Monday, April 25, 2011

Brother, Can You Spare a TIF?

April 25, 2011, 6:30 a.m.

[This morning's [April 25] blog entry is a reproduction of my op ed column in this morning's Press-Citizen, plus the paper's editorial endorsing the TIF, some other related material, commentary and links. On May 6, Bob Elliott's Press-Citizen op ed column and my response were added at the bottom of this blog entry, along with the paper's May 3 story about the Council's approval of the TIF, and my online comment.

After this op ed column was written, submitted, and published I happened to read the comments entered by Press-Citizen readers to the online version of the paper's story announcing this TIF. What is noteworthy is not only the number of comments, and near-unanimous opposition they reveal, but the consistency between what they presented and what I came up with in trying to think through these issues. It's always reassuring to see one's initial, uninformed, instinctive analysis confirmed by the arguments of others, whether experts in a field or ordinary citizens like oneself. If you'd like to examine the almost-unanimous opposition to this TIF by dozens of Iowa City Press-Citizen readers, see "Readers TIF Comments".

If you're too young to catch the reference in the blog headline ("Brother, Can You Spare a TIF?") -- that is to say, if you're under the age of 70 or so -- see the lyrics for "Brother, Can You Spare a Dime?," a song from the depths of the Depression, written in 1931.]


TIF Helps the Rich Get Richer
Nicholas Johnson
Iowa City Press-Citizen
April 25, 2011, p. A7

Public officials love to transfer taxpayers' money to the wealthy.

It costs the politicians nothing. It's a way to thank campaign contributors. The gifts are hidden in earmarks or tax breaks. If they come to light, they can be characterized as "jobs programs" rather than welfare for the wealthy.

The practice is not limited to Washington. In Washington, the billions of dollars soon total trillions. In Iowa, the thousands of dollars only total millions.

In Iowa City, we call them TIFs. Another one is about to cost local taxpayers $250,000. Mark Moen wants to transform Vito's restaurant into offices. "Leaders Defend Ped Mall Project," April 19, 2011 [reproduced at the bottom of this blog entry].

Backers offer fancy math to convince taxpayers this is a good deal. But if they've persuaded you, you're just lucky you never got an offer from Bernie Madoff.

Mark Moen is an Iowa City asset, an exceptional businessman with a social conscience and creative vision. Matt Hayek is the brightest, ablest mayor of any city in Iowa; City Manager Tom Markus a lucky find. Nor am I alleging campaign contributions produced this TIF.

I just don't share their economic ideology.

Capitalism excels at what it does best. It doesn't do well with taxpayers' dollars. What governments do well are among our best bargains, such as police, parks, public schools, libraries and roads. But government has a lousy record when picking businesses.

Corporatism (technically fascism) intertwines the worst features of both government and business with predictable results -- whether in Iowa City or Washington. TIFs, like corporate subsidies, are an example. "Tax break" is just another form of subsidy. When GE earns $14 billion, pays no tax, and gets $3.2 billion from the IRS, our taxes go up -- as they will for this TIF.

Capitalism offers the possibility of great financial rewards -- along with risks of losses, even bankruptcy. Pure capitalism's accomplishments have been impressive. Letting it fatten into fascism at the public trough only weakens its inherent strength.

Capitalists are eager for investments backed by business plans documenting cash flow and high returns. There's no shortage of money for those projects. They don't need taxpayers' money. The money comes from the entrepreneur, her family and friends, other investors or stockholders, bank loan officers, and venture capitalists.

In fact, if those sources aren't adequate, if this TIF project will fail without a mere $250,000 from taxpayers, that's a good sign it's not a wise investment. And if it doesn't make sense for capitalists it darn sure doesn't make sense for taxpayers.

Moreover, "build it and they will come" only works in the movies, as the UI's Laser Center demonstrated. Vito's may require some work. Might it make more sense to lock in the occupant before, rather than after, major remodeling the occupant may want to change?

