An addictive development tool

Gazette Editorial Board

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The Fountains is a project any community would love to have. The proposed $34 million complex of high-end office space, retail shops and restaurants will sit on 19 open acres near a busy, modern commercial area at the intersection of Edgewood Road and Blairs Ferry Road in northeast Cedar Rapids, if the City Council gives final approval.

To assist the project's cost, local developer Joe Ahmann is asking for $3.7 million in tax increment financing - a property tax break over five years on the incremental increase in the property's tax value that would be created by the development.

No surprise. TIF is commonly used in Iowa. Many local governments have become addicted to it. But this flexible tool can have troublesome side effects for communities and taxpayers.

The original intent of TIFs in Iowa was to revitalize blighted urban areas. But in recent years, much if not most of the state's TIF activity has occurred in suburbs and other already-growing areas as a tool to fuel commercial development. Critics question whether the economic impact from these developments - i.e., more jobs and sales and a higher property tax base - justifies the loss of new tax revenues to local city and county governments and schools over five, 10 or 20 years, depending on the deal negotiated.

In Linn County, 5.03 percent of the total assessed valuation is exempt because it is in TIF status; in Johnson County, it's 11.06 percent, according to county auditors.

Expanded use of TIF also has fueled competition among neighboring communities clamoring for more new business. TIF deals also can help developers lower lease rates that are attractive to existing businesses from a nearby community or even within the same city. Simply relocating such businesses doesn't necessarily bring new net growth for the region or community.

That said, we can hardly fault the mayor and City Council for wanting to land The Fountains project and offering a relatively modest TIF deal. After all, this is the environment the state's rules have allowed. And why would you expect developers not to ask for TIF?

This issue gained more attention in the last legislative session, but legislators made only minor tweaks in the law. More changes are needed if TIF is to be used only when there's clear overall benefit to the community.

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