Iowa is the most prolific user in the nation of tax increment financing to spark economic development but is “modest” in borrowing against the proceeds, according to a new national report.
Iowa has 3,340 TIF districts, nearly double the next most prolific user — Minnesota with 1,719.
But when it comes to TIF borrowing, Iowa ranked No. 13 in the nation with $315 million between 2000 and 2014, according to “Improving Tax Increment Financing for Economic Development” by University of Illinois Chicago professor David Merriman for the Lincoln Institute of Land Policy.
In contrast, for example, California has only 743 TIF districts but the most borrowing against them of any state — more than $25 billion over the period.
Iowa law allows “for individual TIF projects to count as districts rather than, as the law was originally written, for TIF to be applied to a comprehensive urban renewal territory,” said Dave Swenson, an Iowa State University economist who reviewed the report. “This, plus allowing city and county officials to declare TIF projects and to engage in borrowing without public approval, makes for a system of TIF usage that lacks oversight and that is applied much, much too liberally.”
TIF is a taxing tool used widely throughout the country by local governments. It initially was allowed in Iowa in 1969 to address slum and blight, but use now has swung sharply to increasing economic development.
The tool allows municipalities and other public entities to earmark property tax revenue in a designated district in anticipation of increased value from development, and issue debt based on that anticipated tax revenue for infrastructure improvements or subsidies for private developers, among other uses.
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The process, though, prevents the increased values from benefiting other taxing entities such as school districts until the TIF expires.
The theory is that TIF eventually will spur more growth than would have occurred otherwise, ultimately benefiting the community.
However, the report is generally critical of how TIF is being used, and offers recommendations for improvements.
All states except Arizona use TIF, and Midwestern states are the heaviest users, Merriman found.
Among the findings:
• Many states do little to track or evaluate the use of TIF
• Some local governments use TIF to capture growth that was already occurring anyway
• TIFs do little to deliver economic growth and sometimes simply relocate economic activity that would have occurred elsewhere.
The research concludes that while results vary, TIF “often fails to meet its primary goal to increase real estate development and other economic growth.”
TIF has become an increasingly common tool — and, local officials insist, a critical one for economic development in Cedar Rapids.
TIF districts are created if one doesn’t already exist for virtually every high-dollar development project. Cedar Rapids has 76 TIF districts, according to the city information and Iowa Department of Management data.
Still, when compared with Iowa’s larger cities, Cedar Rapids ranks as among the lowest in terms of how much of the tax base is leveraged through TIF. Of Cedar Rapids’ more than $10 billion in assessed property value, about $295 million or 2.64 percent is in TIF districts.
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“We’ve seen the private sector and watched development occurring and there’s a gap with what we want to see going on,” said Jennifer Pratt, director of community development for the city of Cedar Rapids. “The programs are absolutely designed to encourage the types of development we want that would not have occurred otherwise.”
The research report included several recommendations for improving the way TIF is used. Among them:
• States should track and monitor TIF use.
• States should revise statutes to allow counties, school districts and other overlying local governments to opt out of contributing resources to TIF districts.
• Local governments should provide extensive, easily accessible information about TIF use, revenues and expenditures to the public
“All of his recommendations need to be implemented in Iowa,” ISU’s Swenson said. “The only one that really exists, and it was hard-fought, was requiring the documentation of TIF activity and TIF debt and the publication of that information for public access.”
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