Tangle of TIF baffles taxpayers
The Iowa City Council recently approved a multimillion dollar corporate tax break in the name of progress.
Just a few years ago, that hardly would have been news. We had a council that was openly supportive of big downtown buildings and the big tax deals they said were necessary to make construction happen.
But coming from the current council, the latest tax incentive package seemed to some like a reversal. The council’s progressive majority swept the 2015 elections in large part by criticizing the previous council’s economic development habits.
The $41 million Hieronymus Square project south of downtown will receive $8 million in city support through tax increment financing, a business incentive scheme allowing local governments to offer years of property tax relief in exchange for new building investments.
To be fair, I don’t think anyone on the council ever said they oppose the use of TIF in all cases. I take them at their word when they say they found substantive and persuasive differences between previous tax relief deals and the Hieronymus project.
My frustration is not with the council or any particular project. Instead, I’m concerned taxes and corporate subsidies all together have grown too complicated to understand for many of us who are not accountants or lawyers. Representative democracy cannot function in those conditions.
TIF has earned scorn from across the political spectrum, including Americans for Prosperity on the right, and Iowa Policy Project on the left. Still, no organization has the resources necessary to track incentive programs in 99 counties and nearly 1,000 cities.
A 2013 report published by the state found “no evidence that TIF results in increased economic activity measurable at the county level.”
Nearly every state has some form of TIF, but rules vary. Many require municipalities to demonstrate development could not happen without the special tax deals, but not Iowa.
While TIF originally was intended for urban renewal in “blighted” neighborhoods, it’s rarely used for that purpose now. The 2013 report showed quick growth in the use of TIF, even though only 11 percent of TIF valuation statewide was for anti-blight projects.
Local governments find themselves competing against each other in an economic development arms race nobody can win. Advocates may be right when they say they can’t unilaterally disarm, or they would risk neighboring communities scooping up new developments and the new jobs.
Local governments’ growing use of economic development tools like TIF is a reminder government has a natural tendency to grow bigger — chasing never-ending growth in their workforces and tax bases — and more complex — striving to justify their legions of lawyers and accountants.
Council member Rockne Cole told me this week, “If people don’t understand, that’s an ‘us’ problem, not a ‘them’ problem.”
I agree with Cole, yet I doubt any amount of public relations will adequately equip every citizen to fully understand the accounting and regulatory tricks involved in modern economic development. The problem isn’t this TIF, it’s TIF.
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