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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August 28, 2007, 4:00 p.m.
Growing Iowa Business the Right Way
A month ago I wrote:
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.
Nicholas Johnson, "They're Back: The Terrible TIFs" in "The Terrible TIFs," July 26, 2007 (the entry contains links to prior TIF blog entries and 12 categories of arguments against TIFs).
To which State29 commented:
Nick Johnson . . . says he's going to campaign against every city council candidate there who supports TIFs . . .. Good luck with that uphill battle. Unless Ron Paul is planning to run for political office in Iowa City, I think Nick is going to be rather busy. TIF-supporting candidates (regardless of political affiliation) tend to be "connected" and "experienced", something which voters eat up, even if it takes money out of their own wallets.
State29, "Over in the People's Republic of Iowa City," August 15, 2007.
As is often the case, State29 is right.
The best I've been able to get out of them is that some recognize that Iowa City and Coralville have gone too far with TIFs, or an admission that, yes, some of them have not worked out. But all insist that there are some cases -- perhaps with start-up entrepreneurs -- where they make sense.
So, I hear you say, "We understand what you're against. But does that include any and everything that benefits business -- especially new entrepreneurial start-up businesses? And if not, what are you for?"
This entry is an effort to explain what I'm for: (1) "state-qualified community seed funds" and (2) micro-credit programs.
Community Seed Funds
At the end of "The Terrible TIFs" entry July 26, among my suggestions was: "The business community could create its own venture capital fund to invest in, or loan to, business developments they thought worthy."
Since I know that 90% of my ideas are going to be rejected out of hand (and that many of them deserve to be) I just spin them off and forget them until I'm reminded.
This morning I was reminded.
George C. Ford, "'Seed Fund' Raised to Back Iowa Entrepreneurs," The Gazette, August 28, 2007, p. B8.
It turns out that Iowa has something called community seed funds, and that Corridor banks and private investors have put together a $1.25 million one already.
The approach has many advantages over TIFs.
It's an investment, not a gift -- let alone a gift of the taxpayers' money without their permission.
"An investment committee of seasoned investors" makes the decisions -- rather than a bunch of public officials who have no financial stake in the project and, whatever their strengths may be, are for the most part not "seasoned investors."
Moreover, The Entrepreneurial Development Center President Curt Nelson also says, "We will continue to work closely with these entrepreneurs, monitoring the company and the fund's investment."
I need to find out more about this undertaking, and whether there are some downsides of which I am unaware. But it's always fun for me when it turns out that something that is spurred by my imagination and intuition, and comes out of the depths of my ignorance of a subject, turns out to have been proposed, and put in motion, by folks who really do know what they're talking about.
Micro-Credit Programs
You may know the name Muhammad Yunus. He and his Grameen Bank were awarded the Nobel Peace Prize for 2006.
For what? For what's now called "micro-credit" -- small loans to the poor -- that began with Yunus' 46-cent loans to each of a group of poor craftspersons in Bangladesh in 1976 (for a total of $27).
For the world's truly poor a small loan can make a big difference.
The results were impressive -- both in terms of what the borrowers were able to do with the money and their honorable approach to repaying the loans.
The idea quickly spread. Among other things, this approach removes the opportunity for tempted government officials to take a slice of a multi-billion-dollar loan to their country and send it off to a personal Swiss bank account.
When I served on the board of Volunteers in Technical Assistance some years ago it was one of the categories of projects in which VITA was engaged.
Now, it turns out, you no longer need to own a bank, or be managing funds from USAID, to get into the micro-credit business. You, like Muhammad Yunus, can provide a $25 loan directly to a third world entrepreneur with a face and a name.
You can do it through an organization called Kiva, which you reach at http://kiva.org.
It humanizes and provides a personal story regarding the loan applicants. By joining with Kiva, their third-world "field partners" that administer the program locally (funded by the interest on the loans), and other Kiva members, your $25 (or more) contributions can quickly total the $450 or $1100 requested. As the loans are paid back (and they almost always are in full and on time) your philanthropy becomes a revolving fund that can go on helping more and more entrepreneurs.
There's no reason why micro-credit won't work for entrepreneurs here in Iowa as well as abroad -- even if the "micro" is going to have to be a little bigger.
"Community seed funds" and "micro-credit" are but two of the ways that Iowa can help business grow in the right way.
They draw upon the strengths of the free private enterprise market system -- rather than tax revenues.
Moreover, because an investor, or a creditor, has a personal financial stake in the venture it's more likely the business plan will be well thought through, and reviewed, by people with the incentive -- and skill -- to be of real help in avoiding preventable disasters.
They are more fair to the new venture's competitors -- all of whom have a shot at the funds; all of whom will be judged by the same standards -- than the now-you-see-it-now-you-don't, inexplicable, random allocation of TIF benefits.
They are devoid of the internal ideological inconsistency and hypocrisy of cutting the budgets of legitimate public projects and transferring taxpayers' money directly to a wealthy, for-profit owner's bottom line.
