Job 1 for Day 1 — putting Iowa families first

Issues that were big for our state before the election remain big issues.

As election dust settles, priorities remain clear for Iowa families

Now that the votes are counted, the real work begins. Job 1? It could be any of a number of areas where solid research and analysis have shown better public policy could make a difference for a more prosperous, healthier Iowa. Take a step back from the TV ads and “gotcha” politics and these issues come clearly in focus.

In Iowa, research shows solid approaches to economic prosperity for working families include:

In Iowa, research shows a fiscally responsible approach to both find revenues and do better with what we have includes:

  • Stopping tax giveaways to companies that pay no income tax — which occurs at a cost of between $32 million and $45 million a year through one research subsidy program alone, even though there is nothing to show this spending boosts the Iowa economy or produces activity that would not occur anyway.
  • Reining in unnecessary “tax expenditures” — tax breaks, tax credits and other spending done through the tax code — could bring in tens or hundreds of millions of dollars for public services. A five-year sunset on all tax credits would force lawmakers to review and formally pass renewals of this kind of spending, now on autopilot. The last attempt at real reform fell woefully short.
  • Plugging tax loopholes — a $60 to $100 million problem — would pay for a 2 or 3 percent annual increase in state per-pupil funding of K-12 schools. Twenty-three states, including 4 of 6 Iowa neighbors, don’t permit multistate corporations to shift profits out of state to avoid Iowa income tax and contribute their fair share to local education and other state services.
  • Reforming TIF — tax-increment financing, which is overused and often abused by cities around the state, has caught lawmakers’ attention in the past and should again. Like many tools that provide subsidies to private companies and developers, it should be redesigned to assure subsidies only go to projects with a public benefit and only where the project could not otherwise occur. Further, it should be designed to assure that only the taxpayers who benefit are the ones footing the bill, which is a problem with current TIF practice.

In Iowa, research shows a healthy environment and smart energy choices for Iowa’s future includes:

  • Putting teeth into pollution law — which means reforms in Iowa’s Nutrient Reduction Strategy to eliminate pollution in waterways.
  • Allowing local government to regulate frac sand mining — When it comes to cigarettes, guns and large hog facilities the Iowa Legislature took away the right of local government to listen to citizen desires. The General Assembly and the Governor should let democracy thrive and not take away local control of sand mining.
  • Encouraging more use of solar electricity in Iowa — Jobs are created while we confront climate change if we build better solar policy in Iowa.
  • Promoting local food and good food choices with school gardens — and a pilot project to offer stipends to Iowa school districts could encourage both learning and better nutrition.

None of these issues are new and it’s not an exhaustive list. But these were big issues for our state before the election and remain so, no matter who is in charge.

Together, we can build on the solid research cited above and lay the foundation for better public policy to support those priorities.

Owen-2013-57   Posted by Mike Owen, Executive Director of the Iowa Policy Project

Issues in Waiting: Tax-Increment Financing Reform

The county and the school district don’t have any say on whether the city is going to divert their taxes to the city’s TIF fund. And there’s no state regulation.

Basic RGBThis is an excerpt from an interview with IPP’s Peter Fisher on “The Devine Intervention,” KVFD-AM 1400, Fort Dodge. Host Michael Devine discussed tax-increment financing, or TIF, with Fisher, whose reports on this issue have prompted many to call for reform. TIF is one of Iowa’s “Issues in Waiting” — issues discussed year after year, but not resolved. The quotes below are actual quotes from the interview; the questions are paraphrased.

What was the idea behind tax-increment financing, or TIF?

It was originally a tool to help cities redevelop blighted or declining areas and what it did was allowed a city to capture more of the tax revenue from redevelopment when the city undertook some project to try to turn around a declining neighborhood. If they were successful, businesses would come in, the tax base would go up.

And what TIF did was allow the city to use not just the city taxes on all that growth, but the county and school taxes as well for some period of time to pay the city back for their expenses for this project, for redevelopment. And in the long run the county and school districts were better off. The cities got their money back, they got more tax base. That was the idea.

How did the implementation of TIF look?

It worked that way for quite a while. And then about 20 years ago we opened the door to just about anything cities wanted to do by saying well it doesn’t have to be a blighted area, it doesn’t have to be a redevelopment. It just has to be “economic development.” And just about anything cities do it turns out they can call “economic development” and finance with TIF.

Is there a consequence if TIF is abused?

Not really — as long as they are doing something within the law. The county and the school district don’t have any say on whether the city is going to divert their taxes to the city’s TIF fund. And there’s no state regulation either, other than the court system.

To hear the full interview, click here.

For more resources from Peter Fisher and the Iowa Fiscal Partnership about TIF, click here.

Some bad ideas never die

On a vote of 87-9, the House approved HF 641, which would authorize a new and wasteful incentive program that would divert money from the state general fund to support hotel and retail projects in cities.

