Wednesday, September 12, 2007

TIFing Your Doctor

September 12, 2007, 12:10 p.m.

"A TIF-kit's a Basket, With Money for the Askin'"

"Hello, I'm Johnny-with-your-Cash,"

(With credit to, and apologies for mangling, Johnny Cash's "Folsom Prison Blues.")

I see that TIF a comin'
Comin' down the track
No one seems to care much
And it ain't turnin' back

That engine looks so funny
We used to feed 'em coal
Now they burn our money
With wealthy on the dole

Their golden rule's a changin'
Our Council thinks we're fools:
"Those that have the gold, boys,
Are those who make our rules"

"So shut up and pay your taxes,
And don't forget to vote.
The rising tide's that's coming,
Will lift our leaking boat"

Yes, folks, it's TIF time in Iowa City once again; a time to sing, dance, drink and celebrate.

TIFs, which our City Council candidates think are one of the best ways to divert what would otherwise be general property taxes for the benefit of all of us into grants to individual wealthy business persons, were originally designed to help the poor, build low income housing, and fix up blighted areas. They didn't make much sense then (if it's a worthy public project let the City own it, as long as the City's paying for it), and they make even less as a "rob the poor and give to the rich" scheme.

The next TIF coming down the railroaded track in Iowa City is designed to help that underpriviledged, economically depressed sub-group in our local population we call medical doctors! Hieu Pham, "City considers TIF for surgical center; If OK'd, would get tax rebates from '01 to '13," Iowa City Press-Citizen, September 12, 2007, p. A3.

How much? $600,000. The doctors' executive director says, "We're excited about it." Yeah, I expect they are. Wouldn't you be excited if someone would agree to pick up $600,000 of your property, or income, tax bill?

Don't get me wrong. I'm alive because of doctors. I like doctors. "Some of my best friends are doctors." Doctors are brighter than the rest of us, well-traveled, good writers (with the exception of their handwriting on prescriptions), great story tellers, good musicians -- and many really are compassionate conservatives (especially pediatricians).

Moreover, I actually like their idea. It has merit. I just think that the risks associated with whether it has economic merit ought to be theirs rather than mine -- especially since they haven't proposed to share the profits with me if it succeeds.

What's next, a taxpayer-funded private dental clinic? The dentists have already trained us to believe that we should put our money where our mouth is. So why not our tax money as well?

You sure can't blame the doctors for trying to get the taxpayers to fund their for-profit company so long as the money is so freely being handed out to others. Shucks, I've even got my application in for a TIF for my backyard tool shed. It sure will cost the taxpayers a lot less than what these doctors want. I haven't heard anything back from the Council yet.

I know a couple guys living under the bridges where I bike who would actually like to use a TIF for its original purpose: building low income housing. They tell me they haven't had any better luck with the Council than I have; not a lot of enthusiasm among the City Council candidates. And the nights are already getting colder.

Oh, well. Now they won't have to walk all the way to Mercy Hospital when they get pneumonia.

At least I assume there will be a "free clinic" at our new, taxpayer-funded "outpatient surgical center." Won't there? Gee, I guess you're right. Hieu didn't really write anything about that. Maybe the editors just cut that part of her story.

# # #

P.S. Normally I don't respond to comments. I like to leave as much opportunity for readers' dialog as possible (within some bounds) -- thoughtful, and not so much, critical and agreement.

But since Irl Tubbs has suggested in his 12:14 p.m. comment that I am lying ("a TIF is not taking tax money from someone else . . . the author believes that if he tells a lie long will be the truth") I thought a brief reply might be in order.

Does this lighthearted blog entry overly simplify TIFs? Absolutely.

Is it a "lie"? I think that's both inaccurate and unnecessarily harsh.

1. If you save me an expense, that is the financial, the bottom line, equivalent of my (a) paying that expense, but then (b) getting that amount of cash from you. On the other hand, if you cause me an expense that, but for you, I would not have had and that does not benefit me, that is the equivalent of "taking money from" me.

2. Cities can't print money. They depend on tax revenue. That revenue changes from year to year with both tax rates and property values.

3. When a city's revenue declines -- for any reason -- it is presented with two options: (a) increase taxes ("taking tax money from someone else"), or (b) cutting City programs benefiting the entire community (the equivalent of "taking tax money from someone else").

4. Why does a business person want a TIF? Because there is a financial benefit associated with it. It may involve getting land for a price well below market -- up to and including for free. It may involve the City paying for features required by a given business project that, but for the TIF, would not otherwise have been paid for by the City. It may involve paying what the normal taxes would have been on the property and project and then getting an immediate rebate of that tax payment in whole or in part.

5. Whatever the details may be for a given TIFed project, the fact is that the City is, for a given year during the applicability of the TIF, ending up with less property tax income from the TIF-ed property/project for that year than it would have received had the project gone ahead (as a part of the free private enterprise, entrepreneurial, capitalist system) without the TIF (or other government subsidies) having been granted.

6. As in any group project (which a tax-funded community is) if one member of the group does not pull his or her weight, put in their time, do their share of the work, show up on time, has their hand in the till -- or fails to pay their fair share of the expense -- the net effect is that either someone else has to pick up the slack or all will end up getting less out of the project than they thought they would.

