Iowa Development Waters Still Safe for Pirates

Anti-piracy provisions newly incorporated into Iowa’s TIF law need to be implemented for all economic development subsidies.

Peter Fisher
Peter Fisher

The Iowa Economic Development Authority (IEDA) just announced that it has awarded $304,000 in state tax incentives to Putco Inc. to move from Story City to a location about 35 miles away in Polk County. The Polk County Board of Supervisors will hear a proposal on Wednesday that the board add $363,000 in tax abatements to the incentive package.

Why is the state helping to finance the piracy of jobs from one place to another in Iowa? This is not economic development for the state, and in fact appears to be counter to any reasonable interpretation of state law.

The Iowa Code, Chapter 15A.1 (2), dealing with economic development, states that “funds should not be used to attract a business presently located within the state to relocate to another portion of the state unless the business is considering in good faith to relocate outside the state or unless the relocation is related to an expansion which will generate significant new job creation.”

According to  The Des Moines Register, the alternative under consideration by Putco, a manufacturer of car and truck accessories, was a new site in the Story City area, not out of state. Furthermore, the IEDA project report shows no “jobs retained,” as there would be if an out-of-state move had been threatened.

And the new jobs to be created? Five. Over the past 10 years, almost 84,000 new jobs were created every year by establishments expanding in Iowa. Against that number, how in the world can five jobs be judged a “significant” addition?

As the Iowa Fiscal Partnership has argued previously, the “new jobs” exception in Iowa’s anti-piracy statute is so vague as to constitute a loophole large enough to drive a moving van through. In fact, the Iowa Legislature apparently agreed with this assessment. The Tax Increment Financing reform bill passed by the General Assembly and signed by the Governor includes an anti-piracy provision devoid of any job expansion loophole; a move is a move.

Firms will still move facilities from time to time, but they need not be subsidized by taxpayers to do so, as was the case with the $18 million or more provided by Coralville to entice Von Maur away from another location in Johnson County. Such moves won’t be subsidized by TIF subsidies anymore.

Unfortunately, the basic anti-piracy statute that applies to all economic development subsidies, quoted above, was not amended, leaving state agencies and local governments free to interpret “significant job creation” as loosely as they please, for any subsidies other than TIF. One wonders what the folks at IEDA feel is the limit. Three jobs? One job? Given the rather wobbly record of firms receiving state incentives in the past — job creation targets are often not met — it is quite possible that in the end this move will result in no net increase in jobs at all, above the 40 currently employed in Story City, or even a loss in jobs if the new facility is more automated and firm sales fail to meet expectations.

So it appears that taxpayer-subsidized piracy is alive and well in Iowa. The restrictions newly incorporated into TIF law need to be made part of the general law on economic development subsidies. If property tax payers should be protected from such abuse of public funds, why not state taxpayers generally?

Posted by Peter S. Fisher, Research Director

The need for TIF reform

Economic development types have become addicted to the idea that they can use TIF to do many things without regard to the impacts on neighbors or even the real purpose of TIF.

Peter Fisher speaks at TIF forum
IPP Research Director Peter Fisher speaks at a forum on tax-increment financing as Sen. Joe Bolkcom, D-Iowa City, and Rep. Tom Sands, R-Wapello, look on.

Peter Fisher’s report for the Iowa Fiscal Partnership about the use of tax-increment financing (TIF) painted a picture of a program that has become a monster. I encourage all to find the report on our website, or to view the forum in Coralville hosted by the bipartisan team of Sen. Joe Bolkcom, D-Iowa City, and Rep. Tom Sands, R-Wapello.

It takes some folks out of their comfort zone — apparently former Iowa City Council Member Bob Elliott among them in today’s Iowa City Press-Citizen — to see what an otherwise well-intentioned and potentially valuable tool has become due to lax state law. Cities across Iowa have shown an inability to handle the responsibility that goes with the permission to divert other jurisdictions’ tax revenues with TIF. Such projects that are supposed to benefit all whose revenues are being used. Unfortunately, it frequently does not work that way.

The report offers several ideas for reform to rein in abuses; it does not call for elimination of TIF, but for regulation. Perhaps Mr. Elliott missed that, as he states, “For me, an appropriate analogy to the TIF situation would be medical drugs, which can provide great benefit or be dangerously abused. In situations like that, you don’t eliminate it, you regulate against misuse and retain the capacity for beneficial use.” Agreed.

Indeed, the drug analogy is appropriate. Economic development types have become addicted to the idea that they can use TIF to do many things without regard to the impacts on neighbors or even the real purpose of TIF. Fisher’s report offers examples from Johnson County — notably Coralville’s use of property-tax dollars from one school district to create new property-tax base in another, in a project that effectively lured a major department store from Iowa City next door.

If state lawmakers ignore such examples, they will be repeated — in fact, it would give cities tacit approval to consider these practices appropriate. Take that, Clear Creek-Amana school district. Take that, Iowa City.

Fisher’s report is a wonderful example of how a nonpartisan organization that is focused wholly on issues, and not partisan politics, can help people of any political stripe to understand those issues. Iowans use our work and contribute to it because they know they can count on IPP to provide fact-based analysis and relevant research that holds the political spinners accountable. And yes, contributions to our work are welcome. Click here.