Peter Fisher
Peter Fisher

The Iowa House today proved that bipartisanship is no guarantor of good policy. On a vote of 87-9, the House approved HF 641, which would authorize a new and wasteful incentive program that would divert money from the state general fund to support hotel and retail projects in cities. So we will be taking money that should be supporting state investments in education, health, the environment, public safety, and other services, and using it to subsidize hotel developers and retail strip malls. All in the name of “economic development.”

Cities already have more than enough ability to divert taxes to development projects through property tax TIFs and abatements. There is no need for additional diversions of revenue from other jurisdictions.

The House bill would authorize any city or county to establish “Reinvestment Districts.” From the date of establishment onward for the next 25 years, 4 cents of the 6-cent statewide sales tax, and all 5 cents of the state hotel-motel tax, from all “new” sales or room rentals would be diverted from the state general fund to the city for use in the district. What uses? Pretty much anything; any building, public or private, could qualify for a subsidy, and there is no limit on how much of the cost of a project can be subsidized.

“New sales” are sales from a business that first got a state sales-tax permit (or hotel-motel tax permit) after the date the district was established. Given the high rate of turnover among retail businesses, it is not hard to imagine a scenario in which most of the sales taxes in a district are diverted from the state general fund even though there has been little additional economic activity, or even decline. All that is needed is that old businesses are replaced by new ones, even if that means replacing an Applebees with a pawn shop.

Why will a city ever again be content to finance commercial redevelopment on their own, or with property tax TIFs alone? Why will a developer ever again finance a project entirely from private sources – try to remember, if you can, when that was the norm – when he or she can just ask the city to get the money from the state?

More importantly, what will become of market standards? While every legislator who voted for the bill surely believes in free markets and private enterprise, this measure undermines markets. There was a time, before the incentive wars got out of hand, when a project had to stand on its own – there had to be a sufficient market to support it, and banks had to be convinced that revenues would be sufficient to repay the loans. No more. Now local government officials are determined to force development to happen when it can’t stand on its own, creating oversupply that hurts existing businesses. Or the private sector happily rakes in all the new incentive cash to do something it would have done anyway. Those are really the only two alternatives for a local market activity: either market conditions support it and it can be financed privately, or the market can’t support it, and the city uses taxpayer money to force overbuilding.

We can hope that this bill gets careful scrutiny before it goes any further.

Posted by Peter Fisher, Research Director

Cities have development tools beyond TIF

The indefensible thing in the 2012 legislative session would be to make significant commercial property tax changes without fixing abuses of TIF.

Mike Owen
Mike Owen

The Business Record’s Kent Darr has an interesting story about Des Moines City Manager Rick Clark’s reaction to the commercial property tax issue, debated Tuesday in the Iowa House.

Clark expressed caution about unintended consequences that can result from tinkering with the property tax laws, which is a legitimate concern. But one of his own remarks demands caution as well. That is his concern about potential changes to tax-increment financing, or TIF, which are being considered separately this year. From Darr’s story:

“For cities in Iowa, it’s the only game in town,” Clark said. “It’s the only thing we have to encourage and promote economic activity; the other tools really don’t work. If we take away TIF or make it less effective than it is today, we’re really in a world of hurt.”

This argument is often raised and it’s just not necessarily so. First, cities do have other tools available, such as abatements. TIF is a tool that simply provides an extra revenue stream to fund those tools; in some cases, it may make sense to pool funds of various local government entities for a given project, but in others, possibly not.

Peter Fisher
Peter Fisher

IPP Research Director Peter Fisher addressed this in his recent report for the Iowa Fiscal Partnership examining TIF use in Johnson County:

It is important to understand that TIF is not synonymous with economic development incentives. TIF is merely a financing mechanism. Cities can and do promote economic redevelopment and job creation in a variety of ways; cities can build facilities to accommodate private projects, they can provide tax abatements for both residential and non‐residential property, and they can issue bonds to finance infrastructure, all without TIF. But TIF has become the mechanism of choice to finance economic development incentives in part because TIF creates the illusion that such incentives are costless, and in part because TIF in actuality shifts costs to other taxpayers.

Second, it should not be assumed that subsidies are effective. Does the subsidy cause the economic activity, or does the activity cause the subsidy? Sometimes it’s hard to say.

Again, Fisher:

Furthermore, much (perhaps the majority) of TIF revenue is not used to incentivize development at all, but rather to finance routine city infrastructure spending that otherwise could be financed with city bonds, retired entirely by city taxpayers, or charged to developers.

Sensible reforms would not render TIF “less effective” for its intended purposes to the extent subsidies are effective now. Fisher’s recent op-ed in The Des Moines Register outlined five common-sense reforms that would improve TIF. They would stop what would have to be acknowledged as abuses — for example, stopping cities from using TIF to fund a project in one school district from the tax base of another.

The indefensible thing in the 2012 legislative session would be to make significant commercial property tax changes — big cuts for businesses at the expense of homeowners or critical public services — without fixing abuses of TIF. Politicians frequently ignore TIF and other preferences when they start ranting about property taxes on business.

Posted by Mike Owen, Assistant Director

Case is compelling to reform TIF

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.

Peter Fisher
Peter Fisher

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.

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.