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Eileen Mozinski, "TIF Seen As Vital; Officials in Smaller Cities Say They Need to Stay Competive"

Rob Kundert, "Iowa's Laws Allow for Some Flexibility"

Editorial, "TIFs a Valuable Tool for City Governments

[Note: This material is copyright by the Dubuque Telegraph Herald, and is reproduced here as a matter of "fair use" for non-commercial, educational purposes only. Any other use may require the prior approval of the Dubuque Telegraph Herald.]

"Tax-increment financing is a valuable, very flexible tool to encourage development," said Dave Heiar, the city's economic development director. "Without it, cities like Dubuque would really be hurt trying to compete in a regional or even an international marketplace."

But what is TIF? Opponents call it corporate welfare, claiming it sends property tax dollars back to companies and deprives counties and schools of new property tax dollars.

"I'm not so much concerned what the city of Dubuque has done. It's what the whole country has done," said rural Dubuque County resident Rhodes "Bud" Isenhart, a frequent critic of TIF.

The program has pitted states against states and cities against cities as economic development became the primary objective, according to Isenhart.

"The flaws in the laws, from my perspective, is the states have been expanding the system and expanding the uses almost every year," Isenhart said. "The Supreme Court said the cities had wide latitude on what they could do."

California came up with the concept in the early 1950s. TIF originally was an incentive to redevelop blighted big-city core areas. It took off in the mid-1960s as a component in the urban renewal wave that swept the country.

Since then, the concept has evolved beyond a remedy to cure urban slum and blight. Now, many industrial parks, and entire cities, are TIF districts.

"In the 1980s, the state declared that economic development was a public purpose, that cities could establish economic development areas under the urban renewal legislation," said Bill Baum, interim director of Greater Dubuque Development Corp. "That set in motion, for instance, cities declaring their industrial parks as economic development areas."

Later, housing developments were added by lawmakers to accommodate smaller communities.

During the course of this evolution, Isenhart points out that the bills to run cities, the county and the schools still have to be paid. Allowing companies to use their property taxes to pay off their new investment means other taxpayers have to pay more of the cost of education and local government.

"I don't agree with that," Baum said. "We're not taking existing property taxes from the county or school district, because they continue to receive the property taxes on the original property value. It's only the taxes on the new value that is created that the city is able to capture for the development."

In other words, proponents say the new tax value would have never existed if the TIF district wasn't created.

The question is, has the taxpayer seen a reasonable return on the TIF investment?

In the city

Dubuque has come a long way since the hard economic times of the early 1980s. Economic development officials insist that tax-increment financing has been a big reason for the city's success.

In a 2002 defense of tax-increment financing, Dubuque City Manager Mike Van Milligen pointed to the 1980s when the city's unemployment rate averaged 9 percent. From 1995 to 2001, it improved to 3.8 percent, he said.

Dubuque's average unemployment rate for the last five years is 4.3 percent. From April 2003 to April 2006, Dubuque has been ranked No. 1 in its employment percentage among Iowa's major metro areas for job creation, according to Iowa Workforce Development.

"The reason is because we have created a competitive atmosphere for companies who want to expand here, to create jobs here," Van Milligen said. "We're clearing up slum and blight so they can recruit employees, so people who grow up here want to stay here."

Dubuque first used TIF as an incentive in 1983 for a project involving the downtown Security Building, according to the city's annual TIF report filed in December.

In total, the city has created eight urban renewal districts. The designation of one them - the Dubuque Corporate Center, near Pennsylvania Avenue and the Northwest Arterial - ended when the development debt was paid. Now all the taxing bodies - city, county and schools - share in the taxes on its increased property values.

TIF has led to developments in Dubuque for Swiss Valley Farms on the north side and Eagle Window and Door and Quebecor World on the east side.

Many of the best-known projects are in the Greater Downtown district, including Cigna/Prudential, Heartland Financial USA and the America's River Project.

More than 25 others - involving Bricktown, the Grand Opera House, the Town Clock Building - have benefited from other tax rebates, grants and loans involved in the downtown TIF program.

The business growth in the Dubuque Industrial Center, Dubuque Industrial Center West and the Technology Park - such as Nordstrom, Weber Paper, Cartegraph - also were TIF projects.

"Over the 20 years that the city has approved private TIF projects, the 22 private projects directly assisted with TIF invested $106.8 million in the districts," the report stated.

Of that, TIF assistance accounted for a little more than $16.1 million.

