Monday, April 09, 2012

TIF Towers

April 9, 2012, 4:30 a.m., plus April 18, 2012, Addendum

Giving TIFs the Sniff Test

The following op ed column appeared in this morning's [April 9, 2012] Iowa City Press-Citizen. Its reproduction in this blog enables the addition of the supporting source material in the form of endnotes,, plus a sampling of prior blog entries about TIFs.

[April 18: For some subsequent developments regarding this TIF, sufficiently off-putting to cause two members of the "I've never seen a TIF I didn't like" City Council to vote against it, see "Addendum," below.]

"Moen TIF Proposal Just Doesn't Pass the 'Sniff Test'"
Nicholas Johnson
Iowa City Press-Citizen
April 5, 2012, p. A7

As Ronald Reagan would say, “There you go again.”[1]

Sadly, our seven recovering TIF-aholic[2] City Councilors have fallen off the wagon.

Fifty years ago tax increment financing, or TIFs, were designed to encourage urban renewal of blighted areas.[3] Is that how you’d describe the Ped Mall? Should they be used to enrich the developers of millionaires’ high-rise condos?[4]

My sources regarding the latest TIF shenanigans? Like the 1930s Will Rogers, “All I know is what I read in the papers.”[5]

The stories indicate this Mark Moen deal is even worse than a TIF. Like other TIFs, it shifts tax revenue away from schools and Johnson County,[6] and it’s unfair to the competing landlords without TIFs.[7]

So why worse? It’s a direct payment to Moen before construction of his $10 million, 14-story tower; a “forgivable loan.”[8] Forgive a $2.5 million loan?! It’s reminiscent of MidAmerican Energy’s demand ratepayers pay in advance for a nuclear power plant.[9]

Why no bank loan? Banks charge high interest and don’t recite the Lord’s Prayer about loan forgiveness.[10] You can’t blame Moen for preferring the Municipal Bank of Iowa City.

Where’s the money coming from? The City will sell municipal bonds. Because bondholders’ interest isn’t taxable, cities can pay them low interest. Even so, 18 years from now, we taxpayers will have paid $3.8 million (including interest) for our Council’s generosity.[11]

Iowa bankers complain about credit unions’ unfair competitive advantage.[12] (Banks pay taxes; credit unions don’t.) Why the bankers’ silence about this tax-free competitor?

Iowa legislators, like most Americans, are focused on “the economy,” special interests’ abuses, and the wisest use of taxpayers’ dollars. Bailouts, subsidies, corporate welfare, earmarks – and TIFs – are not in favor.

It turns out Iowa’s TIF practices are among the nation’s worst.[13] Reforms have been proposed and debated.[14] The ugly facts about TIFs and abuses are being revealed by ever-increasing numbers of legislators, economists, academics and journalists.[15]

So why does our City Council pick this of all moments to spit in their eye, rather than join the reform movement? How did the most urgent need for its next $3.8 million become a gift to Moen for his latest development?

Most Council members are likeable and even admirable, as is Mark Moen. All are creatively thoughtful about our downtown. But I have neither been asked nor volunteered to invest in his personal projects, and don’t appreciate the City Council forcing me to do so.

Why is this a good investment for taxpayers? Apparently it wasn’t a good investment for the combined resources of Moen, family and friends, bankers, and other potential investors sitting on cash and looking for returns.[16] And if it was a good investment for them, why do they need the TIF?[17] Just because he says so?[18]

Why doesn’t he build a 10- instead of 14-story tower, structurally strong enough to add the top floors later, when and if it produces the necessary profits? Or, since we’re paying for one-fourth of the tower, have the City own those floors?

Recipients of TIFs understandably think they are a nifty idea.[19] They argue TIFs pay for themselves with increased taxes later. But in this case the City has agreed the $10 million building may be assessed for property taxes as low as $5.76 million.[20]

Can the Council guarantee the tower’s economic success? That it wouldn’t be built without the TIF?[21] That taxpayers’ interests are protected if it fails, or Moen becomes bankrupt?

So far, this use of taxpayers’ money offers more questions than answers.
Nicholas Johnson teaches at the University of Iowa College of Law. For more TIF commentary and resources see


1. "There You Go Again,"

2. Editorial, "Rein In Speculative TIFs," The Gazette, April 1, 2012 (hereafter "Editorial") ("Iowa's addiction to TIFs has 'seriously distorted' the property tax system" (emphasis supplied)); Jennifer Hemmingsen, "Time to Rein In TIF Shell Game," The Gazette, April 1, 2012 (hereafter "Hemmingsen") ("This TIF addiction puts the squeeze on taxpayers outside TIF districts, and on county governments and school districts frozen out of the revenue stream.")

