Report critical of use of TIF in Johnson County

Critics say TIF is 'cash cow,' pays for projects outside taxpayers' jurisdictions

The Marriott Hotel and the Vesta restaurant at the intersection of East 9th Street and Quarry Road at the Iowa River Landing. (Brian Ray/The Gazette)
The Marriott Hotel and the Vesta restaurant at the intersection of East 9th Street and Quarry Road at the Iowa River Landing. (Brian Ray/The Gazette)

Not only is Iowa City most likely losing its Von Maur to Coralville, but its taxpayers are essentially helping Coralville pay to build a new store, according to a new report.

The owner of an average single-family home in Iowa City pays an extra $80 annually in property taxes because of the Coral Ridge Mall tax increment financing area, according to a report to be released Monday by Peter Fisher of Iowa Fiscal Partnership, a nonprofit, nonpartisan think tank.

The Coral Ridge Mall/Highway 6 tax increment financing, or TIF, area includes the city-owned Iowa River Landing District. That is being developed into a commercial area, and Coralville said in September the city would use nearly $9.5 million in TIF funds to build Von Maur a department store there.

The size of the agreement – which Fisher actually values at more than $16 million – and the likelihood that Von Maur will close its store in Iowa City’s Sycamore Mall has led to intense criticism of Coralville from Iowa City officials, developers and some members of the public.

Fisher, a public finance expert, began researching TIF uses in Johnson County in early summer. His final report is critical of the way the financing mechanism is used and calls for a major statewide reform. Here's a link to the report.

“They (cities) are not doing anything illegal … but I would say lots of them are not using it responsibly either,” Fisher said in an interview.

His 16-page report takes a comprehensive look at Johnson County, where $759 million worth of taxable property is part of a city TIF increment, he said.

He concludes that many cities use TIF as a “cash cow” to finance projects and shift some of the costs to taxpayers outside their jurisdictions.

A TIF freezes the property taxes on a site at predevelopment levels and diverts the new taxes, or increment, into a fund used by the city. Sometimes the increment goes to a developer of a project in the TIF area or the city might use it for infrastructure work.

Other local governments, like a county and school districts, that typically would get a share of the tax revenue do not get money from that increment.

Fisher argues that those entities must increase their taxes to make up for the lost revenue. The state of Iowa also must chip in more for what it provides districts in student aid, he said.

Looking at it that way, Fisher wrote that of the eight heaviest TIF users in Johnson County, between 23 percent and 62 percent of their property taxes are exported to non-city taxpayers. Those eight, from the highest percentage to lowest, are Shueyville, Tiffin, Oxford, Swisher, Coralville, Lone Tree, Solon and North Liberty.

“The ultimate tax shift produced by TIF is from city to non-city taxpayers,” Fisher wrote.

North Liberty City Administrator Ryan Heiar said that may be a valid concern if a city is misusing TIF. He said an example of a worthy North Liberty TIF project is Highway 965.

“Which by the way the schools and county use,” Heiar said. “Had we paid for this with our own levy, I don’t think that’s fair.”

Going back to the Coral Ridge Mall TIF example, Fisher said the overall effect is a $1.07 increase in the tax rate in Iowa City. That’s an extra $80 a year for the average $200,000 home and $254 for a small business with $300,000 in taxable property, he concluded.

The Clear Creek Amana school district also is in the TIF area, and the owner of a $200,000 home in its boundaries pays $319 more a year, he found. Iowa River Landing is in the Iowa City school district, however, so future tax revenue generated by that development will not benefit CCA, Fisher said.

Coralville City Administrator Kelly Hayworth had not seen the report but said the problem with Fisher’s conclusion, as laid out by a reporter, is it assumes the projects, and resulting growth in the tax base, would have occurred without using TIF as an incentive. In an argument often heard from other city officials, he said some projects would not happen without TIF.

Fisher counters that while it’s true some projects would not occur without a city’s help, bonds or tax abatements could work. A TIF is preferred by cities because “it does spread costs to others.”

Hayworth said those alternatives require raising taxes.

“I don’t think that TIF is perfect, but I think that right now it’s the only options cities have” for economic development, he said.

Coralville accounts for 68.4 percent of the TIF valuation in the county, Fisher wrote, so between that and the recent Von Maur controversy, it gets its share of attention.

But there is some noteworthy data from the county’s smaller cities.

In Shueyville, 100 percent of the TIF revenue is used to make debt payments for a new community center/city hall and for a street project, he said. In Oxford, TIF revenue mostly goes toward water and sewer projects. So, some of their infrastructure costs are being shifted to taxpayers outside their city limits, he said.

Fisher said the state should consider prohibiting or severely limiting the inclusion of residential and retail activity in a TIF area. He also said there should sunset dates for TIFs and the 20-year limit some get is too long in most cases.

He also calls for a limit on the portion of a city’s tax base that could be included in a TIF area.

In the wake of Coralville’s Von Maur deal, some state legislators have said they want to discuss TIF reform in the upcoming legislative session.



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