Use of tax incentives grows in Marion

MARION — As the population of Marion has continued to climb, up 32 percent since 2010, so has the city's reliance on a public incentive program known as tax increment financing.

What has changed, too, is the reason why Marion and many other growing cities in Iowa have turned to TIF more often.

In 1969, the Iowa Legislature allowed municipalities to use TIF with the idea that the financing tool would help eliminate slum and blight. Forty-seven years later, it often has come to be used for economic development, to help businesses expand or relocate, as a way to drive diversity in the business climate and help the city meet its development goals.

TIF 'has gotten a lot more use ...

really in the last 10 years statewide because, in a lot of ways, it's about the last tool left,' Marion City Manager Lon Pluckhahn said.

Marion isn't alone. A study by the Iowa Department of Revenue in 2013 showed the use of TIF in Iowa has expanded substantially in the past decade. Between 2000 and 2012, the number of TIF-supported urban renewal areas increased by 43 percent, according to the report.

And of the $8.1 billion in TIF support reported to the state in those years, only 11 percent was used to eliminate slum and blight while 89 percent helped for an economic development purpose.

In Marion, from August 2014 to this October, nine of the 14 TIF agreements approved by the city went for economic development and five earmarked for eliminate slum and blight.

Over the years, cities such as Marion have come to award more of their TIF incentives to commercial projects, which Pluckhahn said once were barred from directly receiving TIF help.

'A lot of things that might have qualified as commercial in the past would have therefore been excluded from TIF,' Pluckhahn said. 'It was intended to go toward your big smokestack creating industrial projects, and that's not really the case now.'

Of the 14 TIF agreements the Marion City Council awarded since August 2014, about 50 percent went to industrial or manufacturing companies. That may change soon.

Marion has several community plans, such as the Central Corridor Plan, which calls for the shift of traffic from congested Seventh Avenue to Sixth Avenue and development in the uptown to the Neighborhood at Indian Creek Plan, a mixed-use development plan.

To target TIF assistance toward projects that better align with these visions, the city council will vote in December on changes to its TIF policy. It would also require businesses provide supplemental information such as what the cash-on-cash return — annual cash income divided by investment — is and what debt coverage the financial officer requires.

'Now we're taking the step of tying our financial programs to accomplishing the goals in those plans,' he said. 'The objective of this really is to bring in people that are going to make a long-term investment and long-term commitment to the community.'

For example, a developer who proposes a three-story mixed-use building with two stories for commercial use and one floor of residential space likely will qualify for more incentives from the city than a developer who proposed A one-story building because — in Marion, at least — it's that city's goal to have more mixed-use development.

This is 'increasing what I would call the robustness of our application process to make sure we're getting better information and more complete information from companies,' Pluckhahn said. 'What we're trying to get down to is ...

, what's the minimum amount necessary for public investment in order to give that business the best chance to succeed, because we don't want to do more than we need to.'

Businesses currently only have to provide verification from their financial officer that assistance was needed to move the project forward.

'Nothing big enough'

Stephanie Phillips, the owner of the soon-to-open Victory Gymnastics Training Center at 6200 N. Gateway Dr., received a $250,000 TIF incentive saying the project wouldn't have been possible without the assistance awarded by the City Council in March.

'We had been trying to find a place to rent ...

for two years, and there was nothing big enough,' Phillips said. 'We were kind of at a point where we were at a lost.'

Gymnastics facilities, she explained, require 20-foot ceilings, something no buildings for rent in Marion have. As a startup company, she said, she couldn't obtain financing through a bank without a hefty down payment.

'This is for families, and with Marion growing so huge so quickly with new, young families, it's the perfect thing to bring,' she said, saying the City Council unanimously approved the agreement.

Set to open Feb. 1, the 15,000-square-foot facility will cater to preschool-to-elite gymnasts.

Heartland Animal Hospital received $80,000 in TIF assistance from the city in April to complete a 60,000-square-foot building at 1003 50th St. The hospital occupies 32,000 of the new space and plans to lease the rest.

Dr. Nathan Hein, co-owner of the hospital, said the growth of the city and the practice made the move necessary.

'With the new visibility and size of the hospital and additions, we hope to grow, and grow as the city of Marion grows,' he said.

Hein initially planned to self-fund the project. But issues with the city's stormwater draining increased the cost of the building substantially, he said.

'Without the city's assistance, it would have been very difficult, if almost impossible to keep the project on budget,' he said.

Jeff Schott, the director of the Institute of Public Affairs at the University of Iowa and former Marion city manager from 1977 to 1986, recalled using TIF as a tool for economic development purposes — but not at the scale as it is today.

'We didn't have that many projects, but of course, Marion wasn't as large as it is today,' he said, saying the city may have awarded three TIF agreements in a given year.

And while the city's population has expanded exponentially, the reliance of Marion on these tax incentives can also be attributed to the fact that it's one of the few options the state allows cities to encourage economic development.

'There's very few tools in the toolbox for economic development in Iowa, certainly in terms of what is available,' he said.

What is TIF?

• TIF — tax increment financing — allows communities to use anticipated increases in property tax revenues from new private-sector investment to finance improvements for a public purpose, notes the Legislative Services Agency, a non-partisan group that does research for the state legislature.

• Iowa law permits cities to establish urban renewal areas to finance public improvements such as streets, sewers, sidewalks and other infrastructure related to residential, commercial or industrial development to redevelop blighted areas, fund private economic development and to finance low-income housing.

Within those urban renewal areas may be one or more TIF areas.

• Once an area is established and certified with the county, the base values are frozen.

To continue the example, if Marion created a district with $1 million of value in it, that's the frozen base of property valuation. Any property-tax revenue continues to be collected on that $1 million of property value to be distributed to the city, school district, county and a few other, smaller taxing entities.

• Any increase in taxable value above that frozen base is termed the 'increment.' These property-tax dollars funds are separate from those generated by the base value and are collected by the city to be used as an economic development incentive.

The incentive can go to the business that has invested to raise the property value or put into infrastructure or other things needed to support that business coming in.

• In a typical TIF agreement in Marion, the business will pay 100 percent of its property taxes to the city, including those generated by the new investment. The city then will rebate about 80 percent of those taxes back to the investing business.

In the past fiscal year through this fiscal year to date, these property-tax awards to local businesses have amounted to about $7.2 million.

Source: LSA