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

Iowa is not an island; jobless vote carries important impacts

Jobs are at stake, right here in Iowa, with the vote in the House today.


When your state is not showing the heavy impact of joblessness in the United States, it can be easy to miss the impact.

Iowa’s jobless rate is 6 percent, two-thirds that of the nation as a whole, but nevertheless high for what we’re used to and representative of the fact that our payroll jobs are significantly below where they were before the recession started hitting Iowa. In our state, jobs are about 44,000 below where they stood in May 2008.

Today in the U.S. House, legislation is expected to come to a vote to cut unemployment benefits. It would cut up to 40 weeks of benefits next year — most from the states hardest hit by the recent recession. Our neighbors in Illinois, Missouri, Wisconsin and Kansas would see varying losses of weeks of benefits by next July. See the map below from the Center on Budget and Policy Priorities (CBPP). map of projected UI losses by state

As Chad Stone of CBPP notes in a recent blog post, cutting off benefits in the hardest-hit states “greatly raises the risk that unemployed workers will run out of UI benefits before they find another job, imposing even greater hardship on them and their families. It also reduces the amount of support that UI — one of our highest-bang-for-the-buck stimulus programs — can provide for the struggling recovery.”

But even Iowa would be affected, if not with the benefit cut the way other states would be hit, then in the indirect impact on the state’s economy.

The cuts would shut off a flow of funds into the U.S. economy, the impact of which we cannot avoid. Sooner or later, it will hit our own stores, factories and services.

In short: We don’t need our lack of beaches to show us that Iowa is not an island. Jobs are at stake, right here in Iowa, with the vote in the House today.

Posted by Mike Owen, Assistant Director

Stewardship, community and freedom

The assault on our public structures by convenient, slick, political messages of the day defies American values of stewardship and community.

Today America faces a daunting task: finding a way to reduce deficits and debt while not crashing the economy and still maintaining the critical services that are only, or best, provided by the public sector.

At the Iowa Policy Project, we have the opportunity to work with many similar state and national organizations — nonpartisan, nonprofit, issue-focused and fact-based analysis at the heart of their missions and their work. One of these colleagues, Michael Lipsky, distinguished senior fellow at Demos, recently wrote a column in The New York Times about a hiking trip in the Pasayten Wilderness in Washington state, near the Canadian border.

In his excellent piece, “A Well-Regulated Wilderness,” Lipsky wrote that, even there, he found himself thinking about government. “Not that there was much of it in sight,” he remarked. He continued:

There were no rangers to check our reservations, no posted rules telling us where and how to set up camp.

Michael Lipsky, distinguished senior fellow, Demos
Michael Lipsky, Demos

If anything, the Pasayten seemed to prove that we don’t need government, that humans can be self-regulating: per the unofficial rules of backpacking, most of our campsites had been reused repeatedly, to minimize damage to the environment, and litter was rare.

On reflection, however, this nursery of freedom spoke directly to the role of government in shaping our world. It was thanks to decades of effective lawmaking that we could enjoy four days in the open country, fixing meals, hiking and spending family time together. … Americans once feared the wilderness and sought to tame it. Now we seek it out as redemptive. …

In 1964 Congress passed the Wilderness Act, which set aside 9.1 million acres of public land as places where people would be visitors but not leave any marks; today some 108 million acres are protected under the act.

Mike Owen
Mike Owen

Michael Lipsky’s perspective is spot-on. Let’s look at it another way: Would Exxon have done this? Or Microsoft? Or Wal-mart? Would it even make sense for them, or their stockholders, to do so? To whose mission, then, do such responsibilities fall? Does it not make sense that this would fall to the federal government? Would you not say the same about basic economic safety-net programs? Infrastructure such as roads and bridges? Workplace safety? Clean water and clean air protection? Civil rights and education? National security?

The assault on our public structures by convenient, slick, political messages of the day not only disregards, but defies, what in our hearts and minds we know are the American values of stewardship and community that are the thrust of what government does.