Posted by Mike Owen, Assistant Director

TIF public forum draws out facts, and people

Sen. Joe Bolkcom, D-Iowa City, and Rep. Tom Sands, R-Wapello, hosted the Coralville forum about an issue growing in attention following the release of Peter Fisher’s report for the Iowa Fiscal Partnership.


The room was packed, but now more people will be able to view the January 4 public forum in Coralville about tax-increment financing.

City Channel 4 — Iowa City Cable TV — will show the forum, which features a presentation by Iowa Policy Project Research Director Peter Fisher and comments by Iowa lawmakers and local officials. Fisher’s recent report, Tax-Increment Financing: A Case Study of Johnson County, was the focus of commentary throughout the hearing.

Hosted by State Sen. Joe Bolkcom, D-Iowa City, and State Rep. Tom Sands, R-Wapello, the forum has drawn much attention including media coverage by The Gazette in Cedar Rapids and The Press-Citizen in Iowa City.

The Iowa City cable presentation of the forum will be shown six times in the coming week, beginning at midnight today. The program runs 1 hour, 49 minutes. Here is the full schedule, also found on the Channel 4 website:

Saturday, January 07, at 12:00 a.m.
Saturday, January 07, at 9:30 p.m.
Monday, January 09, at 8:00 a.m.
Tuesday, January 10, at 5:30 a.m.
Wednesday, January 11, at 4:00 p.m.
Thursday, January 12, at 1:30 p.m.

To view slides that Fisher used in his presentation, click here.

It’s not theater: ‘The Pirates of River Landing’

Total up-front project cost: $16 million to $17 million plus infrastructure. The city’s share: at least 75 percent. In the economic development world, that is an astounding fraction. That’s even larger than Iowa’s scandal ridden film tax credit.

Peter Fisher
Peter Fisher

The Coralville City Council recently approved an astounding incentive package to entice Von Maur from Iowa City’s Sycamore Mall to Coralville’s Iowa River Landing project. The city has agreed to build a $9.5 million store for Von Maur. It doesn’t matter how well your store is doing; if someone offers you free rent in perpetuity, that gets your attention.

But the $9.5 million is only half the story. The city also agreed to:

  • give Von Maur the $1.5 million building site for $10,
  • pay $650,000 to buy out the company’s lease at Sycamore Mall,
  • pay all of Von Maur’s expenses of moving from the mall to Coralville, and
  • pay all of the cost of constructing necessary streets, sidewalks, parking lots, landscaping, street lighting, water, sewer and storm sewers associated with or needed by the store.

And that’s still not the end. This was a TIF deal, where the rationale is that you are creating tax base, in the long run.

Well, guess what happens to most of the tax revenue — the city rebates it to Von Maur, with no ending date, because this TIF is in a “blighted area,” which means the TIF goes on forever.

So I guess the day after perpetuity, the schools and the county will start collecting all the taxes normally due them from this project.

The property tax deal caps Von Maur’s liability for property taxes at $150,000 per year (inflated each year by the consumer price index or 2 percent, whichever is less). If you take the building cost and add the land value you get $11 million. Then throw in another $1.0 to $1.5 million for the value of interior improvements made by Von Maur that count as part of the real estate, and you get a taxable value of about $12.2 million. At the current total property tax rate in that area of $36.57 per thousand, that is about $450,000 per year for a total property tax bill.

Under the agreement, Von Maur pays only $150,000, the city pays the remaining $300,000. There is no time limit on the cap. But if we assume that the store will have an economic life of 20 years, we can calculate the present value equivalent of giving them $300,000 a year. It’s about $4.5 million (using a 3 percent discount rate). You could argue about the time frame, or the discount rate, or about how much faster property taxes will go up than the 2 percent limit on the cap (which means the rebate amount will increase).

But you will in the end come to the conclusion that the tax cap is worth a lot — $4 million to $5 million. That is, giving Von Maur $4 million to $5 million up front would be worth about the same as giving the company $300,000 a year for 20 years. That means the total incentive package is worth at least $16 million (9.5 + 1.5 + .65 + 4.5). “At least,” because that figure doesn’t include all of the city infrastructure costs, which will be substantial, or the moving costs. Von Maur, meanwhile, has to come up with just the cost of finishing the interior space to its specifications, an expense that is likely to be in the $3.5 to $4.5 million range, plus $150,000 in property taxes each year, and its share of maintaining the common property (mostly parking lots).

Total up-front project cost: $16 million to $17 million plus infrastructure. The city’s share: at least 75 percent. In the economic development world, that is an astounding fraction. That’s even larger than Iowa’s scandal-ridden film tax credit, which briefly promised “half-price filmmaking” before the program was shut down. In addition to covering three-fourths of the up-front costs, the city will pay two-thirds of the annual property tax bill.

Coralville Council members — perhaps soon to be known as the Pirates of River Landing — apparently think this is a wise use of taxpayer funds. We can hope that the taxpayers of Coralville have a more sensible view of the world.

Posted by Peter S. Fisher, Research Director