For all the discussion lately about using tax increment financing to stimulate economic development ó whether itís fair to counties and school districts, whether it hurts neighboring communities, whether legislators should do something to reign in excessive use ó one important fact has been amazingly absent.
Namely: It doesnít really work.
Thatís according to data crunched by Iowa State economist David Swenson, who has been studying TIFs in Iowa for more than 25 years. His recent presentation to a House Ways and Means Subcommittee studying possible changes to TIF law is fascinating reading.
TIFs have been used to revitalize urban areas since the 1950s. Today, the vast majority of Iowaís TIFs are created not to staunch the bleeding in a blighted area but to stimulate growth in an already-growing one, according to Swensonís report.
The theory is that these districts boost nearby property values, create jobs, increase population and income and stimulate commercial activity, indirectly benefiting businesses and residents outside the TIF district.
In fact, Swenson found that even though TIF districts, of course, benefitted from increased valuation and activity within their boundaries, there were no meaningful correlations between TIF activity and net job or population growth in the counties in which they were located.
In other words, TIF districts didnít create new economic activity. They only shuffled the deck.
That hasnít stopped a few dozen suburban communities from aggressively using TIFs to leverage state resources, to get a leg up on neighboring towns and to shift the cost of development.
This TIF addiction puts the squeeze on taxpayers outside TIF districts, and on county governments and school districts frozen out of the revenue stream.
Itís a growing burden: In 2002, the impact of TIF on state school aid was $5.2 million, according to Swenson. In 2012, it was $46.8 million.
And now counties are getting into the act ó creating TIF districts to encourage housing development or, increasingly, to promote rural economic development activities.
I guess it was just a matter of time before they got tired of holding the short end of the revenue stick. But where will it end?
Clearly, itís past time for legislators to put the breaks on this shell game and pass meaningful TIF reform.
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