Government

What comes After TIF? As tax districts begin expiring, questions arise

Millions in property taxes could have been misapplied

The balcony of a condo under construction is seen at the 329 Building on Twelfth Avenue Southeast in Cedar Rapids on Friday, Sept. 21, 2018. The building will house several high-end apartments. (Rebecca F. Miller/The Gazette)
The balcony of a condo under construction is seen at the 329 Building on Twelfth Avenue Southeast in Cedar Rapids on Friday, Sept. 21, 2018. The building will house several high-end apartments. (Rebecca F. Miller/The Gazette)

CEDAR RAPIDS — As the first wave of special tax districts established to encourage economic development expires, Linn County officials have discovered discrepancies as they reconcile 20-year-old accounts before closing them.

A review by the Linn County Auditor’s Office earlier this year found what it believes to be about $2.7 million in overpayments to the city of Cedar Rapids.

The accounts date back several years in six urban renewal areas in which TIF — tax increment financing — districts are established, some of which expired June 30.

However, the discrepancy appears to be rooted, at least in part, to lapses in reviewing financial information by the auditor’s office.

“The city of Cedar Rapids TIF revenue requests exceeded certified debts known to Linn County,” Stacey Law, Linn County deputy auditor, told The Gazette in an email.

The auditor’s office and the city, which contends the amount is less than $2 million, have been meeting to compare figures. The city is expected to provide its reconciliation numbers and a plan to clear any overpayment by Dec. 1 and repay any outstanding balance thereafter.

“Once the reconciliation is complete, if there is any excess it will be transferred back to the county,” said Maria Johnson, a city spokeswoman. “Based on our initial review, we believe that amount will be lower than the $2 million you provided in your email.”

ARTICLE CONTINUES BELOW ADVERTISEMENT

TIF districts are established to allow a public entity to freeze the property value, develop that land and sequester any new tax revenue generated from the improvements to be used on that property for infrastructure or private development subsidies. The process keeps schools or counties from getting a share of the new tax revenue until the TIF district expires.

While TIF initially was allowed to address blight, the tool now is mostly used for economic development.

A state law change in 1995 forced new TIFs created for economic development to sunset after 20 years. The full property value then would be distributed among all the taxing entities.

“These TIF areas are the first of many to approach a 20-year expiration and create a learning curve for both the city and the county,” Law said.

Al Soukup, of the Cedar Rapids finance department, provided figures to Law in an Aug. 28 email suggesting the overpayment could be about $1 million, but the amount could be reduced substantially based on qualifying work in those TIF districts.

“We are also reviewing the procedure, which these are the first example of, as to how to formally close out the life cycle of these TIFs,” he wrote.

Sara Bearrows, the Linn County chief deputy treasurer, who is involved because the treasurer’s office cuts the checks, provided emails showing she had warned the auditor’s office as early as 2016 about “a very serious issue.”

She said on Dec. 1 each year, cities are required to certify any new TIF debt or decertify any satisfied debt to the county auditor on an Urban Renewal Reconciliation report. On the report, the city requests what it would like to receive in TIF revenue during the following fiscal year, she said. The county auditor is supposed to verify the city has enough certified debt to cover the request, and if not, restrict it to the amount of outstanding debt, she said.

ARTICLE CONTINUES BELOW ADVERTISEMENT

Thank you for signing up for our e-newsletter!

You should start receiving the e-newsletters within a couple days.

In some cases, the auditor’s office had been failing to properly review the city’s estimates — leading to negative balances not being detected and thus triggering overpayments without anyone realizing, she said.

In other cases, changes to the TIF occurred after the Dec. 1 report, leading to discrepancies.

Law, with the auditor’s office, noted the software her office uses doesn’t track debt and is designed to make available the maximum amount of tax revenue possible in a TIF district rather than the amount that should be available based on certified debt.

However, she noted discrepancies had been discovered only for Cedar Rapids and not other communities.

To avoid discrepancies in the future, Law said the auditor’s office plans to ensure accuracy by reviewing TIF district data annually, improving communications with the city and establishing new procedures.

Ted Nellesen, with the Iowa Department of Management, who also has been involved with the case, told Bearrows in an Aug. 30 email that projects in the pipeline in Cedar Rapids could be used to help clear the balance by the end of fiscal 2020, which is June 30, 2020, and any remaining balance afterward would need to be repaid and reapportioned to the various taxing entities.

Johnson, with the city, said the “TIF revenue stays in the TIF fund, and if there is a balance to be paid out once reconciliation is complete, it will be paid out of the fund.” She noted the city would receive approximately 40 percent of any reapportioned money.

Possible Developments

A review by the Linn County Auditor’s Office shows the city of Cedar Rapids may have been paid overpaid about $2.7 million in six urban renewal areas operating under special property tax financing. The city says the discrepancy is less, and the final numbers are being reconciled. The six tax increment financing — or TIF — districts and possible overpayments are:

• Pointe ($30,586): Established in 2007 to support development of condos and apartments, including The Pointe Apartments at 4025 Sherman Street NE.

ARTICLE CONTINUES BELOW ADVERTISEMENT

• Cedar Rapids Fountains ($68,048): Established in 2012 to support a mixed-use development called The Fountains on Edgewood Road NE north of Highway 100.

• Southwest ($468,862): Established in 1996 for infrastructure, road, bridge and traffic improvements and economic development around The Eastern Iowa Airport.

• Tech Park ($1,189,132): Established in 1995 for infrastructure, road and traffic improvements and economic development in the area near Kirkwood Community College.

• River Ridge North ($896,635): Established in 1996 for infrastructure, road and bridge improvements to support commercial development near Highway 100 and Ushers Ferry Road NE.

• Village ($5,716): Established in 1999 for infrastructure and road improvements and tree plantings along C Avenue NE.

l Comments: (319) 398-8310; brian.morelli@thegazette.com

Give us feedback

We value your trust and work hard to provide fair, accurate coverage. If you have found an error or omission in our reporting, tell us here.

Or if you have a story idea we should look into? Tell us here.

CONTINUE READING

Give us feedback

We value your trust and work hard to provide fair, accurate coverage. If you have found an error or omission in our reporting, tell us here.

Or if you have a story idea we should look into? Tell us here.