that we’re talking about, not elimination of TIF, as some fear. Reform is the case I have made in a recent report for the Iowa Fiscal Partnership about TIF use in Johnson County, and in a public presentation on that issue recently in Coralville.
Another public TIF reform meeting is scheduled Saturday, Jan. 21, from 10 a.m. to 11:30 a.m. at the Johnson County Health and Human Services Building, 855 S. Dubuque St. Iowa City, conference rooms 202B and 202C, second floor. There is public parking on the north side of the building; enter through NW door near the flagpole.
For reform to be meaningful, we need to do more than tinker around the edges with TIF. Fundamental issues need to be understood and addressed.
Let’s start by recognizing that providing subsidies (some say “incentives”) for retail development is simply bad public policy. They are either unnecessary or counterproductive. Retail development occurs when the market for retail justifies it; potential sales are all the incentive that is needed, and that is driven by location. A subsidy, provided through TIF or another means, is really a giveaway of taxpayers’ dollars.
Next, providing infrastructure to accommodate growth is what cities do. They should not need schools and counties to help in most cases. Many city projects are appropriately financed by issuing bonds, repaid by the city’s taxpayers.
Third, once a TIF project is paid off, cities still may have the district in place and often can find a way to keep diverting property taxes from the school district and county. This can be millions of dollars. A sensible law would require the TIF to end with the completion of a project, so that schools and counties are not denied their share of the increased value created in the TIF district.
Beyond those fundamental problems, TIF law in Iowa permits:
• Piracy of businesses from one community to another, even next-door neighbors, as Coralville is doing with over $18 million in breaks to encourage Von Maur to move from Iowa City.
• A shift of responsibility from residents to nonresidents to pay the taxes needed to provide city services.
• A city to cause residents of one school district subsidize tax-base improvements in another.
TIF reform may take many forms in this legislative session, but no TIF reform package will be sufficient unless it firmly deals with the issues noted above.
Posted by Peter S. Fisher, Research Director
Note: A related guest opinion from Fisher is in the January 19, 2012, Iowa City Press-Citizen.