Want to know what I'm for? That's what I'm for. You already know what I'm against.
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August 24, 2007, 1:40 p.m.
"The Marketplace" vs. Public Money, Private Profits
It's no secret to any regular reader of this blog that I find it a little hypocritical, putting it mildly, for those who are ideologically committed to "the marketplace" and the "free private enterprise system" -- those who believe that "government is the problem, not the solution" and that "social programs" are repulsively "socialistic" if not worse -- and yet cannot see anything objectionable about taxing the public in order to further enrich the wealthy and their for-profit enterprises.
[As I wrote last month:
"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." Nicholas Johnson, "They're Back: The Terrible TIFs" in "The Terrible TIFs," July 26, 2007.]
The ways in which "corporate welfare" can be done -- TIFs, subsidies, tax breaks, government contracts, use of public property, among others -- are limited only by the imagination of the beneficiaries' lawyers and accountants.
All too often, the press ends up on the side of those beneficiaries who, if not advertisers, are at least "pillars of the community."
So that's why I want to award a "Hat's Off" to the Register for not only its position, but the analysis and rhetoric represented in its editorial yesterday (August 23). Editorial, "Let a Developer Pay for Convention Hotel; Marketplace Will Say When Hotel Needed," Des Moines Register, August 23, 2007. Here are some samples:
Polk County and Des Moines . . . are no closer to getting a convention hotel . . .. It's to the point where local leaders need to listen to the marketplace rather than consultants.
A study by a Chicago consultant released Monday concluded that market demand is growing for another hotel downtown, which would boost events and attendance at the Iowa Events Center . . . [and] throw off $39 million in economic benefits to the community.
The catch: For that to happen now, taxpayers would be expected to kick in a substantial subsidy. That is something city and county officials should firmly resist.
There is cause for optimism that downtown Des Moines will eventually support a new convention hotel. But that should happen when the market is ready for one without a public subsidy. . . .
Other local hotel owners, whose occupancy rates according to the study are below 60 percent, could be forgiven for wondering whether they, too, will be eligible for government handouts.
. . .
City and county officials will know the time is right when developers start lining up to build the hotel - without expecting government subsidies.
What would it take to get Iowa's legislators and city officials to start thinking that way? Enough of this "free private enterprise for the poor and socialism for the rich."
I can give you as long a list as anyone of market failures, corporate abuses, the inequity and other evils of "the marketplace." And I have an equally long list of things I'd like to see government doing. Unlike many who oppose government programs, and want nothing more than to "cut taxes," I have less problem with paying my fair share for rational, efficient, and needed government programs.
But when it comes to setting priorities for the allocation of economic resources among all the potentially competing for-profit projects, the marketplace is like democracy. It's the worst possible way to do it -- except for all the other alternatives.
It's when we try to combine the two -- transfers of taxpayers' money to for-profit enterprises -- that we really get the worst of all possible worlds. (For example, talk about "a level playing field," as marketplace advocates are wont to do! When we throw public money onto the bottom line of one business person, while denying it to all their competitors, we have really tilted our economy.)
This morning's Gazette editorialized along a consistent line this morning. Editorial, "Don't Focus on the Rankings," The Gazette, August 24, 2007, p. A4.
How does Iowa’s business climate compare to other states?
If you look for the answer among the numerous rankings compiled by various business magazines and think tanks, prepare to be more confused than enlightened. It’s best not to rely on these lists to judge our state, or others, for that matter.
. . .
Peter Fisher, University of Iowa professor and research director for the Iowa Policy Project, a non-profit public policy organization, determined the indexes were produced by ideological organizations that advocated mostly lower taxes and less government regulation. He concluded that their validity thus was diminished.
. . .
Peeling back the layers on taxes, for example, shows that Iowa’s overall business tax burden is lower than in border states Minnesota, Wisconsin and Illinois.
Business climate isn’t easy to define. However, a favorable environment for long-term growth must be based on more than tax rates. A skilled work force attracted by good schools and other quality-of-life measures is certainly just as important. Access to markets and materials is another.
Much of Iowa, including the Cedar Rapids-Iowa City corridor, can offer those things. But a looming worker shortage as the baby boomers retire poses a major challenge to this state.
Iowa’s focus should be on making sure our children are well-educated and well-informed about career opportunities here. That will do more to keep good companies here and help attract new business than a think tank’s lofty rating.
In short, the emphasis on "taxes," and the necessity of corporate welfare is often bogus.
In terms of the quality of life for those already living there, not all "development" and new or expanded businesses are a net plus.
Speaking of rankings, Iowa City, for example, is constantly being well ranked by those publications evaluating best places for college students, retired couples, entrepreneurs, and other categories. It's an attractive community -- attracting citizens and corporations alike. Additional growth is no longer our number one need, if it ever was. That's not to say we should put a fence around the town and forbid any growth. It is to say that it makes it much more difficult to make a case for handing out taxpayers' money to for-profit enterprises to encourage even more and faster growth.
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