Guest Opinion
TIF bill not a 'good start' but a 'missed opportunity'
By Peter Fisher, Research Director

As published in the May 19, 2012, Iowa City Press-Citizen



Since 2003, the Iowa Fiscal Partnership has shown why Iowa’s tax increment financing law should eliminate a variety of abuses that have become more widespread each year. Little or nothing happened until this session, when the Legislature at least started to reform Iowa’s TIF law.

Here is my analysis of what the TIF bill (House File 2460) would accomplish — and where it falls short — if Gov. Terry Branstad signs it into law.

The most significant accomplishment the bill offers is to increase accountability and transparency. There are new requirements for extensive reporting by cities and counties on their use of TIF, new audits of how TIF funds are used, and requirements for public notice and hearings for any new project in a TIF area.

These requirements should make it significantly easier for taxpayers to find out how much revenue is being diverted by TIF, from which units of government, and where that revenue is spent. Given that TIF is complex and poorly understood, such requirements are welcome. This new, detailed information — in an accessible and searchable database — could inform future reform efforts.

Still, disappointingly little is likely to change in the actual practice of TIF. The Iowa House had passed a number of strong limitations on TIF in line with our recommendations, but the bill was severely weakened to gain passage in the Senate.

Of the major reforms we recommended, only a few made the final bill. Thus, the bill does little to prevent continued and expanded TIF abuses in Iowa.

• Taxpayers in one school district can be forced to pay higher taxes to finance development in a neighboring district.

• Cities may still include the entire city in a TIF.

• Blighted area TIFs and pre-1993 economic development TIFs still have no sunset date.

• Cities will not have to release even a portion of the increment after 25 years.

• Cities can use TIF to get around constitutional debt limits.

• Cities need not demonstrate that a project needs incentives.

• TIF may still be used to finance tax-exempt public buildings, which means rural taxpayers are forced to pay for city facilities that will never add to the school or county tax base.

• Most importantly, TIF revenues can still be diverted long after the initial project is paid for, giving the cities a cash cow to finance other projects essentially unrelated to the creation of the TIF district in the first place.

Such potential and demonstrated TIF abuses make it difficult to see this bill, on balance, as more than a missed opportunity to establish a measure of responsibility and fairness in Iowa’s very loose TIF law.

On the bright side, the anti-piracy provision is significantly strengthened, making it difficult for a city to repeat what Coralville did in using TIF to lure Von Maur from neighboring Iowa City.

The reporting requirements indeed are extensive and important. Yet, transparency is not an end in itself. After all, lawmakers were shown clear examples of TIF abuses — as described above — and passed up this timely opportunity to act.

Whether this bill turns out to be a good start on reform will depend on whether new transparency is used to secure action on more responsible policy and practice in the use of TIF.


peterfisherphoto

Peter Fisher
is research director of
the Iowa Policy Project
in Iowa City,
one of the nonpartisan
research groups comprising
the Iowa Fiscal Partnership.

Contact: pfisher(at)iowapolicyproject.org.