The point is, questions like that are for investors to answer. It's their expertise, and money, that needs to be invested. Not mine, and not that of city administrators.
__________
Nicholas Johnson, a former FCC commissioner, teaches at the University of Iowa College of Law and maintains the website www.nicholasjohnson.org.

# # #

You hadn't caught that bit of news about GE's "tax burden"? Here's Jon Stewart's explanation on March 28, from a series called "I Give Up":

The Daily Show With Jon StewartMon - Thurs 11p / 10c
I Give Up - Pay Anything...
www.thedailyshow.com
Daily Show Full EpisodesPolitical Humor & Satire BlogThe Daily Show on Facebook


# # #

The Press-Citizen ran the following editorial this morning on the same page as the op ed column. In fairness, its argument favoring the TIF is set forth in full, followed by some comments.

Vito's Renovation Good Investment of City Money
Editorial
Iowa City Press-Citizen
April 25, 2011, p. A7

There is much to like in Marc Moen's proposal to renovate the building at 118 E. College St. and transform the former site of Vito's, which closed earlier this year, from a big-box bar into retail and "class A" office spaces.

We can understand why the city's Economic Development Committee voted unanimously last week to have the city chip in $250,000 through tax increment financing toward the $1 million renovation. (The proposal will come before the full Iowa City Council on May 3.)

As an Editorial Board, we've never viewed TIFs as the automatic four-letter word of economic development. We've always asserted that TIFs can be a good tool when used effectively -- as with the improvements to the Sycamore Mall, the former Plamor Lanes and Moen's own Plaza Towers.

And like those projects, Moen's current proposal is tied to a larger vision for revitalizing a neighborhood and providing a "substantial renovation" to otherwise undesirable or underused property.

"We would like to see some of the large bar spaces converted to retail and offices. We think it is better for downtown," said Jeff Davidson, Iowa City director of planning and community development. "The bottom line is, the only tool the state allows us to foster economic development is tax increment financing, and we feel in Iowa City we use it responsibly."

The question is whether the proposal passes what should be the first question for determining whether a project deserved a TIF: "Can the project succeed without public financing?"

Although the project is far more likely with the use of public money, some city residents have a hard time imagining that the city's contribution is absolutely essential for a project by someone, such as Moen, who already owns a large portion of downtown and near-downtown property. (Moen, for example, owns the building at 123 N. Linn St. where the Press-Citizen rents its office space.)

Yet Moen says the proposed building use is riskier than if he were just to rent to another bar or renovate for apartments. And because the project has "higher risk, higher cost and lower reward," banks are less willing to provide funding.

We've opined repeatedly that the decision on whether to grant a TIF needs to be based on much more than a bottom-line explanation on how it offers a win-win arrangement for both the city and the business. Otherwise the city risks granting businesses massive tax breaks for doing simply what their corporate officers and the current market would have them do anyway.

But in this case, we think the city is right to invest in a downtown project of this nature.

Even if a TIF is approved, Moen will continue to pay property taxes on the building's current assessment. City documents say the planned renovations are estimated to bring in $31,250 more in property tax revenue per year than the building currently does. Under the proposal, the financing would take eight years to repay -- adding up to the $250,000.

We don't want the city to fork over public cash every time someone shows there's a little profit to be made. But we do want the city to invest public money in projects, such as this one, that enhance the public good.
__________

My commentary:

Although my column and the editorial reach opposite conclusions, I don't find much in the editorial that challenges my analysis.

Although I say these decisions should be left to investors and the marketplace, my instinct is to think that the Editorial Board, Mark Moen, and Jeff Davidson are correct to say that, as Davidson is quoted as saying, "We think it [bar spaces converted to retail and offices] is better for downtown."

But even if they, and my instinct, are correct, that's irrelevant to the issue. The issue is whether taxpayers should be getting into bed with the investor and helping to fund this single project. They say, yes; I say, no. I offer a neutral principle for making such decisions; they do not.

And that I also find troubling.

