Friday, September 22, 2006

Press-Citizen Says "Tough TIF"

The Press-Citizen has now (September 22) joined those of us who are concerned about the propriety of TIFs as a way of transferring taxpayers' money to private, for-profit businesses -- sort of. It's a "middle way" opposition: TIFs are sometimes OK, but not at this time and place. Editorial, "TIF Not the Right Economic Tool for Building the Hieronymus Tower," Iowa City Press-Citizen, September 22, 2006.

TIFs have been the subject of a good deal of (largely unfavorable) commentary in the blogosphere. Just a couple of examples from this blog:

Nicholas Johnson, "Supervisor Sullivan Says 'TIF, TIF, Tsk, Tsk," September 16, 2006, and Nicholas Johnson, "TIF-ing My Toolshed," September 2, 2006.

Most of the discussion of TIFs (by me as well as others) has focused on the downside from the standpoint of their impact on taxpayers and government: why should taxpayers subsidize for-profit enterprises, the taxpayers/governmental unit may never get the promised pay back, shifting tax revenues in this way means other needy programs' budgets must be cut (or taxes must be increased), and so forth.

But the Hieronymus Tower project neatly illustrates the other side of the coin in shared public-private enterprise: the adverse impact on the marketplace.

Unlike the purists who think that there should be no regulation of one's use of one's property -- and that property owners should be fully compensated for any decline in value resulting from regulation -- I do support some rational, minimal degree of zoning. I'd prefer that developers not put a large hog lot or ethanol plant right next to my residential, urban home. I'd prefer that the University of Iowa not continue to buy up properties, and otherwise destroy, the National Historic Neighborhood-registered area where I live.

But when it comes to high rise buildings I think it's a mistake for a governmental unit to get too far into the design of the building's structural and economic details. For example, as the Press-Citizen reports,

"[T]he City Council's Economic Development Committee . . . required Hieronymus Square Associates' 'best efforts' to reserve space for a 40-unit hotel on the fourth through sixth floors of the building."

Look, I wasn't there. One hopes this was a truly rational, well-supported "requirement." But, on the face of it, it's not.

(a) Given that the Committee also "agreed unanimously to recommend to the City Council up to $16.4 million in tax incremental financing" I would think that if the City really wants a couple floors of hotel in there they would be entitled to get more than "best efforts" for their $16-plus million of taxpayers' money.

(b) But putting that aside for the moment, what is this "40-unit hotel on the fourth through sixth floors" (emphasis supplied) business about? It appears a little looney just on its face.

However, I'm not objecting so much to the fact that it's a looney idea (a matter as to which I'm willing to suspend judgment) as I am to who is to be given the responsibility for making, or participating, in addressing and implementing looney ideas.

How many hotel room do we already have in the corridor from Cedar Rapids to, now, Riverside? What are their past, present, and projected future occupancy rates? With what do those rates correlate? What do those occupancy rates need to be to justify more investment? What are the "best" locations for more, if more are needed? To the extent there is additional unmet demand, what range of room rates is most appropriate and responsive to that demand?

I'm quite prepared to concede that I don't know the answers to those questions.

My suspicion is that there are investors putting their money into hotels (Iowa City's Sheraton has just changed owners) who don't know all those answers with precision either.

I believe there are some things only government can do, and do well; I don't think that government is always "the problem, not the solution;" there are times when it is the solution.

But I think when it comes to the provision of hotel rooms "the marketplace" is the best way to resolve the balance between supply and demand, and to allocate the opportunities for profit, and the risks of loss, within our economy. I think government has little if anything to gain, and a whole lot to lose, by getting into that unpredictable game. The City Council might as well take our property tax dollars and leave them on the tables at the Riverside Casino. Moreover, when the taxpayers give generously to some hotel owners but not to their competitors, in addition to being clearly unfair, the economic results of the marketplace are really skewed.

There are reasons why the City might want to get into the housing business, especially the affordable housing business that was the subject of last evening's conference sponsored by FAIR!

Others would oppose the idea, and I wouldn't propose it, but I wouldn't automatically object to the City taking over the entire cost of building the structure at Clinton and Burlington (now to be called "Hieronymus Tower"), owning it 100%, and using it for affordable housing (as it already owns the parking garage across the street).

My point is simply that new construction is best when it is pure: either a 100% governmental project, or a 100% investors' project with no taxpayer subsidy.

When we endeavor to blend private and public funding, private and public planning, public and private projections of supply and demand (in this instance, for hotel rooms), we simply produce the worst of all possible worlds.

Hopefully, the City Council will follow the Press-Citizen's advice.

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