Sunday, February 03, 2013

Tough TIF Talk

February 3, 2013, 10:20 a.m. [Looking for the Feb. 1 "Pat Paulsen on Guns" blog entry? Click here.]

Like Death and Taxes, TIFs and TIFing Seem Here to Stay

Nicholas Johnson

Iowa City Press-Citizen

February 3, 2013, p. A7

Considering all the downsides of tax increment financing (TIF), you have to wonder why public officials continue to use it. Is there that much joy in playing Santa with other people’s money?

Whatever the reason, like death and taxes TIFs are here to stay. Officials and their lucky beneficiaries love them, and the public doesn’t seem to care — at least not enough to make an organized, political difference.

Nonetheless, it’s worthwhile to remind ourselves from time to time why they are such a bad idea. Here’s a summary.

• Roads and schools are traditional government undertakings. Funding private enterprise is not.

• TIFs are backwards: voters must approve bonds for legitimate public projects, like the justice center, but private TIFs are awarded without public approval, often over taxpayers’ objections!

• They’ve lost their way. Initially designed for urban renewal and low-income housing, taxpayer-funded TIFs are now used to build upscale condos.

• It’s ideological hypocrisy to praise free markets while coming to city hall tin cup in hand.

• Telling taxpayers, “I’ll keep the profits, you cover the losses,” conflicts with capitalism’s gamble of risks as well as rewards.

• TIFs intertwine government and business in something that’s neither socialism or capitalism. It’s called “corporatism,” and combines the worst qualities of both.

• TIFs distort the market.

• Even if distortion of market forces was desirable, governments have more effective tools than TIFs that don’t require taxpayers’ money — zoning regulations and building codes among others.

• It’s inexcusably unfair to fund one business person while leaving his competitors on their own.

• TIFs take money from schools and other government units, causing either cuts in programs or increased taxes.

• Even if TIFs would produce taxes many years from now, and they often don’t, are ever-increasing taxes (and budgets) an appropriate metric for measuring good government?

• TIFs aren’t needed. There are plenty of investors for sound, profitable business plans. If they and bankers won’t fund a project, why should taxpayers?

• Many TIFed projects would have gone ahead anyway; it’s virtually impossible to know if the beneficiary’s professed “need” is genuine.

• All ventures have risk. TIFs have more, because public officials with little business experience and no skin in the game make more mistakes than experienced investors watching their own money.

• Trying to move businesses from one community to another with competing TIF bribes is a lose-lose strategy.

• Businesses pick cities for reasons other than TIFs: workforce, local economy, schools, transportation, communication, quality of life.

• Telling officials to TIF “prudently” is as effective as beer ads urging University of Iowa binge-drinking students to “drink responsibly.” TIFs can be as addictive as alcohol.

• When officials give millions in taxpayers’ money to private, for-profit businesses, the temptations for good-old-boy corruption are great — and virtually impossible to uncover.

• TIFs are, for a taxing authority, what impulse buying is for the rest of us — an expensive, unbudgeted, one-off “I’ve got to have that!” moment, often followed by buyer’s remorse.

• TIFs can devastate a government’s credit rating, thereby increasing the cost of future legitimate projects.

These concerns are relevant for any city.

But Iowa City has another reason to avoid TIFs: We don’t need them. Businesses here will thrive; others come because of what we offer. We’re ranked near the top of the nation’s cities in numerous categories.

I know our officials will continue dropping millions of taxpayers’ dollars to the bottom line of for-profit, private ventures. But it still doesn’t hurt to ask from time to time, “Why?”
Nicholas Johnson, a former school board member, teaches at the University of Iowa College of Law and maintains

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For discussion of the taxpayer subsidy of a previous Moen project, along with footnote documentation, and links to a sampling of other prior TIF discussions, see "TIF Towers; Giving TIFs the Sniff Test."


Anonymous said...

Your personal anti-TIF viewpoint has you thinking and writing with blinders on. When used judiciously, as has been the case in Iowa City, TIF can be a valuable tool with a very real return on investment -- both in new development and in hard dollars and cents.

Nick said...

Anonymous: Thank you for the comment. I'd really like to see more community discussion of TIFs, and yours is certainly a widely held view.

Here's how I'd respond.

Are some taxpayer TIF investments more wisely conceived, executed and monitored than others? Of course. Do some provide more public benefit than others? Sure.

Mark Moen's thinking about how downtown Iowa City's needs in the 21st Century differ from those of 19th Century Iowa City square with much of the thinking I have been doing on this subject since years before he began building. That's not the point. The question is whether TIFs should be used.

It would truly be a tragedy if no benefits whatsoever flowed from any TIF, anywhere, any time, ever.

I'm not suggesting that's the case. What I am suggesting is that the downsides are such that, on balance, in more cases than not, the downsides of TIFs outweigh the benefits of TIFs.

I've itemized 20 potential downsides.

Just as I am not urging there are no benefits, are you dismissing all of the 20 downsides I itemize? Are you saying that none of them have ever been applicable to any TIF?

To pick one: Do you truly believe that it really is fair to the TIF recipient's competitors -- who have not received taxpayers' money -- to have to continue to compete against someone who has?

Are there others that you believe have never been applicable to any TIFed project?

I could go through the other 19 with similar questions.

-- Nick

C Schmidt said...

Many of the arguments in favor of TIF financing are based on the false premise that development projects would not proceed in the absence of TIF, which of course is not the case, especially in Iowa City's healthy economic environment.

Yale Cohn said...

Here is our show with Jon Fogarty, co-chair of the Iowa Coalition Against The Shadow, talking about the groups' concerns over the "The Chauncey" development and how and why they hope to change it.

Nick said...

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-- Nick