We’re all concerned about deficits and debt and the impact on our children and grandchildren, but we also must be challenged to address the impact on those future generations of a failure to accept the mantle of responsibility of maintaining and nurturing the structures that have sustained us, when “self-regulation” is not enough. For if we do fail on that score, it will be every bit as much a debt as one of dollars.

Posted by Mike Owen, Assistant Director

The reality of Recovery Act funds: They helped!

More teachers will be on the job in Iowa in the coming month and class sizes will be more manageable because Recovery Act funding saved positions in recent years.

Mike Owen
Mike Owen

A new report offers one illustration of the value of funds provided to the states under the American Recovery and Reinvestment Act (ARRA) — also known as the “stimulus” bill.

Aside from political arguments about ARRA, one thing that is undeniable is that it helped Iowa lawmakers get funds to Iowa schools at a time state revenues were coming in short.

IPP Research Associate Andrew Cannon’s report on education in funding in Iowa, “World-Class on a Shoestring Budget?” notes that a decade-long decline in K-12 funding has reversed course (measured in inflation-adjusted dollars), beginning in 2009, the first of three years of the temporary ARRA help. As his report notes:

The American Recovery and Reinvestment Act (ARRA) allowed Iowa, during the leanest years of the recession, to continue funding education at levels comparable to and even higher than prior years. As those Recovery Act funds expired at the end of June, the end of the state’s fiscal year, Iowa lawmakers chose to provide state funds to replace Recovery Act funds.

While it might be expedient to complain about “one-time funds” being used for ongoing expenses in the state budget, that is precisely how ARRA funds were designed to be used. Effective stimulus policy, as the Iowa Fiscal Partnership and others have noted, is supposed to be temporary, timely and targeted. State fiscal relief in times of revenues shortfalls is one of those approaches, and in this case, education funding in Iowa was sustained at more traditional levels than otherwise would have happened. More teachers will be on the job in Iowa in the coming month and class sizes will be more manageable because that funding saved positions in the last few years.

Cannon’s full report — six pages, plus a four-page appendix of data tables on education funding — may be found here.

Part of making Iowa students educational achievers is to encourage critical thinking skills — the skills that will teach them to check the facts about programs such as ARRA before listening to the political talking points.

Posted by Mike Owen, Assistant Director

Is what Wal-Mart wants for Amazon also good for Wal-Mart?

“Leveling the playing field” — does Wal-Mart always want it?

Mike Owen
Mike Owen

An interesting column by Liz Peek on TheFiscalTimes.com notes Wal-Mart and other retail giants are banding together behind legislation to require Amazon.com to collect and pay state sales taxes rightfully owed on purchases made online.

OK, but why does Wal-Mart take advantage of its own wide reach to shield profits from state taxation?

As the Peek column notes:

Overall, retail sales over the Internet grew nearly 15% last year in the U.S., and totaled $165.4 billion.

Industry analysts are expecting that figure to swell to more than $188 billion this year. That presents quite a dual challenge to states unable to collect sales taxes on those purchases, and to traditional stores that are losing market share. Consequently, large retailers, and thousands of others across the country, have banded together to demand the playing field be leveled. (emphasis added)

So, Wal-Mart is demanding “the playing field be leveled.” Admirable, perhaps, but ironic, to be sure.

In an April 2007 report for the Iowa Fiscal Partnership, “Leveling the Playing Field,” Peter Fisher illustrates how Wal-Mart has gone to great trouble in tilting the field in its favor on corporate income tax. Wal-Mart created a multilayered, multistate structure to shift at least some profits where they are taxable to states where they are not. In a nutshell, Wal-Mart found a way to charge itself rent to reduce taxable profits.

All done by the book as the book has been written. But it creates an advantage for one retail giant that its small competitors who sell shoes, tires, clothes, office supplies, groceries, etc., cannot take. And Wal-Mart’s strategy is not the only one being used by large, multistate corporations to dodge tax responsibility. Many corporations do so by exploiting loopholes, the seams in tax law that companies use to defeat legislators’ intent.