The Editorial Board's decision making standard for what is a worthy, or unworthy, TIF appears to be in its concluding two lines: "We don't want the city to fork over public cash every time someone shows there's a little profit to be made. But we do want the city to invest public money in projects, such as this one, that enhance the public good."

Has there ever been a politician who would acknowledge that she is encouraging the expenditure of taxpayers' money for projects that clearly do not "enhance the public good"? I doubt it.

Presumably, a project that resonates with the public -- as measured by its profit -- "enhances the public good," at least as measured by the marketplace. But (a) that only supports my point that these judgment calls can be better made by investors (using their own money) than by public officials (with no skin in the game, just passing out taxpayers' money), given government's abysmal record in making these decisions. (b) Those conclusions can only be arrived at after the project's success, not before it is undertaken. (c) With both lack of data in advance, and such a spongy standard for decision, TIF decisions are open to the public suspicion of favoritism, irrationality, and inconsistency. (d) In addition, such an approach is unfair to those with equally worthy projects that might "enhance the public good" that are not chosen -- or worse, now have to compete, with their own money, against a competitor who has been favored by the good old boys who make up the powers that be.

# # #

For the almost-unanimous opposition to this TIF by dozens of Iowa City Press-Citizen readers, see "Readers TIF Comments" entered in the online version of this article.


B.A. Morelli, "Leaders defend ped mall project,"
Iowa City Press-Citizen, April 19, 2011:

Iowa City leaders say using public money to help repurpose a former bar into retail and office spaces is a worthy investment.

The city plans to chip in $250,000 through tax increment financing toward an estimated $1 million conversion of the former Vito's building into a site for a national retail franchise on the first floor and one or more "class A" office units on the second floor.

"We would like to see some of the large bar spaces converted to retail and offices. We think it is better for downtown," said Jeff Davidson, Iowa City director of planning and community development. "The bottom line is, the only tool the state allows us to foster economic development is tax increment financing, and we feel in Iowa City we use it responsibly."

An economic development committee endorsed the project with a 3-0 vote on Tuesday, and the project will come before City Council on May 3.

On Friday, downtown developer Marc Moen closed a $1 million deal to buy the building at 118 E. College St. It housed Vito's until it closed earlier this year in the wake of the controversial 21-only law.

Moen and city leaders say this type of project -- retail and office -- meets city priorities for diversifying downtown. At the same time, they are much riskier than a bar or apartments, and banks are less willing to provide funding, they say.

Moen said the project is "higher risk, higher cost and lower reward."

If approved, the financing would take eight years to repay, and the new building will generate $31,250 more in property tax revenue per year than it currently does, according to city documents.

Moen has his sights set on luring a name-brand retailer to occupy the main floor, but it will take time, he said. His hope is for the store to open in 2012.

The "substantial renovation," which includes gutting the building to its core and restoring the original fa├žade, will begin immediately, Moen said.

City manager Tom Markus said the added retail and office space and upgrading a dated building will be good for the city.

"From that standpoint, I think we're starting the process of rebuilding the downtown. Marc is a known quantity in terms of doing quality work," Markus said.
__________

For the almost-unanimous opposition to this TIF by dozens of Iowa City Press-Citizen readers, see "Readers TIF Comments" entered in the online version of this article.
__________

Bob Elliott, “State Should Limit Use of TIF,” Iowa City Press-Citizen, May 6, 2011, p. 7A, temporarily available online at

http://www.press-citizen.com/article/20110506/OPINION01/105060318/State-should-limit-use-of-TIF

Let's focus on uses and misuses of tax increment financing as an economic development tool.

TIF enables local governments to invest temporary tax breaks as incentives for long-term greater good. Cities and counties can sign tax break agreements with private firms (contingent on construction or operational terms) over a limited period of time, to gain community improvements and/or increased future tax income.

But there are dangers involved if too much tax income is deferred from funding needs by the county, other cities and towns, and school districts.