7. Given the nature of the above blog entry I didn't want to have to (and did not feel it necessary to) get into this level of detail. Having now done so, hopefully anyone who shares Mr. Tubbs' view can see why, with very little literary license, I don't think it's a "lie" to say that the TIF beneficiary is, in effect, "taking tax money from someone else." Frankly, I don't think I actually said that anyway. But if I had (or did) I think it's a perfectly legitimate simplistic way to communicate what's going on.

# # #


Irl Tubbs said...

Denial...Its more than a river in egypt. Again, a TIF is not taking tax money from someone else.

I guess the author believes that if he tells a lie long will be the truth.

Irl Tubbs said...

Ok....lets not call it a lie...lets call it a gross misrepresentation.

Here is how it works, repeated from a previous post since I need to explain it all again.

Look, There is no such thing as a totally free market. If you look at the basic conditions of a totally free market in basic macro-economics the following conditions would be in place:

1. All firms sell an identical product.
2. All firms are price-takers.
3. All firms have a relatively small market share.
4. Buyers know the nature of the product being sold and the prices
charged by each firm.
5. The industry is characterized by freedom of entry and exit.

We all know that there is no market for any product or service for which those conditions exist. We all live under modified capitalism. The modification is dependent upon the particular market. Sometimes its government, sometimes its like OPEC with a limited amount of producers who can control price to a great extent. Or the DeBeers group with diamonds.

Now, with that as a background, realize that every locality is competing for jobs and quality of life and quality of government services. Its not as simple as Davenport vs. Rock Island....Its Davenport vs. basically the rest of the world. Cities in Iowa have a difficult time competing vs other cities in the US. Iowa City is blessed by having the UI and two major interstate routes, same with Des Moines. We need to use whatever competitive advantages we have. We can not compete on a labor cost advantage for manufacturing. Heck, most areas of Iowa don't have adequate workforce resources.

Now, a TIF is based on the increased value of a particular area of property, not taking the tax value of the property already there. So, if your TIF area has properties A,B and C the only part diverted to TIF is the increase in value. The base amount stays. So, the TIF bond pays for a street upgrade that brings in business property C, but also captures the increment of existing businesses A&B to help pay for the bond. So, the general fund of local government does not get the increase until the end of the TIF. However, any type of debt financing such as a general obligation bond for a road upgrade or a fire truck or police cars are still able to gather tax from a TIF area. You can also make an argument that TIF can drive ancillary growth beyond the TIF area itself. The Coral Ridge Mall is a good example. It makes the area more desirable to live in or own a business in. It is difficult to quantify that, but it certainly exists. Now, there are some criticisms of some TIF's that are certainly valid. However, lets not throw out the baby with the bathwater.

North Liberty said...

I read the story about the Surgical Center. I read the information on TIFs. And I have questsions.

It doesn't sound like the surgical center is a TIF situation. It is a tax rebate. I don't see where the incremental increase in property taxes are used to invest in an economically poor area.

I see a simple tax rebate. The surgical center promises to employ 20 people, and Iowa City promises to give them 600,000 dollars off their taxes.

That proposal sounds a bit like a bribe. If you guys employ some people (who don't have to be from Iowa City) we will hand you 600,000.

Apparently if Iowa City doesn't hand back a 600,000 rebate, the surgeons will build the center in West Branch, or some other economic powerhouse.

TIF or not, this sounds like corporate welfare. I agree with Nick. Will Iowa City give me a 200,000 rebate if I build a new house, as long as I hire 2 people to mow the lawn for the next 20 years? I promise I will.

Since when do businesses all get rebates on stuff they build?

Irl Tubbs said...

Because you and all other home owners already have a built in property tax break....its called the rollback. You only pay taxes on about 45% of your house currently and that amount will be under 30% in the next few years. Most property tax increase. Business pays 100% every year. An abatement or TIF rebate to them is no different than the one given to you every year. Your property taxes go up mainly for two reasons; Your assessment goes up or a project such as new schools go on the rolls. Cities are limited to $8.10 levy per $1,000 of taxable value for functions such as police, fire, some general administration, parks & rec, planning & zoning, & building services. Or in Iowa City questionable services such as "human rights". Counties are limited as well to $3.50 per $1,000 for their general fund. However, the debt service levy does tax into TIF areas. So fire trucks, police cars, or any other capital project has access to that tax base.

We are not living in some vacum.

North Liberty said...

OK, This doesn't really answer my questions.

We all pay taxes. I don't really care whether I pay on 45% or 30%, but I do pay taxes. 45% of what?? I pay my full property tax bill.

And it is very clear that the share of taxes paid by private taxpayers has shot way up in the past few decades. Isn't it something like 4:1 private to business total tax amounts in the USA.

No one gives me a rebate for moving to an area, like businesses receive. That is point one, a point not addressed above.

And secondly, old businesses must not like it that newer ones receive rebates on their taxes.

And lastly what the hell does 'we are not living in a vacuum' have to do with anything? Did someone change the discussion to air, and vacuums in space???

Irl Tubbs said...

A business pays tax on 100% of its property value. A residence pays tax currently on 45% of its property value. You have a built in reduction every year.

The point about a vacum is that we are in a global competition, and if we don't use incentives someone else will. Any place looking to land a business will use whatever competitive advantage it can. If Iowa City or all the cities in Johnson County drop TIF, you can bet that the Des Moines Metro would be all over it. Never mind the out of state competition. Iowa lags on quality of life, so we don't have clean water, nice lakes, or forests to market. So, what are you really selling someone to come to Iowa????