Sunday, April 13, 2014

Tussling Over TIFs: Pros and Cons

April 13, 2014, 8:25 a.m.

Tough TIF Talk
Introduction: For years, TIFs have been controversial. ("Tax Increment Financing," by reducing a developer's property taxes, or directing them solely to his or her project, has the effect of transferring taxpayers' money to the bottom line of private, for-profit ventures.) Proponents cite a "benefit" -- essentially the existence of the developer's project -- while skeptics list a rather substantial list of the costs and burdens they believe more than outweigh any such benefit under any rational benefit-cost analysis.

The Gazette for Sunday, April 13, 2014, led its "Insight & Books" section (editorials, guest columns) with two guest columns taking opposite sides regarding the merits of TIFs: "Weighing the Pros and Cons of Tax Increment Financing; Talking TIF" -- found on the Opinion Page of The Gazette's Web site, and in hard copy as: Nicholas Johnson, "Costs Outweigh Possible Benefits," pp. A9, A12, and Chad Heiman, "TIF a Necessary Tool for Growth" pp. A9, A12.

Talking TIF: Costs Outweigh Possible Benefits

Nicholas Johnson
The Gazette
April 13, 2014, pp. A9, A12
http://thegazette.com/costs-outweigh-possible-benefits-20140413
[Submitted as: TIFs’ Multiple Costs Outweigh Any Possible Benefit]

There are many reasons why further enriching the backers of for-profit, private ventures with taxpayers’ money is a really bad idea. [Photo credit: Patrick McDonough.]

In 2006 I began a blog. Dozens of its 1000 essays deal with reasons to oppose TIFs. See “TIFs: List of Blog Essays,” http://fromdc2iowa.blogspot.com/2014/03/tifs-links-to-blog-essays.html.

Any one of them is reason enough to reject a TIF. To approve it, proponents need to show why none applies.

The issue is not whether a TIF has a single benefit. Benefit-cost analysis requires we total all the costs and burdens of that TIF and weigh them against its individual benefit.

Few if any can pass that test.

Ideological hypocrisy. How can those supporting free private enterprise, capitalism, and marketplace forces, who think “government is the problem” and want it “off their back,” justify taking money from the public collection plate?

Anti-democratic. City councils need voters’ approval of bonds for legitimate government projects. Yet they can give our money to their friends’ private projects on a whim.

Lowered credit rating. TIFs can impact credit ratings. Coralville went from a Moody Aaa credit rating, the highest, to a “lower medium grade” Baa2 in two years.

Opportunity costs. Spending money on one thing costs the lost opportunity to spend it elsewhere. Johnson County Supervisor Rod Sullivan once found a diversion of $700 million of property off the tax rolls. As a result, either we pay more taxes or Supervisors cut needed programs.

Unfairness to neighbors. The TIF-granting body’s neighbors often lose out as well – other communities and school districts with less money in their budgets.

Unfairness to competitors. TIFs tilt the playing field. They unfairly upset a free market, punishing honest competitors and benefitting no one except the TIF recipient.

Risky business. Money’s always available for good deals. If an entrepreneur, family, friends, investors, venture capitalists, and banks aren’t willing to fund a project, maybe taxpayers shouldn’t either.

TIFs complicate taxes. We don’t deserve more tax complexity and even less transparency.

“Money can’t buy love.” Why compete with bribes? A business that needs port access to the Pacific Ocean isn't coming to Iowa. If it did, it would leave for a bigger bribe. Maytag, offered $100 million to stay, left anyway.

TIFs are unnecessary. The Corridor is one of the fastest growing, lowest unemployment areas of Iowa. We already have what businesses want: skilled labor, transportation and communication infrastructure, quality education, cultural attractions and outdoor recreation.

TIF grantors’ poor skills, record. The subsidy-grantors' record is not great. Elected officials are more skilled at keeping contributors and constituents happy than at evaluating taxpayer-funded business proposals. TIFed projects have gone belly up, missed deadlines, and new jobs goals. With reasonable follow-up and transparency we’d know about many more. But TIFs in Iowa have more lenient provisions, and less oversight, than in most other states.

“Need” is unknowable. Many projects will go ahead without subsidy. If tax breaks are available, of course developers will say they need them. Maybe this is blackmail. Maybe they need to look harder for funding. There’s no way to know.

At a minimum, here are questions to ask before approving TIFs:

What is this government’s past record, when we compare promised results with ultimate return or loss?

Why is this project needed?

Why does that need exceed all conventional needs for public funds?

What will other government units lose? How much more will their taxpayers have to pay?

Of all possible TIF projects, why is this one a top priority?

Who benefits: all citizens, a small segment or primarily the recipient?

How much money is involved?

Why are those who will profit unwilling to invest what is needed? Are their reasons equally applicable to taxpayer funding?

Does the business plan indicate financial success, or reveal risks of failure?

If and when the recipient fails, skips town, goes bankrupt, or misses deadlines, how will taxpayers be protected?

What relationships are there between the potential recipient and the officials approving the funding?