Iowa could fix this — and level the playing field — with a simple solution already adopted by five neighboring states: Nebraska, Kansas, Illinois, Minnesota and Wisconsin. That solution is corporate combined reporting, supported by Iowa’s last two governors, but not once debated on the floor of the Iowa House or Senate.

When the solution not only could raise money for the state and make the playing field more fair for small businesses, this debate is long overdue.

Posted by Mike Owen, Assistant Director

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Article III, Section 24

Most years, nobody would give Article III, Section 24, a second thought. Textbook civics. But 2011 is no ordinary year. It’s making us think outside the textbook.

Mike Owen
Mike Owen

It is a simple line in the Iowa Constitution, found in Article III, Section 24:

Appropriations.  SEC. 24.  No money shall be drawn from the treasury but in consequence of appropriations made by law.”

Most years, nobody would give it a second thought. Textbook civics. But 2011 is no ordinary year. It’s making us think outside the textbook.

In short: What happens if there is no budget agreement by the July 1 start of the fiscal year? A succinct Iowa Fiscal Partnership backgrounder on the topic illustrates a few of the potential effects of a shutdown — at least several concerns that certainly should be addressed. While no one presumably wants to see a state shutdown, the thought of it does show why our public structures matter to everyone in the state, and why a shutdown would hurt. Already we can expect cutbacks in several areas — education and environmental quality enforcement among them — even without a shutdown.

While Governor Branstad’s chief spokesman dismisses such discussion as “hysterical hypotheticals,” common sense would suggest to anyone with a calendar that it’s worth thinking about.

And, in fairness to the Governor’s spokesman, the Governor may be thinking about it: “Our focus remains on the efforts necessary to continue the operations of state government rather than shutting it down.” The Governor himself indicated to the media that if necessary, a temporary bill could be passed until a final agreement is reached.

The latter would presumably meet the dictates of Article III, Section 24. And it would be nice to know how specifically our elected officials plan to do so — which services would continue, and which would be cut back, if the budget haggling goes on.

It is, after all, our business. The politicians are only the hired help.

Posted by Mike Owen, Assistant Director

What smaller government looks like

Maybe you won’t notice cuts like those Lande announced Wednesday. Then again, maybe you want to take the kids to the lake this summer.

Mike Owen
Mike Owen

It was a previous Department of Natural Resources director who delivered the warning.

“I have gotten I don’t know how many complaints from legislators and small business owners about, ‘You used to do this and now you don’t any more,’” then-Director Rich Leopold told The Des Moines Register last year. “[Y]ou want smaller government, this is what it looks like.”

Now, for a fresh look.

On Wednesday, the Register’s Perry Beeman reported that current DNR Director Roger Lande informed his staff that the agency would eliminate more than 100 jobs. The excuse? Lack of funds.

This, at the same time Lande’s boss, Governor Terry Branstad, and state lawmakers are haggling over how much in tax breaks can be built not just into the FY2012 budget beginning July 1, but for the year after that, and structurally in the budget for years beyond.

As the Iowa Fiscal Partnership has pointed out, Iowans value many services that would not be available but for the public structures created by our tax dollars — education, law enforcement, safety-net services, and, yes, environmental quality. When Iowa already has substantially cut services and shown almost no restraint in its giveaways to corporations, some of which are subsidized not to pay any tax, should the DNR cuts be a surprise?

Maybe you won’t notice cuts like those Lande announced Wednesday.

Then again, maybe you want to take the kids to the lake this summer.

According to the Register article, the agency’s stream monitoring coordinator said remaining employees “will struggle to monitor lake and river pollution after the cuts.” So, take the kids — but maybe you’ll be jumping in the lake at your own risk.

Not a bad idea, perhaps, for some folks other than your family.

Posted by Mike Owen, Assistant Director

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