CORALVILLE – The city of Coralville will likely pay more than half of the property tax bill for a department store it already has given millions of dollars to under a much-criticized agreement.
The catch, however, is that the city and its taxpayers will essentially be paying themselves.
The Johnson County Assessor’s Office recently valued the Von Maur store in the Iowa River Landing district at $10.4 million.
That would produce a tax bill of about $331,000 using the tax rate in effect for this year’s taxes, although it’s not yet possible to say exactly what the amount will be.
As part of a deal to bring Von Maur to Iowa River Landing, Coralville agreed to cap the store’s property tax payments at $150,000 a year plus inflationary adjustments.
The city must pay anything over the cap, which now seems likely to be more than half of the tax bill.
“Take that out by 10 years," said Kevin O’Brien, a developer and Coralville McDonald’s restaurant franchise owner. “That’s crazy.”
It would be about $1.8 million over a decade if nothing were to change.
That scenario had been suggested by critics of the Von Maur deal and in a 2011 Gazette story, but the new property assessment is the first time the completed store, which opened last summer, had been assessed by the county.
O’Brien, who was part of an unsuccessful lawsuit that tried to stop the city’s incentive-laden deal with Von Maur, stressed that he is not anti-Coralville and wants to work with the city on its finances. But he said the Von Maur tax payments are a reminder that taxpayers have “given so much money that is not going to generate the kind of jobs and certainly not the tax revenue that we need.”
The city gave Von Maur a $9.5 million grant to build its store and other benefits the city valued at $4.5 million.
City Administrator Kelly Hayworth said he did not know about the assessment until told by a reporter Wednesday and was surprised by the amount because the intention of the tax cap was to have it approximate the total tax bill.
Even so, he wasn’t sure the city being on the hook for nearly $200,000 in Von Maur taxes was a big concern because the store is in a city-run tax increment financing district and the new taxes from redeveloped property there go back into the district.
So even if Von Maur paid the full bill, the tax revenue would go toward projects the city undertakes in the district.
“To be honest with you, we’d be paying back ourselves, so I don’t know that there’s a particular interest in that number” being high or low, Hayworth said.
But that could be Von Maur money being put into the district.
Also, there is the issue of fairness to other taxpayers, including home and business owners, who probably would like to have a ceiling on their tax bills.
“That’s a good question,” Hayworth said. “And that’s why when we set that rate, we based it on what the similar stores were in Coralville.”
By that he meant the anchor tenants in Coral Ridge Mall, like Younkers and Dillard’s. Mall anchor stores traditionally get a discount on their property assessments because they help attract other stores.
County Assessor Bill Greazel said his office did treat Von Maur like one of those stores. It’s assessed value per square foot is higher than the anchor stores in Coral Ridge Mall, but Greazel said those spaces are more than 15 years old, compared with the new Von Maur building.
“You have to give them something for being shopworn,” he said.
He also said Iowa River Landing properties have been tough to value. Appraisers prefer to look at sales of other properties, but there haven’t been clean, arms-length transactions at market value in Iowa River Landing to help set assessments, he said.
“We might be too high,” he said. “We might be too low.”
Mayor John Lundell said the city negotiated the property tax cap more than two years ago when it thought $150,000 was appropriate. There have been large increases in the assessed values of the anchor stores since then, he noted.
“Could the city use the full taxable valuation? Of course we could," he said. "It would ease everyone’s burden.”
Large retailers often challenge their assessed values to try to lower their tax bills. A Von Maur spokeswoman did not immediately return a phone message seeking comment Wednesday.Taxes will not be collected on this year’s valuations until fall 2015 and spring 2016.