As published in the Jan. 19, 2012, Iowa City Press-Citizen
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The case for reform of tax-increment financing is compelling. A consensus seems to be developing — among taxpayers, local officials, business leaders, legislators on both sides of the aisle — that something must be done. Responsible use of taxpayer funds is not a partisan issue.
Both my recent report, for the Iowa Fiscal Partnership, and public presentation on TIF use in Johnson County make the case to reform TIF, not to abolish it as Bob Elliott implied in a recent column for the Press-Citizen.
But if reform efforts are going to be more than tinkering around the edges, some fundamental issues need to be more widely understood. The Coral Ridge Mall TIF that Bob focuses on illustrates these issues quite nicely.
I have argued that use of TIF to provide incentives for retail development is bad public policy. The reason is simple: They are either unnecessary or counterproductive. Retail development occurs when the market for retail justifies it; potential sales are all the incentive that is needed, and those sales can’t be made from locations somewhere else — you can’t serve the Johnson County market from Illinois.
The Coral Ridge Mall proves my case: Coralville provided no incentives to the owners of the Mall. They located in Johnson County because of the growing local market and the access to a broader market provided by interstates 80 and 380. What Coralville did provide is the surrounding infrastructure: mostly road improvements, to the tune of more than $6 million. Yes, that was necessary to accommodate the mall.
But that is what cities do — they provide the infrastructure to accommodate growth. They do it whether TIF is available or not, and they do it routinely by issuing regular bonds, repaid by the city’s taxpayers.
Still, most people would not take issue with Coralville’s use of TIF bonds to finance the mall road improvements. They were retired quite quickly because of the massive amount of property value and revenue generated by the mall.
Here the problem arises: The TIF district did not end when the road bonds were paid off. Instead, the city kept diverting property taxes from the school and the county — to the tune of $10.5 million annually.
That’s when the mall TIF became a cash cow.
It is that mall cash cow that illustrates the counterproductive side of TIF incentives for retail. Mall revenues will be used to provide in excess of $18 million in incentives to entice Von Maur to move from Iowa City to Coralville. This is not economic development for the region, and it may not even increase the county tax base. By creating a major vacancy in the Sycamore Mall, the taxable value of that mall may well decline, just as the Old Capitol Town Center valuation dropped precipitously after the anchor stores left for the Coral Ridge Mall.
Iowa lacks strict limits on the inclusion of residential development in a TIF area. The small towns in Johnson County show why this matters. When growing bedroom communities can TIF all the new development, they capture the taxes that should be paying to educate the children from those homes, and for county services. Cities should not be using what are rightly school and county taxes to pay for streets, community centers, water towers — traditional city functions that should be financed from city sources, not school or county funds.
No one I know is arguing that cities be prevented from using TIF as the redevelopment tool it was supposed to be. But cities should be prevented from using TIF for purposes that have nothing to do with economic development, and simply shift taxes to non-city taxpayers.
Exactly how that should be done will be the focus of discussion at the community forum at 10 a.m. Saturday in the Johnson County Health and Human Services Building, 855 S. Dubuque St.