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Has TIF been successful for economic development in Iowa?

A case study on Coralville

    Arial view of Coral Ridge Mall and I-80 in Coralville, Iowa on July 17, 2003.
    Regional Development
    Apr 4, 2018 at 8:49 am

    For years, Coralville was Iowa’s bad boy for its aggressive use of TIF — tax increment financing. Soon we could find out if Coralville was actually the smartest kid in class.

    Flash back 20 years and little existed to just east of the Interstates 380 and 80 intersection in Coralville, but even then it was one of the busiest junctions in the state.

    Today, millions of people a year travel to the retail hub anchored by the 120-acre Coral Ridge Mall site, which opened in 1998. Half a dozen shopping centers have sprouted around the mall and nine hotels are within a stone’s throw. Updated roads, bike trails and hundreds of homes add to a vibrant, busy area.

    “We are better off,” said Kelly Hayworth, Coralville city administrator since 1988. “We have a robust economy with shopping, a research park with thousands of jobs, it’s safe to travel through the community, and we have a trails system that’s second to none.”

     

    Coralville took a gamble in 1997 when it created the Coral Ridge Mall TIF district, which remains one of the largest TIF districts in the state, as the mechanism to bring the vision to life.

    TIF is a frequently used, often misunderstood financing tool in which cities and counties invest in utilities, roads or tax rebates to incentivize private developers to build in blighted or underused areas in hopes of spurring private investment, jobs and ultimately a larger tax base.

    A baseline property value is set when the district is created, and the jurisdiction sets aside future taxes generated above the baseline to pay off debt from the investment, starving other taxing authorities of their share.

    The TIF helped change Coralville, support 2,000 new jobs and grow retail sales from $166.5 million in 1997 to $807.6 million in 2016, according to the city. The population has climbed by 60 percent since 1997, reaching 20,397 people.

    But along the way, this approach riled neighbors. TIF use expanded to one of the highest rates in the state — 45 percent, or $700 million, of Coralville’s $1.6 billion in property value was sequestered in TIF districts in fiscal 2016. The city is so leveraged it damaged its credit rating, and some of its tactics prompted lawmakers to tighten the rules.

    Abusing TIF?

    While the city touts its accomplishments, critics have skewered Coralville — and several other cities — for abusing TIF, disrupting the private sector and encouraging development that would have occurred anyway.

    “Coralville was the city that really ran with their TIF authority way beyond everywhere else,” said Dave Swenson, an economic research scientist at Iowa State University. “They really busted the behavior wide open. Many other places began emulating what Coralville did.”

    Economic development TIFs had been focused on supporting industry, whereas Coralville targeted retail and service, Swenson said. Swenson was critical of using TIF for retail and service, along with housing and windmill development in some rural areas, which all have increased in popularity.

    Coralville used the money to improve major roadways, including reconstructing Highway 965 and Highway 6 and fixing the intersection of the two roads, which once was rated among the most dangerous in the state, according to Hayworth. The city also added a water main and cleaned up a brownfield site.

    “The misnomer is TIF paid for the mall,” Hayworth said. “It didn’t. The mall paid taxes. We used our money for other infrastructure …. The mall itself would have been there, but it would not have been as attractive.”

    The initial mall plan drew critics for luring away anchor stores and shoppers from Westdale Mall in Cedar Rapids and Old Capitol and Sycamore malls in Iowa City. But the use of TIF since then downright infuriated some.

    “The misnomer is TIF paid for the mall. It didn’t. The mall paid taxes. We used our money for other infrastructure …. The mall itself would have been there, but it would not have been as attractive.”

    - Kelly Hayworth

    Coralville city administrator

    “In many cases, TIF is used really as nothing more than a cash cow to finance city spending that could and should be financed in other ways.”

    - Peter Fisher

    Research director, Iowa Policy Project

     

    The eventual footprint of the Coral Ridge Mall TIF grew out into the shape of something like a tic-tac-toe board. It included the mall and surrounding areas, the Coralville portion of 965, Highway 6 and Hawkins Drive.

    Coralville extended the TIF district down Interstate 80 one exit to incorporate a wasteland of an old industrial site, and used the proceeds to begin a whole new redevelopment called the Iowa River Landing. TIF financed a $60 million city-owned Marriott Hotel and Convention Center and later $9.5 million to build a new home for Von Maur, a clothing store that subsequently vacated the Sycamore Mall.