3. "The Iowa Picture: Tax Increment Financing; Overdue for Reform After All These Years,"Iowa Fiscal Partnership, March 29, 2012 (hereafter "The Iowa Picture") ("What is TIF? Originally a product of the push for urban renewal in the 1950s and ’60s, tax-increment financing (TIF) was designed to facilitate redevelopment of blighted areas in cities.")

4. Tara Bannow, "Committee recommends approval of Moen tower; 14-story development on Wells Fargo site would raise property's value from about $569,500 to an expected $9.8M," Iowa City Press-Citizen, March 14, 2012 (hereafter "Bannow") ("Plans call for a glass-lined, mixed-used building with the first four floors as retail/office space and the remaining 10 floors composed of 26 condos, including two luxury units on the top floor."); Josh O'Leary, "Marc Moen seeks TIF for 14-story tower downtown," Iowa City Press-Citizen, March 10, 2012 (hereafter "O'Leary") ("Plans for the new tower call for 16 one-bedroom, 662-square-foot condos; eight one-bedroom, 1,039-square-foot condos; and two luxury units, each about 2,000 square feet.")

5. "Will Rogers," Hopefully, these Endnotes will at least provide some sense of when, where, and in which papers I came to "know" what's in this op ed column.

6. "Why We Need Serious TIF Reform, an Iowa Fiscal Partnership Backgrounder," March 29, 2012 (hereafter "Backgrounder") ("Tax shifting is an integral part of TIF. When cities are allowed to divert taxes from overlying entities — school districts, community colleges, transit authorities, the county — those entities are forced to raise taxes to make up for the lost revenue from the increment. Residents of those broader jurisdictions — inside and outside the city — thus pay higher taxes."); Peter Fisher, "Tax Increment Financing: A Case Study of Johnson County," Iowa Fiscal Partnership, November 21, 2011 (hereafter "Fisher"); "Hemmingsen" ("This TIF addiction puts the squeeze on taxpayers outside TIF districts, and on county governments and school districts frozen out of the revenue stream. It’s a growing burden: In 2002, the impact of TIF on state school aid was $5.2 million, according to [Iowa State economist David] Swenson. In 2012, it was $46.8 million.").

7. For a compelling example of the impact of TIFs on the competitors who don't receive them, see the comments of the owners of Iowa City's Alexis Park Inn, contained in "Call the Cops, Robbery in Progress," April 24, 2008.

8. "Bannow" ("Tax increment financing usually provides property tax abatement after development has occurred. However, in this case, the TIF will be given in the form of an upfront, forgivable loan."); Gregg Hennigan, "Iowa City Approves $2.5 Million Loan for High-Rise Building; The $10.7 Million Building is to Have Retail Space, Offices, condominiums and Apartments," The Gazette, April 4, 2012, p. A2 (hereafter "Hennigan") ("The City Council voted 6-0 Tuesday night to approve a $2.5 million tax increment financing agreement with developer Marc Moen for a 14-story structure he plans to build on the Pedestrian Mall. . . . The $2.5 million will be given as a forgivable loan at the start of the project.")

9. Perry Beeman, "Heated battle over nuclear plant nears critical mass," Des Moines Register, March 21, 2012 ("House File 561 would allow the investor-owned utility to do something it has not done with any other power plant: charge ratepayers for a plant before it’s constructed.")

10. Matthew 6:9-13, New International Version of the Bible,
9 “This, then, is how you should pray:
‘Our Father in heaven,
hallowed be your name,
10 your kingdom come,
your will be done,
on earth as it is in heaven.
11 Give us today our daily bread.
12 And forgive us our debts,
as we also have forgiven our debtors.
13 And lead us not into temptation,[a]
but deliver us from the evil one.'"
11. "Hennigan" ("The city will sell bonds to cover the cost, which Finance Director Kevin O’Malley estimated at closer to $3.8 million when interest is included. It will take an estimated 18 years to repay the debt."), and "Municipal Bonds," ("In the United States, interest income received by holders of municipal bonds is often exempt from the federal income tax and from the income tax of the state in which they are issued . . ..").

12. “Credit Union Regulation,” American Bankers Association (within ABA Issues Index/Credit Unions (“Credit unions are a $951 billion industry. Over the next five years, the credit union tax exemption will cost the federal government nearly $8 billion.”)

