Des Moines Register
08-13-06
Do TIFs really attract new businesses?
THE DES MOINES REGISTER
While tax increment financing has helped booming suburban cities expand their
tax bases and pay for costly infrastructure needed to lure businesses, there is
little evidence to suggest such local incentives actually influence where new
businesses locate, researchers say.
"In fact there is a growing amount of research indicating the vast majority of
businesses would have located in the winning jurisdiction nonetheless," an April
2006 study released by Iowa State University found.
Peter Fisher and Alan Peters, two University of Iowa researchers, studied special
incentives given in economic development zones in 13 states. The two found
little evidence that economic development grants or tax incentives did much
good.
"We figured, if they were working, the zones given the larger incentives would do
better than those given trivial ones. That wasn't the case," Fisher said. "Often
growth in the area was determined by other factors: crime, access to rail, the
labor market. Even when they were successful, it didn't mean residents in the
zone were helped. That's because the employers would draw workers from the
whole metropolitan area."
Almost 6 percent of Iowa's total property tax base is being used to finance TIFrelated projects. In spite of that substantial investment, little empirical evidence
exists suggesting the financial tool alone is fueling population growth.
Thus far, the areas that have gained the most in population and tax growth are
larger cities and metropolitan suburbs, especially along Interstate Highway 80.
Experts say those areas follow a natural demographic shift in population base,
from rural to urban areas.
How many jobs has TIF created?
From 1995 to 2004, Iowa had a net gain of 117,000 jobs, but no one knows how
much of that growth was due to incentives such as tax increment financing. The
number of municipalities using the incentive has more than doubled in that time.
How do TIFs impact taxes?
Excessive use of TIF districts can contribute to higher taxes. Recent
demographic trends, though, suggest that keeping taxes low is a more effective
way to attract business, according to Richard Vedder, an economics professor at
Ohio University.
Migration patterns in the United States show people are fleeing high-tax, biggovernment states for those where they can keep more of their income.
From 1990 to 2004, nine states with no income tax grew faster than others,
Vedder said.
"If you want to draw new business, I would make a deal to cap property taxes or
cut them, and then tell the world: 'If you come to our community, you won't pay
more than x-amount in property taxes,' " he said.
In studies, businesses frequently rate the cost and quality of workers,
transportation access, education, taxes and regulations more important than tax
incentives, Vedder said.
Questions about TIF?
If you have concerns or questions about the use of tax increment financing in
your city or county, contact your city council, mayor or board of supervisors.
If you have concerns about Iowa's TIF law, contact your state legislator. For a list
of legislators and their numbers go to: www.legis.state.ia.us.
Readers can also call The Register at (515) 284-8770.'SCHEMES': Richard
Vedder, an economics professor at Ohio University, said he understands why
local government officials are tempted to use TIF districts to spur development.
But while he favors tax competition among states, he is skeptical of "schemes"
that allow people in the same area to pay different levels of the same tax.