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Cedar Rapids, Iowa 52401
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CEDAR RAPIDS — Four years ago, when developer Joe Ahmann signed an agreement with the city to construct a six-building office and retail park called The Fountains on farmland, some questioned the use of a public incentive — five years of tax reimbursements worth an estimated $3.7 million — for his private company.
The incentive helped jump-start, and remove some of the risk from, the $35 million gamble Ahmann would find in a market for hundreds of thousands of square feet of retail and office space.
The incentives came with a catch, though.
The Fountains had to hit a minimum assessed property value of $20 million by 2020, construct high-end office space in 80 percent of three office buildings, certify annually 300 full time jobs from 2020 to 2027 and set aside 30 percent of the 18 acres as green space with a lighted pond, fountain and outdoor seating.
'People think of TIF like a magic ATM,' Ahmann said. 'But you put in your money and get a portion back. Look at what we've created in tax value in two years that wouldn't have been here.'
Economic development agreements — or economic incentives made possible through tax increment financing — have been a key strategy in rebuilding Cedar Rapids after the 2008 flood. They've been connected both to high-profile projects such as the redevelopment of Westdale Mall and building the CRST Center, as well as smaller projects including renovation of the Ideal Theater.
While critics question economic development agreements as unnecessary or government interference in the private sector, city officials are committed. They say the tool has successfully spurred growth that otherwise would not occur in a city where the property tax base has stagnated and is creating a stronger, better planned city in the long run.
Tax giveaways triple
TIF lets communities capture extra revenue created by property tax growth in pre-defined areas and reuse it in targeted ways in those areas. This could be for road and utility improvements, or the practice more common in Cedar Rapids — using the money to entice businesses through economic development agreements.
The number those deals awarded per year tripled in Cedar Rapids from seven in 2012 to 21 in 2015. The expected giveaway connected to those deals climbed nearly fivefold in that period, from $7.5 to $35.5 million.
Number of projects receiving tax breaks by year
In total from 2012 through 2016, Cedar Rapids has awarded an estimated $82 million in tax breaks to 62 companies. The awards have leveraged $495 million in private investment, 1,930 new jobs, 1,252 in retained jobs and nearly $318 million in anticipated property value, according to city figures.
Overall, Cedar Rapids has approximately 275 tax incentive agreements on the books corresponding to $795.5 million in new property values over the next decades.
The practice of tax increment financing is regulated by the state.
Municipalities are required to file annual urban renewal reports detailing TIF use with the Iowa Department of Management. The most recent report for the 2015 fiscal year shows Cedar Rapids had 21 urban renewal districts, generated $14 million that year in TIF revenue, spent $11.5 million and had $182 million in outstanding TIF revenue.
By comparison, Des Moines reported 14 urban renewal areas, generating $26 million in TIF revenue, spending $25.5 million and having an outstanding revenue balance of $251 million.
Effects on the market
Critics are dubious, contending the system disrupts the private market, is unnecessary because people would invest anyway and diverts money from schools, police, firefighters, libraries and other needs,