13. Rod Boshart, "Working group hopeful of TIF reform; Coralville Von Maur deal sparked legislative look," The Gazette, March 28, 2012 (hereafter "Boshart") ("Rep. Tom Sands, R-Wapello, chairman of the House Ways and Means Committee, said there have been mounting concerns that Iowa has some of the nation’s most lenient TIF provisions with less oversight than other parts of the country. . . . 'TIF has got to be addressed,' he said. 'There are some that are wanting to do very little, but it’s real hard for them to defend the abuses of TIF that some cities are using right now. I think if we don’t get it under control, the abuses will continue to grow . . .."); "The Iowa Picture: Tax-Increment Financing; Overdue for Reform After All These Years, Iowa Fiscal Partnership, Updated March 29, 2012 ("[I]n the 1980s, when Iowa cities were allowed to start using TIF for economic development, broadly defined [no] longer did there need to be a finding of blight or decline to implement a TIF district. Rather, city officials could determine it was necessary for economic development. Even then, the presumption remained that a public subsidy of a project under TIF would only be used if a worthy development, carrying a public benefit, could not be expected to occur without it. It was to be a true incentive. Loosely written law has permitted these standards to lapse. The use of TIF in Iowa has expanded well beyond its intended purposes, often going against the principles that are meant to justify it.").

14. "Editorial" ("a bipartisan House-Senate working group is studying Iowa’s tax increment financing rules"); "Boshart" ("A bipartisan House-Senate working group is hoping to craft reforms to the state’s tax increment financing system that can win legislative approval this session, group leaders said Monday [March 26, 2012].").

15. Lee Hermiston, "Residents speak out at forum on TIF practices; Suggestions include giving schools voice in the process," Iowa City Press-Citizen, January 22, 2012 (hereafter "Hermiston") ("State Sen. Joe Bolkcom arrived at a community discussion on fixing the problems with tax increment financing with 15 ideas for TIF reform."); "The Iowa Picture: Tax-Increment Financing; Overdue for Reform After All These Years, Iowa Fiscal Partnership, Updated March 29, 2012.

16. "O'Leary" ("The developer is asking for $2.5 million in TIF assistance in the form of a forgivable loan provided by the city before the project starts. Moen would use the money to leverage private financing . . ..").

17. "Hennigan" ("Critics . . . argue a TIF is often unnecessary for a project to move forward — and if it is needed, then the project is not viable on its own.").

18. "O'Leary" ("Moen said the city’s financial assistance is 'absolutely critical' for the new project."); "Hennigan" ("Moen has said the project would not happen without the financial assistance . . ..").

19. "O'Leary" ("'I think Iowa City’s use of TIF is a model of how TIF is intended to use, and has been applauded by everybody,' Moen said."); "Bannow" ("Although Moen has been critical of Coralville’s use of TIF, he said this project [his new tower proposal] represents responsible use, as was the $6 million in TIF that was given to Plaza Towers."); "Hermiston" ("Local developers Marc Moen and Kevin Digmann said TIF, when used responsibly, is a valuable tool, pointing to the Plaza Tower . . . made possible through TIF use.").

20. "Hennigan" ("The agreement also requires the property . . . to have [a] minimum assessed [value] of $5.76 million . . ..").

21. "Hennigan" ("Critics also argue a TIF is often unnecessary for a project to move forward . . .."); "Editorial" ("[M]ost of the state's TIF activity has been use[d] to underwrite commercial and retail development, according to Iowa State University economist David Swenson's research. Much of that development would have happened anyway, Swenson said."); "Backgrounder" ("TIF Reforms . . . State law also should require that TIF funds be used only when necessary"); "Hermiston" ("Many also spoke in favor of requiring TIF projects to undergo a 'but-for analysis' that would prove the project could not go forward without TIF funding.'The but-for measure is the key,' [Johnson County] Supervisor Rod Sullivan said. 'We obviously haven’t been able to get folks to do that analysis locally. I think we need, somehow, we need somebody to play referee. There has to be some kind of but-for analysis.'").