    The Von Maur deal prompted the state Legislature to create an “anti-piracy” provision to prevent one city from using TIF to entice a company from leaving another city without the permission of the other city.

    “In many cases, TIF is used really as nothing more than a cash cow to finance city spending that could and should be financed in other ways,” said Peter Fisher, who studies tax and budget issues and is research director of the nonpartisan Iowa Policy Project, at a contentious public forum during the height of criticism in 2012.

    After being established in 1969, TIF initially only was allowed in Iowa to help resurrect slums and blight. But the law was loosened in 1985 amid the farm crisis. Over the past 30 years, it has swung sharply to economic development.

    Iowa is among a minority of states that don’t require a finding of slums or blight to establish a TIF. TIF is allowed in every state and Washington, D.C., except Arizona, according to an Iowa Department of Management report. At least 465 cities, counties and rural improvement districts use TIF in Iowa, and 66 percent of TIF districts were created for economic development, according to a 2017 report by the Legislative Services Agency.

    The widespread use has led to heavily leveraged cities, with Coralville near the front of the pack.

    In fiscal 2016, $3.1 billion in outstanding TIF-related debt existed in Iowa — including $334 million in Coralville — which has by far been the most TIF-leveraged city in the state. By comparison, Des Moines and Cedar Rapids, the state’s two largest cities, had $309 million and $190 million in TIF debt, respectively, according to the legislative report.

    Coralville is projected to pay off the debt by 2047.

    A state law change in 1995 forced new TIFs created for economic development to sunset or expire after 20 years, meaning taxes generated in those districts must be released to other taxing authorities such as schools. TIFs can be extended, but the base amount must be reset to reflect the TIF district’s current value.

    article continues below

    John McGlothlen / The Gazette

    A transition point

    This year marks a transition point for TIFs in Iowa, and could shed light on whether the controversial economic development tool has been a success or a crutch.

    Many of that first wave of post-1995 TIFs are expiring, including the Coral Ridge Mall TIF, which generated $16.5 million of the $20.3 million Coralville got from TIF in fiscal 2016.

    By the end of fiscal 2018, or June 30, 147 TIF districts representing $900 million in assessed property value across Iowa will sunset, creating a revenue windfall for general funds of local jurisdictions. Assessed value, which is supposed to reflect cash value, is the dollar value given to a property for the purpose of determining property taxes.

    As assessed value increases, generally, so do taxes generated.

    In Coralville, $396 million worth of property value tied to the mall TIF will be released to the tax rolls. The portion of Coralville’s property tax base in TIF districts will decrease to 21 percent overnight.

    All this translates to $11.7 million in new tax dollars pouring into various coffers around Johnson County in fiscal 2019, which begins July 1.

    Coralville’s own general fund will get $4.5 million, which is the largest share, followed by $3 million for Clear Creek Amana School District, which is 14 percent of its $22 million fiscal 2018 general fund budget, and Johnson County’s general fund will get an extra $1.87 million.

    Tim Kuehl, superintendent of the Clear Creek Amana School District, said because school financing laws cap spending, the district shouldn’t feel the impact of the TIF dollars. School spending allowances are set by the state, so as TIF has blocked tax revenue on one end, taxpayers have had to make up the difference on the other, he said.

     

    The school district won’t get a windfall of new money. Instead, the school tax levy, which grew to $16.95 per $1,000 of property value, could be adjusted downward in a few years. For now, the focus is rebuilding the district’s cash reserves, which shrunk to zero in fiscal 2016 — well below the 5 to 15 percent of the budget target because the school district didn’t want to use the cash reserve levy, he said.

    While his predecessor was highly critical of Coralville’s use of TIF, Kuehl takes a more even tone.

    “I don’t think it’s inherently bad or good; it’s all about how authorities are using it,” Kuehl said. “It’s much more targeted with the way they are using it now.”

    Johnson County is able to use $1.87 million and it will replace a nearly identical cut to mental health funding, said Rod Sullivan, a Johnson County supervisor.

