TIF expected to change, not die

DES MOINES - Despite hearing a blistering critique of how Iowa cities and counties use tax increment financing, members of a tax writing panel insist they have no plans to kill the popular economic development tool.

“There will be some changes,” Rep. Chuck Soderberg, R-Le Mars, said Monday after hearing from Iowa State University economist David Swenson.

A TIF freezes the property taxes on a site at predevelopment levels and diverts the increase in taxes, or increment, into a fund used by the city. Sometimes the increment goes to a developer of a project in the TIF area, or the city might use it for infrastructure work.

Swenson called for more oversight and transparency, as well as putting a burden of proof on developers to show that “but-for” the taxpayer assistance, the development would not occur.

“The current TIF system has seriously distorted the property tax system in that a continuously growing fraction of the base is no longer available for general fund uses,” Swenson told the Ways and Means subcommittee looking at House Study Bill 540.

As cities tie up a share of county and school district property tax revenue, TIF shifts local government costs to taxpayers statewide, Swenson said. In 1992, he said, the state incurred $5.2 million in additional school state aid as a result of TIFs. This year, the state is picking up $46.8 million because of it.

Now counties are getting into the act, too. Swenson questioned their TIF use for housing as well as an incentive for ethanol plants “that had to locate in Iowa because this was where the corn was.”

Soderberg said he appreciated Swenson's perspective, especially on oversight and transparency, but isn't necessarily ready to follow all of it.

He expects HSB 540 to “more appropriately define” TIF in a way that will limit its application. In some cases, Soderberg said, the incentive has been “an unnecessary tool to attract businesses.”

Swenson's presentation confirmed many of the discussions lawmakers have had regarding TIF, said Rep. Brian Quirk, D-New Hampton. Cities have “digressed in its use and exposed themselves to abuse,” he said.

He'd like to strengthen the “but-for” requirement and, perhaps, limit TIF use to commercial and industrial development. It's “very debatable” whether it's of any value to taxpayers in residential housing development, Quirk said.

“I'm optimistic that we'll come up with something that tightens the criteria for its use, but recognizes its value as an economic development tool,” Quirk said.

Soderberg is planning a fourth subcommittee meeting on the bill.