SSMIDs, Taxes and TIFs: The Lessons

November 3, 2011, 12:05 p.m.

Say 'No' to Tax Increases, 'Yes' to SSMIDs?!

"Most of the state’s largest cities, including Cedar Rapids, Des Moines, Davenport, Cedar Falls and Waterloo, have a SSMID. It can help a business district go as far as reinventing itself in the face of changing economic forces or simply making a few targeted improvements."
-- Editorial, The Gazette, November 1, 2011

What on earth is an "SSMID"?

It's a cash fund to benefit downtown businesses that I enthusiastically support.

"Whaaa?!" as Jon Stewart might exclaim.

It's no secret that I suffer a severe case of skepticism when it comes to federal, state, or local proposals that involve transferring taxpayers' money to the bottom line of private, for-profit businesses. See, e.g., "The True Price of TIFs," October 1, 2011, and associated links.

So what is it about SSMIDs? Do I now, at long last, "owe my soul to the company store," have I surrendered to the increasingly-powerful forces of that blend of capitalism and government called corporatism, or fascism? (Even Sarah Palin has attacked what she called "the corporatist agenda"; see "Palin Attacks 'The Corporatist Agenda,'" February 9, 2011.)

The "owe my soul" line is from the song "16 Tons," here sung by Tennessee Ernie Ford:



So why do I like SSMIDs?

First off, I find them kind of amusing. This is an age of "rugged individualism," anti-taxes, anti-government, anti-social programs. As Herman Cain has put it succinctly, "If you're not rich, it's your own fault."

So the prospect of the business community voting to increase its taxes is kind of delicious.

It is business persons recognition that there is a point to our doing things together that we cannot do alone; that there is a point of imposing on ourselves the obligation to pay for those things. It is their recognition that "the marketplace," run by disconnected individuals trying to maximize their own profit, is not enough -- even to increase individual businesses' profits, let alone to serve the best interests of all the people.

Substantively, I do like SSMIDs for the same reasons I don't like TIFs.



[Photo credit: CaddyLakGraffix.com]

(1) TIFs involve government officials using money that isn't theirs; it's the taxpayers' money, other communities' and public entities' money. It's very difficult to predict new jobs, or other public benefits from a TIF; the only thing a TIF guarantees is that one lucky business person will be personally enriched with public funds.

SSMIDs, by contrast, involve businesses' money, their money put to purposes designed to improve everyone's business. SSMIDs cost the taxpayers' nothing. In fact, to the extent the SSMID board invests wisely, thereby increasing businesses' profits and property values, SSMIDs may actually reduce taxpayers' obligations.

(2) TIFs require that public officials make decisions about private businesses in which they have personally invested nothing, and about which they may know even less. They did not qualify for public office, and get elected, because of their prior knowledge, experience, and record of business success.

The record of public officials' dispensing of subsidies, bailouts, tax breaks, and other financial incentives to private business is for the most part unknown. There often is no record, no accountability, no transparency, no follow-up to see what was or was not accomplished with the taxpayers' largess, which of the predictions of benefits proved out and which did not. See, e.g., Chris Earl, "The Push for Tax Dollar Transparency; Will People Care?" The Gazette, November 1, 2011 (as Iowa state Senator Joe Bolkcom puts it, "If we’re going to write a check to somebody for $10 million, geez, don’t you think people should know?”).

But to the extent there are records, there are plenty of examples of what, by any measure, would have to be chalked up as, at best, failure.

The decisions of SSMIDs are made by business people. My impression is that everyone is better off when that's the case -- owners, shareholders, bankers, taxpayers, and government officials. That's not to say we -- and business -- don't need or benefit from some regulation of business, to keep competition fair and vigorous, and protect consumers from the worst abuses. It's only to say that when the question is, "What's the most efficient and effective way to promote a community's downtown businesses?", the best answers are far more likely to come from business persons than from government officials.

Not incidentally, this approach also leaves the losses where they ought to fall -- on business, not taxpayers. If government officials guess wrong with a TIF, all the losses fall on taxpayers. If an SSMID board guesses wrong with, say, a promotional idea, the losses fall on business, where they ought to.

So that's a few of the reasons why I applaud Iowa City's business community for its support of a local SSMID, while remaining skeptical regarding TIFs.

As it happens, apparently not every downtown business person shares my enthusiasm. Notwithstanding the popularity of SSMIDs throughout the country, including Iowa (as the opening quote on this blog entry illustrates), they (and some of those commenting on the newspapers' stories) attack SSMID's as if this was some radical new idea that all right-thinking business people should obviously oppose.

For some, a tax is a tax is a tax. But for what is currently a large enough plurality of them to bring this SSMID into existence, they see the benefit of people working together for common ends that they cannot accomplish, individually, on their own, and the benefit of paying for the effort with a form of taxation.

