By The Gazette Editorial Board
Prompted, in part, by recent controversy over Coralville’s retail development actions, a bipartisan House-Senate working group is studying Iowa’s tax increment financing rules to determine if reforms are necessary.
Some restrictions are in order — such as limiting the duration of economic development TIFs, restricting their use to projects that show a clear benefit and requiring require buy-in from other affected jurisdictions.
We support a city’s right to make economic development decisions, but a municipality’s actions shouldn’t adversely affect other levels of government.
As one economist has noted, Iowa’s addiction to TIFs has “seriously distorted” the property tax system — placing a heavy burden on non-TIF areas, often for little or no net economic gain. It’s time to put clearer, firmer boundaries on the TIF landscape.
TIF allows cities and counties to finance public improvements and provide other development incentives by freezing property tax collection at predevelopment levels and using the increment — the increase in property taxes created by the projects — to fund the improvements.
Historically, TIFs were used to revitalize blighted urban areas. More recently, most of the state’s TIF activity has been in a handful of already-growing suburbs, which frequently use the tool to underwrite commercial and retail development, according to Iowa State University economist David Swenson’s research.
Much of that development would have happened anyway, Swenson said. The net effect is that cities shift the rising cost of public services to non-TIF areas for what often is a zero-sum game.
“TIFs are not supposed to be speculative, they’re supposed to be restorative, and I just don’t see that attitude prevailing among city officials and in economic development,” he told us.
About two-thirds of the TIF increment property tax value sequesters non-city revenues, primarily affecting school districts and county governments, Swenson wrote in a report to state legislators. There is little state oversight or accountability.
Swenson recommends legislators require cities to show a clear and compelling need, and that they secure the agreement of school districts and county governments for economic development TIFs. He suggests limiting TIFs durations and the area of a city’s total tax base that can be in a TIF district.
We think his ideas warrant serious consideration. Local governments need tools to help them help their communities thrive. But as current law is written, TIF too often is a blank check written at someone else’s expense.
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