Has TIF been successful for economic development in Iowa?

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.

TIF terms: Click here for a glossary of frequently-used terminology

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.

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