    Sullivan has been among the most vocal opponents over the years and remains a skeptic on TIF. He said a communication gap was the biggest problem, but Coralville has been more open to discussion with other entities and has scaled back its use of TIF. Hayworth said he doesn’t anticipate another TIF as large as the Coral Ridge Mall TIF in the foreseeable future.

    “It has worked OK,” Sullivan said. “We haven’t had a disaster, no defaults or anything. How much would have happened anyway? I don’t think we’ll ever know.

    “Something was going to get built at the intersection of 218 and 380 and 80 and 6. Something there would have been very successful without a lot of incentive. But what is done is done. We are moving forward, and I’m just glad it has worked out and the money will be coming into the county budget.”

    A TIF glossary

    Assessed property value — The dollar value assigned to a property for tax purposes.

    Brownfield — A property with the presence or potential presence of a hazardous substance, pollutant or contaminant complicating its expansion, redevelopment or reuse.

    Fiscal year — A fiscal year (FY) is a 12-month period that a company or government uses for accounting purposes and preparing financial statements. A fiscal year may not be the same as a calendar year.

    General funds — In public sector accounting, the primary or catchall fund of a government, government agency or not-for-profit.

    Levy authority — A levy authority is a governmental entity with statutory authority to levy property taxes. These entities include counties, cities, school districts, townships, community colleges, local assessors and others.

    Sequestered — In regard to government budgeting, a set amount of revenue that is set aside from the general fund for a defined use.

    Sunset — A clause in a statute, regulation or similar piece of legislation that provides for an automatic repeal of the entire or sections of a law once a specific date is reached. In some cases, an entity can seek to extend the length of time.

    TIF — Tax increment financing. A tool in which an entity can sequester and use future taxes to finance current infrastructure and development projects. Properties within a TIF district (see below) have their taxes frozen at the level when the TIF began for up to 20-some years in the case of economic development TIFs.

    The taxes from the incremental increase in value created after the TIF began are used to pay off the infrastructure or development projects.

    TIF district — A designated area deemed to be in need of development and to which funds from taxes are sequestered for use within the area, to encourage investment. TIF districts are located within established urban renewal areas (see below).

    Urban Renewal Area — Established by a municipality, which passes a resolution of necessity outlining reasons for such a designation. The resolution must find the area is a slum, blighted or in need of economic development and that rehabilitation, conservation, redevelopment or development of the area is necessary for the public health, safety or welfare of the residents of the municipality.

    Sources: Investopedia, InvestorWords.com, Iowa League of Cities, Environmental Protection Agency, and the Woodbury County, Iowa, website

    -- Comments: (319) 339-3177; brian.morelli@thegazette.com 

    Largest urban renewal areas, by revenue:

    Fiscal YearLevy Authority NameRevenueYear URA Created
    2016DES MOINES$25,570,918 2000
    2016CORALVILLE$16,535,740 1992
    2016ALTOONA$10,184,378 1990
    2016SIOUX CITY$6,970,818 1987
    2016ANKENY$6,821,557 1989
    2016URBANDALE$6,414,681 2000
    2016CEDAR FALLS$5,854,169 1990
    2016DUBUQUE$5,605,886 1967
    2016NORTH LIBERTY$4,264,832 1990
    2016WEST DES MOINES$4,253,708 1999



    Iowa communities with the highest percentage of total taxable property in TIF:

    Fiscal YearLevy Authority Name% in TIFTOTAL TIF REVENUE
    2016MCCALLSBURG70.12%$147,143
    2016MARQUETTE61.65%$410,974
    2016LE CLAIRE58.04%$4,075,043
    2016MARBLE ROCK52.55%$172,662
    2016AVOCA51.27%$910,479
    2016HUXLEY50.85%$2,235,743
    2016HULL47.54%$1,168,239
    2016STUART47.42%$901,342
    2016PANAMA44.72%$89,951
    2016CORALVILLE44.59%$20,378,115



    Communities with most property value in TIF districts:

    Fiscal YearLevy Authority NameMax Increment
    2016CORALVILLE568,142,579
    2016ALTOONA285,753,954
    2016ASBURY111,000,000
    2016LE CLAIRE74,909,589
    2016HUXLEY73,619,796
    2016SHELDON63,677,258
    2016AVOCA48,794,056
    2016ATKINS41,861,423
    2016LAKE MILLS27,996,884
    2016MARQUETTE20,205,844

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