Lipstick on TIFs

City is Putting Lipstick on TIFs
Nicholas Johnson
Iowa City Press-Citizen, December 2, 2017, p. A6

The City Council is putting lipstick on its TIFs [see, "Andy Davis, "Iowa City Seeks Public Input as it Begins Discussion of Revised TIF Policies," November 18, 2017]. Like new headlights on a rusted-out clunker, it’s an improvement, but no reason to buy the car. [Photo credit: Nicholas Johnson]

There are overwhelming reasons for not putting public money into private, for-profit projects [see, e.g., Nicholas Johnson, "Tussling Over TIFs: Pros and Cons," April 13, 2014, and Nicholas Johnson,"TIFs: Links to Blog Essays," March 16, 2014].

How else can the Council create public benefit? City ownership – like libraries, parks and schools. By applying zoning and building code requirements, or new ordinances, to private projects.

Iowa City is an economic and cultural magnet. We don’t have to bribe new arrivals.

Ah, the argument goes, if we don’t play this dirty little game some other city, or state, will get the business. (They may; it might also come here without TIFs.)

But what if, as the computer concluded in the movie War Games, "the only winning move is not to play"? Why do we want more growth and sprawl? What are TIFs’ costs as well as benefits?

In 1910 Houston was roughly Iowa City’s size today: 79,000. By 2010 it was 2,100,000. How have Houstonians’ quality of life improved from two million more people? Would we be happier with two million more neighbors?

That should be the first question.
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Nicholas Johnson
Iowa City

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Tussling Over TIFs: Pros and Cons

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

NOTE: For 40+ additional discussions of these issues, 2006-2015, see "TIFs: Links to Blog Essays."

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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TIFs: Too Many Negatives

March 25, 2014, 9:25 a.m.

Introduction: There has been a little spurt of TIF (tax incremental financing) stories and comments recently.

On March 18 an op ed column of mine was published by the Press-Citizen: Nicholas Johnson, "TIF: If You Can't Beat 'Em, Insist on More Transparency," Iowa City Press-Citizen, March 18, 2014, p. A7, embedded in "TIF Apology," March 18, 2014. Its assertions regarding the categories of reasons to oppose TIFs were supported by the earlier, "TIFs: Links to Blog Essays," March 16, 2014. [Photo credit: Patrick McDonough.]

The point of the March 18 blog essay/column was that TIFs are merely a natural instrument within a fascist economy. The reason they are the wrong thing to do lies within the nature of our economy rather than the nature of TIFs. Like other mixes of government and private money, however, they can better protect the interests of taxpayers (whose money it is that funds grants to business) if the money is loaned and invested rather than gifted -- thereby producing a return of interest and dividends, like any other conventional transaction.

The Gazette continued with articles that, in part, were efforts to justify TIFs and tax breaks to for-profit buinesses as a legitimate part of a capitalist economy. Chelsea Keenan, “The Benefits of Tax Breaks,” The Gazette, March 23, 2014, p. D1, online as “Are Tax Incentives an Effective Economic Development Tool?.” Rick Smith, "The Upside of TIFs," The Gazette, March 15, 2014; online as "TIF Incentives Can Bring Happy Endings; New Jobs, Infrastructure Improvements, Advancement in Shovel-Ready Sites Grow with Help of Incentive Programs."

I continued to take issue with those arguments for TIFs in the following letter to the editor:

Too Many Negatives, Too Little Upside to TIFs
Nicholas Johnson
The Gazette
March 25, 2014, p. A6
Your “The upside of TIFs” (March 15) needed what Paul Harvey used to call “the rest of the story.” No one I know argues there has never been any benefit from any tax increment financing deal, anywhere, at any time.

But that’s not the issue in a rational benefit-cost analysis.

There are 10 to 20 categories of reasons why all TIFs are a bad idea (See http://fromdc2iowa.blogspot.com/2014/03/tifs-links-to-blog-essays.html). And I have yet to see any TIFs benefit that could begin to outweigh all of those categories of disadvantages.

Here’s an example:

There would be “a benefit” to letting elementary school students simply roam freely throughout the community without parental supervision or need to attend school. They might better develop their natural curiosity and sense of self-reliance.

But the costs of that proposal — lack of student safety and education among them — would so heavily outweigh its potential benefit that no one seriously would propose it.