Judicious use of TIF is the key to whether it's used or abused. Just as modern science provides us with wonder drugs that can work miracles, misuse or abuse of those drugs can have terrible consequences.

So the debate continues about how much TIF-deferred taxes we can afford to invest in future economic growth. Of course, there are those who oppose the whole concept of TIF. But that's another question.

Misusing TIF: I think Coralville, Oxford and Tiffin are among those misusing TIFs, to the detriment of other governing bodies and taxpayers. Because it's the largest of those cities and involves the most tax dollars, Coralville will be my focus.

I have longtime admiration for Coralville and City Manager Kelly Hayworth. With Hayworth's strong leadership, Coralville has achieved a remarkable record of productive growth and just plain getting things done. I like that. It rocks.

But that doesn't mean Coralville is incapable of mistakes. I think the amount of property Coralville has involved in one or more TIF districts means the otherwise productive economic development tool is being misused.

However, there's been a misunderstanding about TIF's impact on the local area Iowa City and Clear Creek Amana school districts. So I asked for a clarification from Paul Bobek, executive director of administrative services for the Iowa City School District.

He said because of state-imposed "spending authority," even if there were additional tax income, it couldn't be used for such General Fund items as teacher compensation. Increased tax funds would enable lowering district property tax rates, but the state's funding formula controls each district's spending (a form of statewide equity), independent of the district's taxable valuation.

There are more complexities involved, but I'm staying with the most obvious aspects of misusing TIF. For that, I use relevant data provided by Kevin O'Malley, Iowa City finance director.

Though noting he's not a fan of TIF, O'Malley pointed out it's been used productively by Iowa City, Coralville and other communities in the past. From him, I obtained a copy of "Valuation Tiffed in Johnson County: Taxable Values (for FY11 Budgets)" report that reveals the following data.

The report showed Iowa City with less than 1 percent of its property valuation in TIFs and West Branch had 0 percent. Among those making extensive use of TIF were Coralville at 41.7 percent, Oxford at 52 percent, and Tiffin with a whopping 65.3 percent. Because of the extent of Coralville's property, it has 72.1 percent of all the TIF property valuation in Johnson County.

That represents millions of tax dollars deferred to promote economic development projects in those communities. For instance, Coral Ridge Mall generated about $10 million in gross (before TIF) taxes this year, but the mall's TIF district recently was extended to include Coralville's River Landing Project, deferring significant portions of future taxes for even more years. That extension is along Interstate 80, meeting the letter, if not the spirit of the law.

We need a state law capping at 5 percent, or at the most 10 percent, the amount of property any city or county could involve in TIF districts.

Bob Elliott is a former Press-Citizen sportswriter, a 30-year employee of ACT and a former Iowa City councilor.
__________

I responded with a comment on the Press-Citizen’s online version of the column:

6:33 AM on May 6, 2011

TIFs (or taxpayers’ “Toxic Incredible Fleecing”) are supported by those who receive them, and those who, unapologetically and irrationally, delight in giving taxpayers’ money to the grateful recipients.

What a relief it is to find a TIF supporter who is thoughtful and honest enough to acknowledge that too much of a bad thing can, at some point, become a real problem. (As the late Senator Everett Dirksen is often credited with saying, “A billion here, a billion there, pretty soon, you're talking real money.”)

In short, says Bob Elliott, the level of TIFs that a body politic can survive are like the quantity of other toxics our bodies can survive: radiation from a failed nuclear power plant, cancer-causing elements in our drinking water and the air we breathe, lead in the paint on a child’s toy.

My question: Once we acknowledge the harm that TIFs can do, why keep shooting ourselves in the leg with them just because we can still limp along on our good leg?

Capitalism has its place and accomplishments. So do legitimate governmental functions. Like chemicals that only become explosive or toxic when combined, it’s the intertwining of capitalism and socialism that’s the problem.

