Tax increment financing getting legislative scrutiny

According to a recent analysis, there are 2,238 active TIF areas in Iowa

DES MOINES – Several state senators acknowledged Tuesday that there have been abuses of tax increment financing (TIF) authority that should be addressed, but they argued against revamping a valuable development tool for local communities based on a worst-case scenario.

Members of the Senate Ways and Means Committee were presented updated figures indicating that statewide TIF property tax areas established for economic development or urban renewal purposes have a record $283.2 million impact, according to figures compiled by Jeff Robinson of the nonpartisan Legislative Services Agency. The TIF method of public financing uses expected future gains in taxes to finance current improvements and private investments which boost property values, foster jobs and generate additional tax revenue that often finance the debt that was issued to pay for the project.

According to the LSA analysis, there are 2,238 active TIF areas in Iowa with 1,567 of those generating TIF revenue. The $283.2 million property tax financing of TIF equals 5.9 percent of all property taxes paid in fiscal 2012 and the 403 local governments receiving TIF revenue include 348 cities, 49 counties, two community colleges and four rural improvement zones. For the three fiscal years ending in 2010, cities collected a total of $725 million in TIF property tax revenue and increased their reported TIF debt by $453 million during that same period.

Committee chairman Sen. Joe Bolkcom, D-Iowa City, said he requested the data as a baseline for an expected discussion this legislative session of TIF policy and possible reforms in the wake of a controversy in Johnson County over Coralville's announcement last fall that it would use millions of dollars in TIF funds to build Von Maur a new department store in the city's Iowa River Landing development – likely leading to the closure of a store in a mall in southeast Iowa City and moving its location less than five miles to the adjacent community.

“If that’s legal under this, I hope that we can work to tighten that up,” Bolkcom said of the deal that drew criticism from other cities, local developers, state lawmakers and others at a meeting in Coralville earlier this month. “There are other things to tighten up as well.”

Bolkcom said there are bills to reform the state’s TIF law being formulated in the House and Senate, but Sens. Rick Bertrand, R-Sioux City, Matt McCoy, D-Des Moines, and Brad Zaun, R-Urbandale, said there are a lot of positive economic effects that come from a strategy that freezes the property taxes on a site at predevelopment levels and diverts the increase in taxes, or increments, into a fund used by the city that should not be overshadowed or curtailed due to alleged misuses of the financing tool.

“I’m concerned about unintended consequences,” said McCoy, who credited TIF with helping to helping to attract new businesses, create jobs and revitalize Iowa’s capital city. In an effort to get at the abuses without crippling TIF, McCoy urged the committee to bring in city managers from places like Des Moines and Cedar Rapids to discuss was actually goes on in recruiting business projects rather than just hearing from association representatives that “frankly is powder-puff football for me.”

Bertrand agreed, saying TIF “is a big tool for us” in financing projects to revitalize downtown Sioux City.

“I want to make sure we’re seeing the complete picture of TIF and the role it plays in communities,” he said. “Development would not happen. Downtown Sioux City would not be developing right now if it wasn’t for TIF.”

Sen. Merlin Bartz, R-Grafton, said he hoped a major focus on TIF this session would not divert attention away from another pressing reform area – providing relief to commercial and industrial property tax owners in Iowa. After failing to pass commercial property tax reform last session, he said he was concerned that TIF reform could become “the poison pill” that would keep lawmakers from accomplishing one of the session’s top priorities.

Sen. Herman Quirmbach, D-Ames, said he has heard growing concerns expressed about TIF abuses that should be addressed.“We don’t want to throw the baby out with the bath water, but there is some bath water out there that’s getting a little nasty and we ought to deal with it this year,” he said.