All this presidential stuff is okay, I guess.  But really people, even as a hard-core politics geek there is no way in heck I’m going to maintain interest and enthusiasm for 330-odd days until the caucuses, let alone the more than 20 months until the general.  We need something else to focus on as well or we will all go starkers, our friends and family will shun us.

Lately, my gaze has drifted lower towards local governance, especially local governement finance and economic development issues.  When we talk about economic development and growth in Iowa (as in most states now) the word, TIF enters the conversation pretty quickly.  More on TIFs and their uses and overuses on the flip.

TIF stands for tax increment financing.  TIF is a tool created by the state for local governments.  When a public improvement, either a road, school or private development project is carried out it (generally) raises the value of the land.  The difference in the taxable value of the land before the development and for a certain period after the development, is the “increment.”  In a TIF district, all the taxable value of the increment for a certain period of time, usually 10, 15 or 20 years, is diverted from general revenues and used to finance all or part of the project.  This can be either to actually build a city-financed project such as roads or schools.  Or, it can be a pure tax set aside or rebate to a developer to use such a piece of land, such as has been done in Clinton for large employers with new projects.

In general, TIF’s can be good things.  They can allow certain projects that could not be financed out of general funds or out of bond issues to come to fruition.  They can be a useful incentive to lure that special employer to your town.

But all things should be used in moderation and like any tool its overuse can transform it into a crutch without which the entity cannot perform the original duties.  That I fear is what is happening with TIF financing in Clinton, and throughout the state.

A guy over on the Clinton Herald boards put me onto a report from the ISU Economics department, Swenson, Dave, et. al. Tax Increment Financing Growth in Iowa. Modest sized PDF file.  It contains a lot of useful statistics heretofore not gathered on TIF use in the State.  The authors state in their introduction,

During the 2003 Iowa General Assembly, legislators held several meetings on the

topic of economic development tools, and specifically addressed questions of TIF

use and potential abuse. Revealed during these proceedings was a dearth of

information about much of TIF use in Iowa, in particular, the amount of debt

associated with TIF districts in the state, the kind of debt, the duration of the

debt, and overall, the kinds of projects that benefited from this authority. State

secondary data compilations do not allow for an inquiry into the kinds of firms

that benefit from TIF authority – those assessments must be done at the local

government level and involve research of both city and county government

finances.

Apologies for the odd line breaks.  Cutting and pasting from Adobe PDF requires an middle step that it is too late for me to bother with.

Swenson, et. al. do not come to any conclusions as to whether TIFs are successfull, good or bad.  In fact the authors state in their conclusion that the data is all over the place,

It is very hard to demonstrate that TIF usage has, on the whole, benefited the

state of Iowa in any uniform manner. Our data show that three-quarters of all of

the valuation gains in TIF districts in Iowa are concentrated in just 31 cities (and

half of the growth in a mere 11 cities). Among those top 31 cities, some are

enjoying booming job and population growth, but some are not. Some of are

expanding their total tax bases, and some of them are contracting despite their

aggressive use of TIFs. For some it is enhancing fortunes, and in others it is not

reversing long and pervasive patterns of business and population decline. None

of our data can sort out what growth would have occurred in growing areas

regardless of the use of TIF incentives, nor can it tell us what growth would have

left had TIF resources not been utilized.

But they do say this about the small small and medium-sized communities:

Here is a common scenario about TIF usage in Iowa’s smaller cities: Usually, TIF

authority is applied to areas of communities that are near the edge of town or

aligned with other growth areas of the community, say along a major state

highway – their economic development zones or districts. Frequently, much if

not all of the incremental growth in these communities is a relocation of growth

from deteriorating main-street areas out to the benefited zones. As a

consequence, the TIF district gains, the general tax base shrinks, and the relocating

firm gets a tax break. The cities claim they retained the businesses and

count this as an economic development success, but city, school, and county

general fund tax rates go up to cover costs no longer borne by the re-located firm.

Regionally there has been no job or income growth as a result.

From conversations with county auditors and others privy to city and county

government activities regarding TIF usage, there are also increasing reports that

TIF revenues in Iowa are a lucrative revenue stream for cities that they are loathe

to cede back to other local governments. There are also reports that TIF

revenues, according to the Iowa Code, supposed to be collected and used

specifically for economic development or urban renewal debt payments and

infrastructure enhancements are being used to pay for fire stations, libraries,

parks and recreation facilities, general road repair and maintenance, and hosts of

other general or traditional government uses.

As for Clinton itself, the study had the following data about Clinton County’s use of TIF financing.  The per capita TIF valuation in Clinton County in 1997: $527. 2006: $1497.  That is an increase of 284% in nine years.  This strikes me as um, shall we call it irrational exuberance?

I have three children ages 5,7 and 9.  Most of the new projects in Clinton: Ashford, ADM’s expansion, the new riverboat development at Hwy 30 and Mill Creek Parkway are 15 year TIF’s.  Not one of my children will be the beneficiary of a single dollar of the increased property taxes generated by those projects during their school years.

TIF proponents will argue that my kids will be the beneficiaries of increased property tax revenues due to incremental changes in the values of property adjacent to the TIF districts and also of higher property taxes in general as the promised economic developments kick in.  But there are no guarantees with TIF-based development, as the authors of the paper point out.  Also, what is the incremental tax value of a new police or fire station built with TIF money?  There is some, but probably not as much as the worth of the avoided TIF costs.

Part of the problem with the economics of TIFs is that the supposed benefits are damnably hard to tease out in any sort of objective way.  I mean, how does one determine if tax value increases (or decreases) are caused by TIF development or merely correlated?  If you don’t know the difference, go here.

I think that at the end of the day the onus should be very squarely on the shoulders of City and County officials to make a very careful, coherent and concrete justification for any further use of TIF’s in Clinton County (or in other places in the state where TIF use is high) for the near future.  It seems to me that too many business plans now incorporate TIF as part of the profitability calculation.  Without it the business plan is no good.  But our economic development planners want so much for new development and business that any plan, even if it is fundamentally weak, is looked upon as a gift. That’s not right.  The burden of proof should on the project owner to show a concrete payoff to the City or County in excess of the avoided or invested incremental taxes independent of her business plan.