See, “Brother, Can You Spare a TIF?”

http://fromdc2iowa.blogspot.com/2011/04/brother-can-you-spare-tif.html

__________

Josh O'Leary, "Council OKs TIF for former Vito's; Moen to renovate for retail, possible office space," Iowa City Press-Citizen, May 4, 2011,
temporarily available online at

http://www.press-citizen.com/article/20110504/NEWS01/105040322/Council-OKs-TIF-former-Vito-s?odyssey=mod|mostcom

An enthusiastic Iowa City Council on Tuesday signed off on a project by developer Marc Moen that would transform a former bar into retail and possibly office space with the help of city funding.

The council voted 7-0 to authorize an agreement with Moen, who plans to redevelop 118 E. College St., a pedestrian mall building that had been the longtime home to Vito's bar and restaurant before it closed this past winter. The city will pitch in $250,000, or 12.5 percent of the project's price tag, through tax increment financing.

Moen plans to attract a national retailer to the space, which he purchased for $1 million last month. He intends to invest another $1 million in renovations before a targeted opening for the store in 2012.

Planning and Community Development director Jeff Davidson told the council that although the city's initial agreement required retail space on the street level and offices above, it has since been tweaked to allow for retail on the second floor, as well, to accommodate prospects interested in filling two floors.

"I think we're all very excited about this project," council member Regenia Bailey said. "This is exactly what we want to see downtown."

Said council member Susan Mims: "I'm excited by the fact that somebody big enough wants to come in that might want to use both floors."

Vito's had been located in the 112-year-old building -- which features 5,200 square feet on the first floor and 3,800 on the second floor -- since the 1970s, according to the city.

In the agreement with the city, Moen will not be allowed to open a restaurant or bar in the building over the course of the eight-year TIF period.

By city law, the building cannot be turned back into a bar even after the TIF expires because of a provision adopted by the council requiring 500-foot spacing between bars. Existing bars were excluded from the law.

The renovated building will generate $31,250 more in property tax revenue per year than it currently does, according to the city assessor -- an amount that will be used by the city to repay its $250,000 investment over eight years. . . .

__________

To which I added the comment:

7:22 AM on May 4, 2011

Can't say I'm stunned, though I would have welcomed at least one dissenting opinion on behalf of the taxpayers and the virtues of uncontaminated capitalism.

My views, too lengthy for a brief comment here, were laid out in a Press-Citizen op ed column ("TIF Helps the Rich Get Richer"), embedded along with other articles, the PC's editorial, and responsive comments in this blog entry:

"Brother, Can You Spare a TIF?" April 25, 2011,
http://fromdc2iowa.blogspot.com/2011/04/brother-can-you-spare-tif.html

Now that the TIF's been formally approved, a blog reader (John Neff's) comment, tacked onto that blog entry, becomes even more urgent:
"TIF districts have been used long enough in Johnson County so that it should be possible to evaluate how well they work."

I think the City councilors and/or manager/staff (along with those from Coralville and other TIF advocates) owe us no less -- not just on the future economic results from this TIF as they become available over the years, but on those that have been used in the past (and that will inevitably, following this one, be increasing taxpayers' burden in the future). Following the raw data (which may be skewed by the providers, given the extent to which subjective judgments enter the equation), we will then need the analysis and commentary of a professional, unbiased group like the Iowa Policy Project.

In other words, to quote the old line: "In God we trust; all others bring data."

How about it, City?

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2 comments:

John Neff said...

TIF districts have been used long enough in Johnson County so that it should be possible to evaluate how well they work.

Anonymous said...

The trick is this, short term TIF should work and work well, however, once a TIF has been designated it seems to never go away. Once all the money has been invested in a property to make it a better paying tax entity, it seems to sit, playing all the tax increases on investment surrounding the TIF. If the TIF district grows, then all the rest of the TIF district continues to live on with property tax values frozen in time for all parts of the district. Downtown Cedar Rapids is on huge TIF. Yet people wonder why voters reject spending even more money from a sales tax to protect areas that have for over 25 years had tax money to improve their locations.Eventually someone has to pay the bills, and those outside of the TIF are getting TIFed off.