How will the recipient’s unfunded private competitors be harmed?

TIFs shouldn’t be used at all. If used anyway, let’s do the wrong thing better:

Leave the tax code alone. Taxes are taxes, gifts are gifts – through appropriations, fully disclosed and audited.

Don’t privatize profits and socialize losses. It’s our money. Don’t give it. Loan it or invest it. Earn us some interest – with a City or State Bank. Invest our tax money; take an ownership share. Give us at least a gambler’s chance at occasional profit. Publicize the details.

We don’t have a fascist state, just a fascist economy, government and private enterprise blended to more resemble a purée than a stew with identifiable ingredients.

In Washington, D.C., it’s billions of tax dollars; in Des Moines hundreds of millions; in Iowa’s cities, TIFs. Without a taxpayer revolt, it’s unlikely to change.
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Nicholas Johnson of Iowa City maintains www.nicholasjohnson.org and http://FromDC2Iowa.blogspot.com.

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TIF a necessary tool for growth

Chad Heiman
The Gazette
April 13, 2014, pp. A9, A12
http://thegazette.com/tif-a-necessary-tool-for-growth-20140413

The 21st century global economy we live and work in is consistently evolving. The rapid pace by which business owners must adapt to meet market demands has never been more challenging.

As a community and region it is critical that we promote public policy that allows companies the option to not only operate their business under the status quo, but create an environment that promotes capital investment, company expansion and job creation.

MISINFORMATION

On the local level, the key tool to aid in doing this is Tax Increment Financing (TIF). There has been misinformation about TIF; specifically, how it works and the side effects of the tool being used. Marion has chosen to be forward thinking and responsible in using TIF as an incentive for companies to do business in our community.

It has been written that TIF incentives are awarded by a City Council without any public approval process; this would violate Iowa Code. A public hearing before the City Council is required for any new TIF project before it gets approval.

An additional public hearing must take place before an amendment to the Urban Renewal Area (designated area in which TIF project occurs) is approved. The process is public and allows for citizen involvement.

How do cities protect their investment? TIF incentives are financed through new property taxes that are generated by the development; current public funds are not used to finance the TIF incentive. An estimate is provided in the development agreement, but the actual TIF award is determined by the assessor. Taxpayers are protected because whoever has title to the property will be subject to pay the associated property taxes. With new development, no existing revenues are lost because of TIF.

ESCO GROUP’S TIF

The ESCO Group in Marion was awarded a TIF incentive package for construction of its new corporate headquarters in Marion’s Tower Terrace Road corridor. The ESCO Group is a Marion-based company that provides plant automation, electrical construction, power engineering, testing and safety training. The City of Marion provided ESCO with a $200,000 grant and an annual 60 percent rebate on their property taxes starting in 2013 and expiring in 2022, The total rebate will not exceed $1 million, per the agreement.

Because of this incentive package, ESCO chose to locate in Marion and brought a capital investment of $5.8 million for the community. The expansion is leading to the creation of 25 new, highly technical, quality jobs in the corridor. A law of economics states that people respond to incentives. The ESCO Group responded by building in a newly developing region in Marion and the commercial property tax base is expanding because of it. Many projects would not have happened without the economic development tool of TIF.

Before the development of the ESCO headquarters, the 2.85-acre piece of ag-land that ESCO now sits on would bring an estimated $4,000 in property taxes. Following development of this land, the estimated property tax bill will stand at an estimated $130,000 annually. I think we can all agree that a 1,315 percent increase in assessed value is a quality return on investment for Marion, our schools and our citizens.

The return on investment is magnified when one considers that new employees in the community will need places to live, stores to shop and restaurants in which to dine. Existing private business benefits because of TIF. The positive impact of this economic development tool is felt well beyond the brick and mortar involved with new construction.

ESCO CEO Ray Brown told us: “By opening up this valuable development area, Marion has great opportunity to expand its tax base to more commercial-light industrial, helping ease the tax burden of residential while also creating quality of life opportunities within this development.”

FAIR PLAY DEALS

Positive community development is everyone’s goal. One recent opinion was that “trying to move businesses from one community to another with competing TIF bribes is a lose-lose game,” and I would agree with that assessment.

That is why the communities in the Cedar Rapids metro area have signed fair-play agreements with each other establishing guidelines for communities when creating TIF incentive packages in the Corridor. When Marion experiences expansion, the Corridor as a whole benefits; the same can be said about business growth in the entire Cedar Rapids metro area.

Marion is one of the fastest-growing communities in Iowa, and that presents challenges, but we are growing our commercial and industrial tax base in a responsible manner. Making policy decisions or sweeping generalizations about TIF without facts, and based on one occurrence or anecdotal evidence, is dangerous.

TIF is anything but a lose-lose tool — it is the tool that allows private enterprise to flourish while giving communities the opportunity to realize its true economic potential. It’s a win-win for everyone.
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Chad Heiman is Communications Manager for Marion Economic Development Company. Comments: chad@medcoiowa.org

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