As published in the Oct. 5, 2011, Press-Citizen, Iowa City
If Coralville's plans to pirate Von Maur from Iowa City do not make abundantly clear the need to reform Iowa's TIF law, nothing will.
Coralville has just agreed to spend more than $16 million to lure Von Maur from Sycamore Mall in Iowa City. Iowa River Landing gets an anchor store, and Sycamore Mall loses its only one. To add insult to injury, taxpayers in Iowa City will pay part of the tab because the money comes from Tax Increment Financing, which forces higher school and county property taxes.
One target of reform is obvious: The law's prohibition on using incentives to entice a business from one portion of the state to another has loopholes big enough to drive a moving van through. The city argues that this does not violate the anti-piracy ban on two grounds.
First, moving within Johnson County does not constitute moving "to another portion of the state." This is nonsense, but the statute should be clarified. Any move to a different jurisdiction is a relocation.
Coralville's second argument is that the new store will be one-third larger than the old one, and the piracy provision exempts an expansion that creates "significant" new jobs. This loophole renders the law useless. How often does a business move and not expand, at least a little?
Eliminating that exemption should be just the start of TIF reform.
TIF, as it is used by an increasing number of cities, offers a future in which the majority of a city's growth -- residential, commercial, industrial -- occurs within a TIF area. This allows the city to capture the lion's share of property taxes on new development. Under TIF, taxes normally flowing to the school district and to the county flow instead to the city. The county must provide services to growing areas, yet is deprived of the taxes to pay for it. The school district must educate the children in new subdivisions but gets little of the revenue that normally would pay for their education.
This forces higher property taxes on everyone throughout the school district and the county to offset the revenues lost through TIF. But the cities using TIF heavily enjoy lower city property tax rates because they capture the school and county's tax shares. In effect, TIF becomes a mechanism for cities to shift the costs of streets and other services from city taxpayers to the taxpayers of rural areas and neighboring cities.
TIF now has little to do with economic development, which should raise the standard of living in an area by expanding the economic base with good jobs in manufacturing, wholesaling or other export industries that bring new money into the community, money that goes to build houses or to buy groceries.
That is not the way TIF works in Johnson County, where only 5 percent of the TIF valuation is industrial; most is residential and retail. These are local market activities -- they are here because there is a market for their goods and services here -- because there is an economic base. Incentives, through TIF or otherwise, are not needed to attract retail businesses or homebuilders if the market supports more activity.
TIF incentives for retail can accomplish only two things: moving a store from one part of a local market to another, or inducing a retail expansion that the market cannot support, stealing customers (and taxable value) from existing firms. There is no justification for a state law that encourages either.
Iowa should prohibit TIF incentives for residential and retail development. If we do not, the future will consist of cities that look like Coralville, Oxford and Tiffin, all of which have more than 40 percent of their tax base in a TIF. More school districts will look like Clear Creek Amana, where 48 percent of its valuation is tied up by a city TIF, and the property tax rate that is 22 percent higher because of TIF.
In that future, more and more cities will engage in, or retaliate for, actions like those of Coralville, and tax-base piracy will be commonplace.