IOWA CITY — Demand change from the powers that be or take a harder stance at the negotiating table.
Those are, in short, the two paths Iowa City Manager Tom Markus sees for the City Council in response to a lucrative tax deal between the University of Iowa and the city of Coralville first reported by The Gazette last month.
After the story was published, City Council members asked Markus for more information on the $1 million-per-year payment in lieu of taxes the UI makes to Coralville for a tax-exempt UI Health Care medical clinic in the Iowa River Landing District.
The deal is unique in Iowa, and the $1 million payment in lieu of taxes, or PILOT, is uncommonly high for the size of the 150,000-square-foot clinic compared with other PILOT agreements nationwide.
Those two factors played prominently in a 52-page report, plus attachments, by Markus released Thursday.
His review brought to focus the different approaches to the university-city relationship in Coralville and Iowa City, he said.
“So different in fact that this review becomes necessary to determine if Iowa City needs to consider alternatives to Iowa City’s traditional relationship with the University, at least as it relates to the subjects of tax exempt status, service agreements, and PILOT agreements,” he wrote.
Markus said he saw two options for how the City Council could respond.
In one, the city could tell the Board or Regents, which oversees Iowa’s public universities, that the PILOT agreement the board approved with Coralville in 2010 and payments for the parking ramp next to the clinic were overly generous, unwarranted and should not be repeated in the future.
The UI owns property immediately south of the clinic and may build another facility. Markus said a Coralville official told him another PILOT would be anticipated.
The other option, Markus said, is for Iowa City to take its lead from the PILOT and become as aggressive in its dealings with the UI as Coralville.
Iowa City received $1.76 million from the UI in fiscal 2013 for providing fire service to 16.8 million square feet of campus.
If Iowa City received the same amount per square foot for UI property in its boundaries as Coralville does for the clinic, it would get roughly $115 million, Markus wrote. He said in an interview that number puts the Coralville PILOT in perspective and no one would suggest Iowa City receive that much.
“I just think that they were way too generous in their arrangements at IRL,” he said.
Markus said it may be appropriate for the Board of Regents to develop a policy on PILOTs.
The only PILOT in the regent system besides the UI medical clinic is for the UI Research Park, also in Coralville, but the two have different methods for calculating payments. Like Iowa City, Ames and Cedar Falls have fire service agreements with Iowa State University and the University of Northern Iowa, respectively.
These types of concerns have played out nationally and have led to PILOT agreements being a source of friction elsewhere — a position Iowa now finds itself in.
Board of Regents President Bruce Rastetter said Thursday that he didn’t have much information on the PILOT but that he’d ask the board’s executive director to give him a summary and he may talk with his fellow regents about reviewing the issue in the future.
Rastetter was not on the board in 2010 when the PILOT deal was reached.
UI spokesman Tom Moore did not directly answer questions posed in an email but did provide a statement that said, in part, the PILOT agreement was reviewed by the Iowa Attorney General’s Office and the site was picked for the clinic because of its convenience for patients.
Coralville City Administrator Kelly Hayworth said he stood by the information he gave Iowa City but had no further comment because he had not read the report.
The city of Iowa City did not release its report until shortly before 5 p.m.
Markus said the Iowa City Council will discuss the issue at an undetermined future meeting.
In his report, Markus raises questions about the dealings between Coralville and the UI. The $1 million PILOT is based on a $28 million value placed on the exterior of the clinic, but not the interior build out and equipment for the $73 million project.
Markus questions whether that $28 million figure was “backed into” in an effort to get to a $1 million annual payment for Coralville.
A connection also is drawn to Coralville’s controversial decision to give Von Maur millions of dollars in incentives in 2011 to build a store near where the clinic now stands.
Financial documents say the $1 million from the PILOT is being used to pay back a bond issue of almost the exact same amount for capital improvements in Iowa River Landing, Markus said.
Coralville officials told Markus there was no relationship between the PILOT and Von Maur deals.
Markus wrote that this was not a dispute between Iowa City and Coralville, which he said was acting in its best interest.
He also said the city values its relationship with the UI and, no matter what the Iowa City Council does, it was important to have a “productive discussion that seeks a fair solution.”
The Gazette’s Vanessa Miller contributed to this report.
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