So it is with TIFs. An occasional “upside?” Of course. But hardly ever enough to outweigh the multiple downsides.

Nicholas Johnson
Iowa City

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TIFs: Links to Blog Essays

From the time this blog began, in 2006, a recurring topic of the blog essays has involved the variety of ways in which governments transfer taxpayers' money to the bottom line profit of various businesses.

Categories of reasons why these transfers are bad for taxpayers, consumers, competitors of the recipients, the general economy, neighboring communities and governments have been repeatedly identified and illustrated -- all with about as much impact as an oak leaf in October, falling upon a lake, and slowly drifting to the bottom. Nonetheless, it seems worthwhile to maintain this single site of titles and links for any who share the author's concern. -- Nicholas Johnson, March 16, 2014.

2015
"Chauncey's TIF," June 8, 2015

"TIFs -- Chauncey -- For the Record," May 25, 2015

2014
"Sycamore TIF Unnecessary," Iowa City Press-Citizen, November 23, 2014, p. A5, embedded in "Lucky's Gets Lucky: $1.7 Million of Taxpayer's Money," November 23, 2014

"From Earmarks (D.C.) to TIFs (I.C.): America's Fascist Economy; TIFs -- Therrre Back!," July 15, 2014

Nicholas Johnson, "Talking TIF: Costs Outweigh Possible Benefits," The Gazette, April 13, 2014, pp. A9, A12 [submitted as "TIFs' Multiple Costs Outweigh Any Possible Benefit," and embedded in "Tussling Over TIFs: Pros and Cons; Tough TIF Talk," April 13, 2014

"TIFs: Too Many Negatives," March 25, 2014

"TIF Apology," March 18, 2014

2013
"A TIF Discussion; Evolution of a Family's TIF Policy Position," June 9, 2013

"TIF Towers; Giving TIFs the Sniff Test," April 9, 2013

"Crony Capitalism's Failures: Iowa City Style; Gone With the Wind," April 8, 2013

"First Step to Reducing National Debt; Sunlight is the Best Disinfectant," April 4, 2013,

"Repealing Corporate Welfare: Step One; The Journey of a Trillion Dollars," March 25, 2013

2012
"Big Boxes, Little Bookstores and Taxpayers; We'll Leave the Prairie Lights on For You," June 6, 2012,

2011
"TIFs Wealthy Relatives; $7 Trillion Secret Giveaways to Banks; Marlins' Stadium," December 6, 2011

"TIF Impact Statements; The Questions We Should Insist Officials Ask First," November 29, 2011


"SSMIDs, Taxes and TIFs: The Lessons; Say 'No' to Tax Increases, 'Yes' to SSMIDs?!" November 3, 2011

"The True Price of TIFs," October 1, 2011

"The Religious Indictment of Republicanism; Catholic University Professors Say Republican Budget Violates Basic Catholic Moral Teachings," May 14, 2011,

"Brother, Can You Spare a TIF? TIF Helps the Rich Get Richer," April 25, 2011

2010
None.

2009
None.

2008
"Taxpayer Rescue; The Way Free Private Enterprise is Supposed to Work: Thinking and Acting Globally and Locally," September 15, 2008

"Growing Iowa's Economy the Right Way," April 27, 2008

"Bush and Giveaways to Sheraton; Who's Best Bush? And, Raising Taxes to Increase Corporate Profits," April 25, 2008

"Call the Cops, Robbery in Progress," April 24, 2008

"Golden Rules & Revolutions: A Series - VIII," April 19, 2008 (with links to prior 7)

"Football, Skating and Corporate Welfare," January 25, 2008

2007
"Understanding TIFs," October 5, 2007

"Courage, Councilors," October 3, 2007

"TIFing Your Doctor," September 12, 2007 (with TIF lyrics for "Folsom Prison Blues")

"Public Money, Private Profits," August 24, 2007

"Cable, Coralville, Coal and Consultants, August 17, 2007 (subsection headed "Desperately Trying to Put a Good Face on TIFs")

