Thursday, July 26, 2007

The Terrible TIFs

July 26, 2007, 6:30, 7:30, 8:15, 10:30 a.m.

They're Back: The Terrible TIFs

Hieu Pham, "Company seeks tax rebate for expansion; Alpla of Iowa Inc. would create 25 new jobs in return," Iowa City Press-Citizen, July 26, 2007, p. A1

Nicholas Johnson, "Taxes: Categories of Inquiry" in "UI Held Hostage Day 490 - Search & Taxes,"
May 26, 2007 (including link to, excerpts from, and discussion of
Peter S. Fisher, "No Tax Relief Until We See TIF Reform," Iowa City Press-Citizen, May 26, 2008, p. A11)

Nicholas Johnson, "It's Not About 'Taxes,'"
October 24, 2006

Nicholas Johnson, "More on Corporate Welfare from 'Hat's Off' Winner,"
October 22, 2006

Nicholas Johnson, "Call the Cops: $3.755 Million Robbery in Progress,"
October 18, 2006

Nicholas Johnson, "Understanding TIFs (Revised 10/6/06)," October 5, 2007

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

I've had it with the Iowa City City Council and TIFs. I'm going to do my best to see to it that anyone running for council who persists in continuing to take Iowa City taxpayers' money and give it to wealthy, supposedly "free private enterprise" for-profit corporations -- while denying it to their competitors, not to mention needed social programs -- is prevented from serving on the City Council.

As the links above indicate, I've been writing about the issues of corporate welfare in this blog for nearly a year.

I'm not going to repeat all the arguments from Iowa's best economists, along with my own. If you're interested, they're laid out clearly in those blog entries.

But I have yet to have any member of the City Council -- or anyone else for that matter -- respond to each of those arguments, rationally, with data, one at a time.

TIFs are worse than the proposed indoor Iowa rain forest project.

While I'm not going to repeat all the arguments and data that demolish the utility and propriety of TIFs -- indeed, I'm not even going to try to summarize them -- I will offer a sampling:

TIFs are not necessary for Iowa City and surrounding communities. We're not exactly going through a depression, with store fronts boarded up, unemployment around 40%, or other justifications for early New Deal-type programs.

Their "opportunity costs" are enormous for local property taxpayers and local governments. County Supervisor Rod Sullivan estimates they are currently taking some $700 million worth of business property off the tax rolls. That means both more taxes for the rest of us and cuts in needed programs.

TIFs tilt the playing field, are unfair to business, and cause imbalance in the free market. Why the business community doesn't rise up in righteous wrath over TIFs has always amazed me. It's tough enough out there in that free market jungle, what with competition from the likes of Wal-Mart and comparably advantaged businesses, government regulations that sometimes seem a wee bit irrational, and the unforeseeable challenges. It just seems so fundamentally unfair that, on top of all that, a business person should have to compete with someone who is handed the kind of competitive advantage represented by a TIF or other government subsidy. Talk about a "level playing field"! TIFs really upset a smoothly working free market -- and to no one's real advantage except for the lucky recipient of the taxpayers' largess.

There's no evidence that Iowa City's economy and development won't continue to expand at a satisfactory rate driven by nothing more than the forces of the marketplace -- entrepreneurs, investors, venture capitalists, banks and other loaning institutions.

TIFs (and other shifts of taxpayers' money to for-profit enterprises) don't work. Governor Vilsack offered Maytag $100 million in taxpayers' money not to leave Newton. It went to Michigan anyway. Should he have offered $200 million? I don't think so.

Business comes to an area for other reasons than TIFs: available skilled workforce, transportation, communications, and other infrastructure elements -- plus "quality of life" assets such as schools, parks, libraries, theaters, trails, entertainment venues, restaurants, and natural settings such as mountains, beaches, woods, rivers and lakes. (A business that came to an Iowa Mississippi River town recently explained that it didn't choose the location because of state subsidies, it chose the location because it needed access to barge transportation on the river.)

Transferring taxpayers' money to for-profit ventures in the name of "free private enterprise" carries so much hypocrisy that City Councilors who talk that way ought to hide in the shadows with their shame. Where's the ideological purity of these "greed is good," privatization, "let the marketplace do it all" pro-business advocates when they're holding out (or filling) a tin cup? Business proposals that make sense have no trouble getting funding; owners, investors, venture capitalists, and creditors are looking for places to put their money and will respond to well-crafted business plans. Free private enterprise ventures can make sense for a community. So can socialist ventures such as roads, schools, libraries and parks. However, the more they are kept distinct the better it is for both.

If free private enterprise can't fund a project with private sector money, that just might be a sign that it's not a very good place to be putting the public's money either.

How can one possibly judge with accuracy whether, if the TIF were not available, the project would not go ahead? When free public money is available to a for-profit venture the temptation to become a tough negotiator, and to just slightly misrepresent the facts, is overwhelming. And there's virtually no way to test the blackmail.

The TIF-granters' record ain't great. For the most part, the public officials handing out our tax dollars to the wealthy are more professionally skilled at keeping constituents (and campaign contributors) happy, getting re-elected, and moving up to higher office, than they are at evaluating business proposals. There is a long list of TIFed (or otherwise publicly subsidized) private projects that have gone belly up, or failed to meet their promised construction schedules, or goals for new employees at designated pay levels.