Hopefully, the lesson we may all learn from this effort is that government is another example of our coming together to accomplish those things we cannot achieve on our own, and that taxes are a useful way to pay for those benefits.

Taxes are, after all -- like cash, bank loans, credit cards, and barter -- just another way of buying the stuff we need. See, e.g., "It's Not About Taxes," October 24, 2006 ("We buy from government our roads and bridges, public schools, libraries and parks, fire and police protection, judicial system and jails, and the safety of our food and drugs. To speak of 'cutting (or increasing) taxes' makes no more sense than cutting or increasing 'cash,' 'checking accounts,' or 'credit cards.' Taxes are just another form of currency we use to buy stuff.").

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Here is the entirety of the editorial with which this blog entry began, along with brief excerpts and links to some of the recent news stories about this particular SSMID.

Do-it-yourself business tool
Editorial
The Gazette
November 1, 2011, p. A4
http://thegazette.com/2011/11/01/do-it-yourself-business-tool/
Tonight, the Iowa City Council can take the first step toward approving a tax that many downtown business owners are asking for. Asking to be taxed more may sound unusual, but there’s solid thinking behind the proposal.

The council is considering a self-supported municipal improvement district — SSMID for short. An additional $2 per $1,000 of taxable value in property taxes, starting a year from now, would give the downtown business district substantial funds for marketing, beautification and other improvements — well beyond what other business groups currently provide.

We think the proposal ties in with city leaders’ stepped-up emphasis on revitalizing downtown with a mix of more retailers, owner-occupied housing and office space. The SSMID wouldn’t raise taxes on residents or businesses not in the district. And it gives downtown owners a say in how the money should be used, via their own board.

Most of the state’s largest cities, including Cedar Rapids, Des Moines, Davenport, Cedar Falls and Waterloo, have a SSMID. It can help a business district go as far as reinventing itself in the face of changing economic forces or simply making a few targeted improvements.

Iowa City’s downtown faces tough competition from the Coralridge Mall and other nearby retailers. But it also offers distinctive flavor because of its popular Ped Mall area and the proximity of the University of Iowa. Since voters OK’d the 21-only bar rule and it took effect in June 2011, both city and UI leaders have a big stake in pushing downtown’s evolution from a predominantly alcohol-fueled entertainment district to a thriving city center with more variety.

The SSMID can be a valuable tool in the evolution. And heading into tonight’s city council public hearing and discussion, support from business owners is substantial. State law requires at least 25 percent of the property owners and 25 percent of the assessed property value in the district to sign a petition to consider a SSMID. Iowa City’s numbers are 39 percent and 49 percent respectively.

The process comes with transparency and safeguards. Three of the seven city council members will not vote because they are downtown business owners. Approval requires at least three “yes” votes on each of three readings. A protest petition can stop the plan if signed by 40 percent of owners with 40 percent of the property value.

The UI has said it will contribute another $100,000 annually, reflecting the downtown’s importance to the institution, boosting total SSMID funding to about $380,000.

The proposal comes with no guarantees of success, of course. But who better to take this calculated risk than the business owners? They understand that being proactive improves the odds for a prosperous future.


Council gives the first approval of SSMID;
Supporters hope to have it up and running by January
Mitchell Schmidt
Iowa City Press-Citizen
November 2, 2011, p. A3
http://www.press-citizen.com/article/20111102/NEWS01/311020028/Council-gives-the-first-approval-of-SSMID
The Iowa City Council has approved the first reading of an ordinance to add a self-imposed tax to many downtown businesses to raise funds aimed to benefit the central business and near northside districts.

The Self Supporting Municipal Improvement District ordinance would be a self-imposed additional taxing district that would levy a tax on the properties within the district to be used toward marketing, business retention and expansion, information management and physical improvements.

Karen Kubby, chairwoman of the Downtown Association said the district had gained enough support from the community to move forward with a recommendation and handed in an additional signature during the Tuesday council meeting that she said brought the approval rate up to 40 percent.

The SSMID, proposed by the Downtown Association and recommended by the Iowa City Planning and Zoning Commission, would impose a levy of $2 for every $1,000 of taxable income for the district’s companies — which would be coupled with an annual $100,000 contribution from the tax-exempt University of Iowa for the school’s investment in a “vital downtown,” according to a memorandum sent to City Manager Tom Markus. . . .

Gregg Hennigan, "Downtown Iowa City tax district gets initial City Council support; The levy would take effect in July 2012 and generate an estimated $282,000 a year," The Gazette, November 2, 2011, p. A3.

Asmaa Elkeurti, "City Council votes in favor of tax district in second public hearing," Daily Iowan, November 2, 2011, p. A7.

Mitchell Schmidt, "Group ready to hit ground running if SSMID is approved; Critics worry tax won't benefit everyone equally," Iowa City Press-Citizen, November 3, 2011, p. A3.

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