Guest Opinion
Sales-tax TIFs — a bad gimmick
By Peter S. Fisher, Research Director

As published in the April 17, 2011, Gazette, Cedar Rapids

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The floods of 2008 persuaded Cedar Rapids leaders that they need to build levees and flood walls to protect businesses and homes from future devastation. Traditionally, local governments issue bonds to pay for major capital expenses that cannot be paid out of current funding but can be repaid through the activity they maintain.

The city of Cedar Rapids is taking a different approach for this project, seeking state funding to support levee construction. We must ask three sets of questions about this request.

First, is Cedar Rapids’ case so exceptional that the state should invest more than what the state and federal government already provided in disaster support? How much should the state contribute? If the state should invest here, what separates this from a state role in similar local capital infrastructure investments in Iowa?

Second, how should any such state investment be made? What is the clearest, most transparent, and most equitable way for the state to make investments in such projects?

Finally, does it make sense, as Cedar Rapids proposes, to create a special sales-tax-increment financing district, or sales-tax TIF, to make such state investments? However we answer, the first two sets of questions, the answer to the third must be “no.”

A sales-tax TIF is a gimmick that has been promoted to hide real state spending in a fancy name, a “Growth Reinvestment Initiative,” or GRI. By any other name, it is a sales-tax TIF, which pretends there is a free lunch.

But there is no free lunch here. The city of Cedar Rapids is asking the state to provide $200 million over 15 or 20 years to help it build flood protection. It is not new money, but money diverted from sales-tax revenues that otherwise go for regular, ongoing state priorities. Take $200 million away, and that is $200 million not available for funding education, health, or public protection, or to provide tax reductions in other areas.

If Cedar Rapids receives state funding in the name of a TIF, other communities can, and will, make the same argument for the importance of their local projects. And the raid on Iowa sales-tax revenues would quickly reach full stride.

The argument that the levees will generate economic growth and therefore more sales tax revenue is not persuasive in the least. Growth generates more costs at all levels of government; the state sales tax is one way the state pays for its share of those costs. Local governments pay their share from property taxes. Cedar Rapids wants to take the state share of revenue growth as well as its own.

Most of the area to be protected by the levees lies within one or more property-tax TIF areas. The levees will indeed protect and enhance property values and revenues in those areas, and the city should draw on some of the incremental revenues to pay for flood protection.

Iowa tried a sales-tax TIF once before, for the Iowa Speedway at Newton, supposedly a special case that Iowans were assured was a one-time event. Well, here we are again.

More than 350 businesses and business organizations are represented by lobbyists at the State Capitol, as are local governments. You can bet they’re all watching to see how a deal for Cedar Rapids can help them as well.

Iowa should not open the door for any more sales-tax TIFs. Instead, Iowa should review the request for state funding from Cedar Rapids and determine what the state should do. That is the transparent, open and accountable way to govern. No gimmicks, no sales-tax TIFs.


Peter S. Fisher is research director of the nonpartisan Iowa Policy Project, part of the Iowa Fiscal Partnership (www.iowafiscal.org). Comments: iowapolicy@gmail.com.