Will we lose some businesses if we don't offer TIFs? Maybe. Let other towns give away their taxpayers' money. We don't need to play their game. As one of the top-rated towns in the nation by any one of a number of measures we'll get our share of new businesses without offering TIFs. Have a little self-confidence. Vilsack's $100 million couldn't keep Maytag here. A firm that likes San Diego's climate, or port access to the Pacific Ocean, probably isn't going to come to Iowa City for a TIF. A firm that believes it needs a location giving it rapid access to the O'Hare airport in Chicago (whether for moving persons or cargo) probably can't be talked into using the Iowa City-Cedar Rapids "Eastern Iowa Airport" no matter how big the TIF.

Step up to the plate councilors and business community. If City Council members, or members of the business community, think we need more economic growth and development than the marketplace can provide on its own there's nothing to stop them taking up a collection or offering personal economic incentives to new businesses. Iowa City's banks could offer new businesses, or proposals for business expansion, reduced-rate loans. The business community could create its own venture capital fund to invest in, or loan to, business developments they thought worthy. And I'm sure they'd be more than happy to accept every dollar from a City councilor who would like to help out.
I don't hold out lots of hope for electing a taxpayer-friendly City Council. Not many eligible voters get involved in city council elections regardless of the issue. Of those who do, there's widespread apathy, or lack of focus regarding TIFs. Of those who've followed the issue, many have bought the sales pitch of the TIF beneficiaries and their benefactors.

But that doesn't mean we shouldn't try.

"Just Say No to TIFs!"

Campus Crowd Control? Hey, How About More Guns?

Editorial, "Armed Campus Cops Would Make UI Safer,"
The Daily Iowan, July 26, 2007.

The Daily Iowan is absolutely right that guns can help in controlling student "misbehavior" -- as it is viewed by the government, or university administrators. But it doesn't necessarily follow that more guns on campus would necessarily "Make UI Safer."

Read a little history:

The Kent State shootings, also known as the May 4 massacre or Kent State massacre, occurred at Kent State University in the city of Kent, Ohio, and involved the shooting of students by members of the Ohio National Guard on Monday, May 4, 1970. Four students were killed and nine others wounded, one of whom suffered permanent paralysis.[1]

Some of the students who were shot were protesting the American invasion of Cambodia which President Richard Nixon announced in a television address on April 30. However, other students who were shot were merely walking nearby or observing the protest at a distance. [2][3]

There was a significant national response to the shootings: hundreds of universities, colleges, high schools, and even middle schools closed throughout the United States due to a student strike of eight million students, and the event further divided the country along political lines.
"Kent State Shootings," Wikipedia.

So you see, you're right: on that occasion the deaths did slow down "student misbehavior" on one campus for one day. You're right about that. And except for the students who were shot or rendered paralyzed the guns on campus did make the campus safer following the slaughter. But then the campus was pretty safe before the slaughter, too. And as it turned out, shooting students didn't really end up doing much to reduce the nation-wide protests of Nixon's war policies in the long run either -- it just increased them.

Maybe this is just another example of another line from that Southeast Asian war: "We had to burn down the village to save it." Maybe it will take a few dead students to "Make UI Safer." If that's the price we have to pay for safety I guess it's worth it.

UIHC Inspection

The Gazette broke this story yesterday; see prior day's blog entry. Stories today include:

Brian Morelli, "Discharge Flap Puts UIHC Under Scrutiny," Iowa City Press-Citizen, July 26, 2007, p. A1

Clara Hogan, "UIHC Undergoes Inspection," The Daily Iowan, July 26, 2007

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Julia said...

Missing in all the hysteria about arming the UI police is that the Virginia Tech campus police WERE armed. It doesn't seem to have helped much.

Anonymous said...

TIF is NOT a bad thing. I would agree that certain projects have pushed the limits of its correct uses. Local government officials can't win here. There is criticism for using property tax incentives. There would be criticism for doing nothing if there were no incentives to offer.

If a City tax base is $50 million dollars, and project X would add $25 million, but has a 15 year TIF rebate agreement that would pay for an access road with curb & gutter. That $25 million would still be taxable for ANY debt service project including the purchase of police and fire equipment. If that development created say 10-11 light industrial or warehouse facilities with 250 jobs it is well worth it.

As opposed to investing in Johnson County's bloated Social Services Network, its a good deal. Much better return on human capital per $ over time.

Anonymous said...

Welcome to the "free market"! Governments of all sizes are free to compete against each other for the business of business. Businesses are free to cooperate with each other and use their market leverage to drive down taxes, eliminate unions, push the costs of doing business off to the public sector, water down environmental and anti-trust regulations and soak the consumer with cartel pricing strategies. The commons are being capitalized to the benefit of the few and the indentured servitude of the many.

Markets work for the benefit of society when they are well regulated to promote competition. Transnational corporations have replaced nation states as the real power centers in the global economy and they have flipped the market to their own collective advantage. They use that power to minimize competition between themselves and promote it between governments at all levels.

I agree with all of your points about TIF but I am afraid it will continue until big money no longer dominates politics and governments start to cooperate again in the regulation of business in order to restore effective competition.

Anonymous said...

If you don't want cities to use TIF, then you have to take it off the table at the STATE level. Unless it is removed as an option for all cities, thus leveling the field of play, communities risk losing new tax base building businesses to those that do use it.

The other Anonymous said it: Cities are COMPETING for the business to build tax base through the lucrative commercial and industrial property taxes and the (half as lucrative) residential property taxes they can gain that follow when new jobs are created.