"The Terrible TIFs; They're Back: The Terrible TIFs," July 26, 2007,

2006
"Riverside's Deeper Gambling Debt," November 11, 2006

"Riverside's Tax to Nowhere," October 31, 2006

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

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

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

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

"Press-Citizen Says 'Tough TIF,'" September 22, 2006

"Supervisor Sullivan Says 'TIF, TIF, Tsk, Tsk,'" September 16, 2006

"TIF-ing My Toolshed," September 2, 2006

"Coralville's Hotel: 'Trust But Verify,'" August 16, 2006

"Are TIFs 'Corporate Welfare'?" July 22, 2006

"More: Justifying Corporate Welfare," July 13, 2006

"Neutral Principles, Anyone? Justifying Corporate Welfare," July 12, 2006

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Crony Capitalism's Failures: Iowa City Style

April 8, 2013 12:13 p.m.
Gone With the Wind

"Two years ago, we were among those cheering the good news that a [wind-energy-focused] Maryland-based company — North American Ductile Iron Company (Nadicom) — had big plans to locate its first North American foundry in Iowa City . . . promising to bring 175 jobs to the area by the second quarter of 2013 . . ..

"But over the second half of last year, a good deal of wind went out of wind energy’s sails (and sales). The industry nationwide began to wobble on shaky ground . . ..

"Nadicom CEO Prasad Karunakaran recently told the Press-Citizen that . . . it’s already the second quarter of 2013, and not only are there no new jobs on the immediate horizon, but Nadicom officials basically have had to go back to the drawing board as to what type of facility would still make the best use of the land available at the park.

"At best, they won’t be able to move on anything until 2015. At worst, that starting date will be a permanent question mark."

Editorial, "'Shovel ready,' but no one's digging anytime soon," Iowa City Press-Citizen, April 8, 2013, p. A7.

The State of Iowa and City of Iowa City bet $14.2 million of your money and mine on this gamble -- without checking with us first. Now it looks like we'd all be better off if they'd just taken that money to the Riverside Casino and tried their chances.

"Tough TIF Talk" outlines 20 categories of reasons why this kind of "business deal" with taxpayers' money is a bad idea.

Today's Press-Citizen editorial is a classic example of just one of those categories: "All ventures have risk. TIFs have more, because public officials with little business experience and no skin in the game make more mistakes than experienced investors watching their own money."

The Nadicom venture discussed in the editorial also fails most of the other 19 categories of reasons why corporatism is a bad idea. But this blog essay is just going to concentrate on that one.

As the editorial reports, the City spent "$2.4 million [of taxpayers' money] to purchase 173 acres" for Nadicom. Believing that to be insufficiently generous, it then passed along an additional "$9.5 million to extend roads and utilities," following which the State, feeling flush as well as generous with other people's money, chipped in "$2.3 million for rail and additional road work."

The road to "economic development" is littered with billions of wasted taxpayers' dollars -- federal, state, county and city taxpayers' dollars. Thousand of projects that may have once looked promising to politicians end up belly up. Capitalism is supposed to meet our economy's needs with the ventures of private investors -- individuals who are willing to risk the possibility of great loss because of what they see as the probability of great gain.

Bear in mind, I'm not objecting to this project. I think renewable energy resources are the Planet's only long term hope. I don't object to permitting clean industry to locate in and around Iowa City -- the right projects, in the right locations. I'm not worried about the shadow Nadicom's structures would cast over Scott and Highway 6.

Indeed, if there was no taxpayer money involved I would not even complain about a failed business. After all, roughly half of all new businesses fail within their first five years. As has been said of Silicon Valley's hopefuls, "in this California cradle of Internet startups . . . failure is accepted, or even welcomed, as a guide for future success." Failcon.

No, my concern has to do with the risks for taxpayers when our local officials do the equivalent of taking our money to the Riverside Casino and gambling it away; and then, when questioned, try to justify what they've done by saying (a) it creates jobs, and (b) "Gee, you know, we might even have won." When governments are cutting the investment of public dollars in legitimate, traditional public functions of benefit to all Americans -- in the name of "cutting taxes" -- is no time to be gambling with those very same tax dollars, betting on private ventures that ought to be funded with private dollars.

And that's just ONE of the 20 categories of what's wrong with corporatism (the blending of government and business). Read the other 19 in "Tough TIF Talk." Go down the list. Can you honestly tell me you disagree with every single one of those 20 categories of reasons why crony capitalism is a bad idea?

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