Sampling of Prior TIF Op Ed Columns and Blog Entries
From 2011

"TIFs Wealthy Relatives," December 6, 2011

"TIF Impact Statements," November 29, 2011

"SSMIDs, Taxes and TIFs: The Lessons,"
November 3, 2011

"The True Price of TIFs," October 1, 2011

"Brother, Can You Spare a TIF," April 25, 2011

And a sampling from some of the earliest ones, 2006-07

"Understanding TIFs," October 5, 2007

"Courage, Councilors," October 3, 2007

"TIFing Your Doctor," September 12, 2007 (with TIF lyrics for "Folsom Prison Blues")

"Public Money, Private Profits," August 24, 2007

"The Terrible TIFs," July 26, 2007

"Why Do They Hate America?" October 4, 2006

"Press-Citizen Says 'Tough TIF,'" September 22, 2006

"TIF-ing My Toolshed," September 2, 2006

"Coralville's Hotel: 'Trust But Verify,'" August 16, 2006

"Are TIFs 'Corporate Welfare'?" July 22, 2006

"More: Justifying Corporate Welfare," July 13, 2006

"Neutral Principles, Anyone? Justifying Corporate Welfare," July 12, 2006

April 18, 2012

Remember the old line, "Gravity. It's not just a good idea, it's the law"? On April 17 Chris Gordon reminded us that "Limiting TIFs to precise public purposes is not just a good idea, that also is the law." Chris Gordon, "No Reason for City to Pitch In On New Downtown Tower," Iowa City Press-Citizen," April 17, 2012, p. A7.

He notes that, among many other Iowa Code provisions that appear to be violated by this TIF (some violating the letter of the law, all violating its spirit), "First, Iowa Code 403.5.4 (1) provides that local urban renewal plans that propose residential redevelopment must show that there is a shortage of housing, that existing housing is so deficient as to be a threat to the public welfare, or that land is needed for low-income housing. The City-University Urban Renewal Plan does none of this. Indeed, the detailed objectives for the sub-areas of the plan make no mention of the need for residential development."

I offer no independent "legal opinion" regarding the validity of Gordon's assertions, for a variety of reasons, not the least of which because I haven't done the legal research into the statutory language, the legislative history, and the court interpretations. But it does seem to me there is enough smoke billowing from his campfire that it warrants some lawyer doing so.

Today [the next day, April 18] we learn that Moen would like to change his plans for the building -- two weeks after the Council approved his first proposal -- and that a majority of the City Council sees no problem with permitting him to do so. Mitchell Schmidt, "Council OKs New Moen Tower; Alteration Will Allow a Cantilever Design and Add About 5,600 Square Feet to the 14-Story Building," Iowa City Press-Citizen, April 18, 2012, p. A1:
The Iowa City Council has approved a revision to developer Marc Moen’s 14-story building that would include inserted balconies and an overhanging cantilever design [-- a revision] that “substantially deviates” from the concept presented in the original agreement . . . a cantilever design that would include a 4-foot overhang . . . for the top 13 floors. Inverted balconies would begin on the fifth floor. The roughly 5,600 square feet that would be added [the equivalent of two or three additional houses] . . . would increase the assessed taxable value of the structure by an estimated $1.5 million . . .. Moen noted that . . . the new design would include additional costs . . ..
Why is this not proof that he never needed the TIF in the first place -- even if it was legal, which Gordon suggests it wasn't -- and even if the Council had explained why it fails to trigger any of the dozen categories of reasons why TIFs are a bad idea -- which the Council refused to do (because, of course, it couldn't)? (I am assuming the Council has not provided Moen even more taxpayers' money to cover the "additional costs" of these revisions.) It looks to me like he had enough money available to build the building he first proposed, but wanted what would be (to his aesthetic tastes) a more attractive building that would require, that's right, a $2.5 million TIF. (Given that the City may tax him on approximately half the value of the building, it is not unreasonable to project that the "$1.5 million" in additional assessed value represents about $2.5 million in additional actual value.)

Mayor Matt Hayek and Council Member Jim Throgmorton voted against the revision. Why? It turns out that this little "revision" also involves, in effect, a gift of public property (use of a "public right of way") to Moen that was not originally contemplated, and will stand as a precedent for future developers -- kind of like giving downtown restaurant owners the opportunity to put tables and chairs on the public sidewalk to personally profit from more customers. "Hayek and Councilor Rick Dobyns questioned whether approving the use of the overhang, which would encroach over the Dubuque Street and Black Hawk Mini-Park sides of the tower, would create a precedent for future developers to request the same. 'If we do this, the council’s got to be comfortable with what could be requests to cantilevers in the public right of way on other buildings,' Hayek said . . .."

So far as the newspaper story reveals, the Council made no effort to put a dollar value on this additional gift of public property -- a little bonus on top of the taxpayers' future re-payment of $3.8 million already committed.

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