Des Moines Register
08-13-06
Mall revenue lets city go shopping
And it decided to buy a hotel project by bottling up tax dollars until 2017
By DONNELLE ELLER
Register Staff Writer
Coralville, Ia. - Coral Ridge Mall promised more than good shopping when it
opened eight years ago. The $100 million development also held the hope of
spurring millions annually in new property taxes.
Today, the city has harnessed that money - now $7 million - but it's not being
used on local services.
City leaders opted to keep the new tax dollars until 2017. The money will be used
to pay off long-term debt on a $60 million hotel-convention center that opens this
month.
Over time, that venture could yield hundreds of new part- and full-time jobs. But
the new business will also compete with others in the area - including a similar
hotel-convention center in downtown Iowa City - while consuming a ready pool of
public money that some say should be used to pay for immediate needs.
"We're hurting our schools, parks and roads so the city can build" a luxury hotel,
said Michelle Nagle, who ran unsuccessfully for Coralville mayor in 2003. "All
taxpayers bear the brunt of it. And if it's not successful, we'll all pay again."
More cities across Iowa are tapping an economic development tool called tax
increment financing, or TIF, to generate local dollars for economic development.
The financing allows local governments to use new property tax dollars within
special economic development districts to help pay for the costs of getting
projects off the ground.
Pros and cons of TIF
Proponents view TIF as one of Iowa's best hopes for fulfilling the state's most
pressing mandates: attracting new jobs, businesses and residents. Statewide,
the value of property within the hundreds of special taxing districts that now
blanket many Iowa communities has tripled to $6 billion. That's 5.6 percent of the
state's entire $107 billion tax base.
"If you take a look at what's happened in the state of Iowa - take a look at the
progress - I think you can credit a lot of it to this tool," said Bob Josten, a Des
Moines bond attorney who has counseled hundreds of cities and counties on
how to use the special financing.
But more Iowans are questioning the true cost of TIF. A report released this year
by two Iowa State University researchers examined TIF's explosive use in recent
years. Consider:
- The property tax dollars that cities and counties have amassed from TIF
districts for development in the past decade have nearly tripled - to $192 million
from $68.6 million.
"It's a substantial amount of new growth being hoarded or sequestered in the
name of economic development - often as direct payments to specific firms," said
David Swenson, an author of the ISU report.
- Many Iowa cities now use most of their new tax-base growth for economic
development. Coralville, for example, has snagged about 70 percent - or $296
million - of new growth over the past decade for TIF projects; Des Moines has
tapped about 62 percent - or $297 million; and West Des Moines, 26 percent - or
$197.3 million.
Roughly 30 percent of new growth statewide is now used for economic
development.
- Long-term debt incurred by cities and counties to pay for TIF projects grew to
$1.6 billion in 2005, a 13 percent increase from 2003, the only two years in which
the state has collected such information.
- Not all of the debt taken on is used to finance development that will directly
create jobs or attract millions of dollars in investment.
More and more, the money is being used to pay for projects that local leaders
believe improve residents' quality of life, such as housing, libraries, aquatic
centers and bike trails.
- No government agency or organization in Iowa, meanwhile, keeps track of how
many new jobs that investment really creates.
Impact on schools
School districts, in particular, pay a price. This year, Iowa school districts were
blocked from about $79 million in new tax revenue because cities had earmarked
those property tax dollars for development. State taxes picked up a large chunk
of that loss - about $32 million - through the state funding formula. Local
taxpayers paid another $47 million, the ISU reports show.
Margaret Buckton, a lobbyist for the Iowa Association of School Boards, said her
group wants the Legislature to slow the growth of TIF.
Buckton said tax increment financing made sense when cities first began using it
to reverse urban decay. Now TIF is subsidizing projects in places where property
values are already "going gangbusters," she said.
Jim Seelman, president of the Clear Creek-Amana school board, is aware of the
power cities and counties have to capture local tax dollars for economic
development.
The fast-growing school district cannot tap tax dollars from nearly 60 percent of
the value of area businesses and homes. No other district in the state is affected
more by TIF, according to the Iowa Association of School Boards.
The state is forced to replace about half of the nearly $2 million in taxes lost
annually in the school district because of TIF projects. That revenue could pay for
Clear Creek-Amana's new $25 million elementary and high schools over time,
Seelman said.
Instead, voters agreed to increase their school district taxes to finance
construction of the schools, which will be built next year.
With Coralville leaders deciding to continue using tax dollars from the TIF district
until 2017, only the youngest of Clear Creek-Amana's 1,425 students will benefit
while they are in school from new money in the city's expanded tax base.
"I hope I'm not dead by the time it comes on the tax rolls," Seelman said.
The right decision?
City leaders, meanwhile, believe the area will benefit from their decision in 2002
to use new TIF tax dollars from development around the mall to build the hotelconvention center.
Coralville City Manager Kelly Hayworth said the project should attract retail and
entertainment development along the Iowa River, even if the public project itself
will be exempt from paying property taxes.
The center's competition, the $30 million project in Iowa City, also is receiving $6
million in TIF dollars.
Marc Moen, developer for the Iowa City project, hopes both find their niches,
although he added that the convention centers have already competed with each
other for business.
Development around the hotel-convention center won't help Clear Creek-Amana,
said Seelman, the school board president. With Coralville leaders expanding the
mall TIF district east along Interstate Highway 80, any new tax dollars generated
by development around the convention center will benefit the Iowa City school
district.
Buckton, the school lobbyist, said that's one big problem with tax increment
financing: City and school boundaries often are very different, meaning schools
can lose tax revenue to TIF projects but residents in the district are unable to
vote on the leaders making the decisions.
"I call that taxation without representation," Buckton said.
Reporter Donnelle Eller can be reached at (515) 284-8457 or deller@dmreg.com