Saturday, October 01, 2011

The True Price of TIFs

October 1, 2011, 7:20 a.m.

Thank You Press-Citizen and Emily Schettler . . . but that's not all

With two stories about TIFs in Saturday's paper, the Iowa City Press-Citizen, and its reporter, Emily Schettler, have made a significant contribution to the people of Iowa in general, and Johnson County in particular. This is reporting in the best spirit of "civic journalism." Emily Schettler, "The Many Faces of TIF; Districts Offer Incentives as Well as Drawbacks," Iowa City Press-Citizen, October 1, 2011, p. A1; Emily Schettler, "What Impact Do TIFs Have on County, Schools?" Iowa City Press-Citizen, October 1, 2011, p. A1.

There are 13 categories of reasons why TIFs are usually, if not always, a bad idea that do significant harm to business, government, elected public officials -- and, of course, taxpayers. [Photo credit: Benjamin Roberts/Iowa City Press-Citizen]

One of those categories is the subject of this two-story presentation: how TIFs can tie the hands of the governmental unit that creates them (and otherwise exact high "opportunity costs"), lower its credit rating for government bonds, deprive neighboring governmental units of needed tax revenues, and related consequences.

Here is a summary presentation of another 12 categories of reasons why they should be avoided:
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.
Excerpt from "The Terrible TIFs," July 26, 2011. And see also, "Brother, Can You Spare a TIF?" April 25, 2011; "Understanding TIFs," October 5, 2006.

And see especially the 41 citizen comments (as of now) on yesterday's Press-Citizen story, Josh O'Leary, "Hampton Inn eyes I.C. spot; Hotel could be first piece of Riverfront Crossings," Iowa City Press-Citizen, September 30, 2011.

Reconsidering the Proposition That "All TIFs Are Evil"

Is it possible that describing all TIFs as "evil" is a bit of a stretch -- depending on your sense of evil? Would "all TIFs are outrageous" be a little more restrained?

Is it even possible, like being "just a little bit pregnant," that there are some very modest, or at least very precise, uses of TIFs that make sense for everyone?

Never before has that possibility come from my lips. But recent conversations with experienced and knowledgeable, independent individuals whose wisdom and judgment I value -- and who are opposed to TIFs in general -- have caused me to rethink it. I'm not convinced, mind you; I don't yet have enough information to even reject the idea, let alone accept it; all I'm saying is that my mind is open to considering the possibility.

So far, the conversations have been relatively superficial (only because we haven't had the time to pursue the issue in greater depth).

The general idea, if I understand it, is that TIFs can sometimes produce a public benefit in a for-profit venture that, but for the TIF, would not exist. I haven't yet been given specific examples, but my guess would be this might include such things as a greater set-back creating more open, green space, or intermixed low income housing, or more parking spaces.

The theory might be that this is but piggybacking a public goal on top of a private undertaking -- a public goal that would otherwise require the governmental unit to undertake the entire cost of the project. This would thus be somewhat akin to the government contracting with a private trash pickup service, or a private road builder to fill potholes -- public money may be going to help enrich a for-profit business, but that money is purchasing a public benefit that would otherwise have cost more.

(Note the emphasis on public benefit. Public schools, libraries, parks, and trails may help attract business to a community; after the business arrives, its employees will benefit. The point is, so will everyone else in the community. On the other hand, providing TIFs and subsidies, water and sewer lines to a new manufacturing plant -- or roads traveled almost exclusively only by the plant's employees -- do not have as direct a benefit to every taxpayer and citizen in the community.)

My first reaction to this argument is one of the 12 categories above: "How can one possibly judge with accuracy whether, if the TIF were not available, the project would not go ahead?" It may be no government intervention of any kind is required to get the benefit.

Second, if there were a way of definitively proving that is not the case, state, county and municipal governments have rather substantial regulatory power in the form of statutes, ordinances, agency regulations, fire and building codes, and zoning. So far as I know, it is not common for governments to subsidize, or provide tax breaks, to gain the public good of building materials and electric wiring less likely to burst into flame, restaurants' kitchens less likely to house rats and cockroaches, or rental housing fit for healthy living.

At a minimum, when governments are in pursuit of the public good in for-profit enterprise, I would like to see them totally exhaust all other possibilities for bringing about the end they desire before paying for it with taxpayers' money in the form of TIFs, other tax forgiveness, subsidies, and cash payments.

One of my trusted advisers tells me that, while my rule would certainly be preferable, it is often impossible to get the votes of legislators or city council members for that approach. I am quite willing to have conversations about political reality and corruption, but it does not seem to me that such considerations bear upon the inherent virtues and vices of TIFs as such. And I'd like to get the theoretical understanding of TIFs straight first, before getting into debate about necessary political compromises.

Third, so if (a) a desirable public benefit can be identified that is viewed by the public as a top priority, and (b) it can somehow be proven beyond a reasonable doubt that the marketplace won't create it without taxpayer money, and (c) the governmental unit has no legislative or regulatory way to insist on the benefit without paying for it, and (d) it doesn't make sense for the governmental unit to undertake the entire benefit-producing project on its own (government planned, constructed, managed and operated), then (d) before pledging any public money to the project (TIF or other tax forgiveness, subsidy or cash) what I am looking for is some predictable, analytical,check list of questions, benefit-cost, structured way to evaluate which projects clearly do, and do not, qualify for public financing, and why.

A somewhat analogous approach, in an entirely different context, is what's called "the Powell doctrine," the questions one needs to address before concluding that involving the military in a matter of our foreign relations will be more constructive than destructive of our national interests. See, e.g., "War in Libya, the Unanswered Questions," March 23, 2011.

So that's it for now. I've yet to see a TIF I thought made sense, a TIF for which none of the 13 categories of objections was applicable. I am impressed with the overwhelming majority of my fellow citizens (who have expressed views in comments on the Press-Citizen stories and other TIF projects earlier) who seem to share not only my general conclusions, but the precise arguments (categories) I have put forth. My mind is open to considering data and arguments regarding a small category of exceptions. But I have yet to see the standards that would be used to qualify those applications.

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John Barleykorn said...

TIF is not evil.

The problem with it in Iowa is that its one of the few tools we have to work with. The competition for jobs between states and other countries at this point is a brutal zero sum game. Taking them away in Iowa alone would just hurt us more.

The idea that it robs base from counties and schools is silly. Its growth that did not previously exist.

If anything, it should be narrowed more to re-development (the original purpose) to change the approach we have to growth. The growth scheme is the real problem.

Unknown said...

Iowa can lower commercial property taxes to the level of other states, then TIFs wont be either as effective or needed. That is the answer not TIFs. TIFs lead to a Putins Russia type of country where the well connected prosper and the non connected pay the price