TIF development tool still sparks disputes

DES MOINES — The political tug-of-war over a popular economic development tool has subsided in recent legislative sessions.

But that does not mean the issue is settled between state lawmakers and local officials.

For more than 40 years, Iowa cities have used tax increment financing, or TIF, to fund economic development projects such as new attractions and businesses or renovations of crumbling buildings.

Local officials rave about TIF, which allows cities to fund projects with recouped sales tax revenue.

But as use of the program exploded, some state lawmakers grew concerned with what they perceived as abuse, and they called for stricter guidelines. That generated pushback from local officials, who want to protect the program they say is invaluable.

There has been very little action on TIF during the 2015 legislative session, which is nearing its conclusion. There has not been much TIF legislation since 2012, and even that was only about reporting requirements.

Yet disagreements over the program still percolate.

In 2011, Corallvile was the center of a dispute over the use of TIF, most notably for a multimillion-dollar deal that lured a Von Maur department store to its Iowa River Landing and away from an Iowa City shopping mall.

'Everyone who works in economic development follows any TIF proposals very, very closely because it's the single most important tool we have,' said Marty Dougherty, director of the Sioux City Economic Development Department. 'Even some of the things we hear from time to time that are threats to the program are of great concern.'

In fiscal 2015, the state spent $55.5 million offsetting the local tax revenue lost under the program. It has cost more than $680 million since 1992, according to the state's nonpartisan fiscal estimating agency.

That is a lot of taxpayer money, which merits ardent government oversight, one key state lawmaker said.

'I support TIF, I think it is a good tool. But I think it's been used in creative ways that are bad for taxpayers,' said state Sen. Joe Bolkcom, D-Iowa City, the chairman of the Senate's tax-writing Ways and Means Committee.

Two main issues

Bolkcom and his House Republican counterpart, Rep. Tom Sands of Wapello, agree on what they deem to be the most significant issues with TIF — projects that have no sunset date and the use of TIF for public buildings.

Sands 'and I are very close on this issue,' Bolkcom said.

There was only one TIF bill considered during the 2015 session, and it addressed both of those issues. The legislation passed out of Sands's House Ways and Means Committee, but it was not debated by the full Iowa House.

Sands and Bolkcom said public buildings should not qualify for TIF because, unlike private developments, there is no tax revenue payoff. The bill would not permit cities to use TIF on public projects.

In fiscal 2014, there were 152 TIF projects that were municipal or publicly owned buildings, and another 92 were water and wastewater treatment plants, according to state data.

'I don't think the original intent of TIF was to build a new fire department,' Bolkcom said.

Both also think no projects should be allowed to continue to draw tax revenue, as Sands put it, 'into perpetuity.'

The bill would place a 20-year sunset on projects that have none.

'Some (projects) have already been in existence 20 years. I would think another 20 years would be more than fair,' Sands said. 'I know some of them are not going to like that, but tough.'

Popular program

While the legislation did not get to a floor debate and vote, Sands and Bolkcom said they hope it gets a second chance next year.

Bolkcom said changing TIF has proved to be difficult because of its popularity with local economic development officials.

'The program still needs some more refinement, but it's one of those issues that you have a lot of interest groups — cities, chambers of commerce, businesses — that like how it works because it provides tools and resources,' Bolkcom said. 'We haven't had a real debate about TIF, of substance, to try to make it more accountable to taxpayers.

'Hopefully there will be a time in the next session or two where we'll get back on it.'

Dougherty hopes that does not happen.

'When you live and work in a community like Sioux City, and other communities like ours, you have challenges like the stockyards district and downtown areas in some of the older areas of town that are long-term efforts to vitalize,' he said. 'I think it's shortsighted (to limit TIF timelines) for cities like Sioux City and areas that just take a long time. TIF can be effective in those areas. I think that could cause us a great deal of hardship.'

Dougherty said he thinks the TIF program could be expanded. He said economic development officials have ideas on how to expand TIF, but they hesitate to make proposals out of fear of backlash.

'Personally I'd like to see us enhance the tools we have in Iowa, rather than always be talking about taking things away that have proven to be effective,' Dougherty said. 'We should be talking about enhancing the (TIF program), not reducing it.'