"That is almost a 7-to-1 private to public dollar match," the reported stated.

These numbers will grow after four more TIF agreements were added to the list Monday night by the City Council.

Building projects by McGraw-Hill, Kunkel Bounds & Associates, Theisen Supply Inc. and Dubuque Screw Products will add a minimum of $24 million - and likely much more after full build-out - to the TIF-assisted investment tally.

Depending on the agreement, if promised job targets aren't hit and maintained, each of the four requires a pro-rated payback or reduction of the TIF payments.

"In almost all the projects the city has been involved in, new job creation is part of the agreement," Baum said. "In many cases, if the jobs aren't being created, the city expects a refund."

Opponents of TIF have argued that many of the companies would have come to the city or expanded anyway.

City officials disagree.

For 20 years before coming to Dubuque, Dave Heiar, the city's economic development director, was the city manager of Manchester, Iowa. For an eight-year period, the community failed to attract any industry, he said.

The city believed it had enough positive features - the labor force, the industrial park, utilities, etc., that it didn't need to provide incentives, he said.

"When we changed our philosophy, using tax-increment financing as an upfront incentive, within two years we had three new industries. I don't think that was coincidental," he said.

The schools

Typically, the Dubuque Community School District has not been vocally opposed to the city's TIF projects.

"I believe our school board has always been progressive and supportive of initiatives to improve the economic development in this area," said Ron Holm, district finance manager.

Short term, the school district does lose some funding.

"In the long run, it will improve the tax base and increase district funding," he said.

Some communities use TIF responsibly and some not so much, said Larry Sigel, school finance director for the Iowa Association of School Boards.

"Iowa does have districts that have in excess of 35 to 40 percent in TIF, and that has an impact on the amount paid by property taxpayers," he said.

To ward off the effect of that lost revenue, the state covers 87.5 percent of the missing TIF dollars to the schools. That's $30 million out of the state's general fund, according to Sigel.

"The impact on property tax payers - that final 12.5 percent - is made up through a final property tax levy," he said.

There also is the impact on taxpayers like Isenhart, who live in the school district but outside the city.

"They end up paying for a piece of the fare on that project," he said, echoing another of Isenhart's TIF-critical themes.

"There are 4,000 families that live in the county and the school district," Isenhart said. "We don't have anything to say about the TIF."

The state

Though he said he doesn't begrudge Dubuque's use of the incentive, the expanded use of TIF is a hot point.

"I don't blame (city officials)," Isenhart said. "I'd say they would be derelict in their duties if they didn't take advantage of the laws because they are competing (for businesses and jobs)."

Over the years, Isenhart has questioned the city's TIF program, such as expanding the original downtown district, which now includes the Port of Dubuque. He has questioned the values of property that can be taxed by the schools and local government. He has found fault with including the non-profit Dubuque Museum of Art in the downtown TIF district.

"I think Bud has performed a public service. He has looked at TIF in Dubuque County and has the kind of citizen oversight that is necessary," said state Sen. Mike Connolly, D-Dubuque. "He has worked with me on legislation to narrow the reach of TIF."

But the successful use of TIF draws attention as communities seek ways to benefit by it.

Though there is regular debate and tweaking of the TIF law, the Legislature isn't likely to drastically change or get rid of it, according to Connolly.

"The votes are not there to do that. Most legislators see it as a positive for economic development.," he said. "That is not to say there haven't been some abuses taking it to the limit around the state."

But it turned out to be a major blessing to be situated on land with recently extended roads and revamped water and sewer facilities in the Cascade Industrial Park's TIF district.

"They had nine acres of prime land that had all the infrastructure to it; it was all there. All they had to do was build the building," said Cascade City Administrator Randy Lansing.

American Iowa Manufacturing was up and running again within 10 months.

"(The TIF district) made the land shovel-ready," he said.

It's one example that officials in towns throughout northeastern Iowa use to argue how TIF districting has become a critically effective partner in making their communities economically viable.

"It's certainly allowed Cascade to do some things that it would not be able to do without having TIF," said Lansing, citing improvements to the city's growing industrial park, River Bend Assisted Living Facility and river trail.

Community leaders like Lansing say TIF funding frees them from red tape at the state level and allows them to move fast to create economic growth, which is critical in an era when "timing is everything."

"It's approved by your city council and away you go," Lansing said. "You have the authority and control locally and it's very flexible. You don't have to chase to Des Moines to twist arms."

TIF districts have become so common that both cities and counties say jumping on the bandwagon is simply what they have to do to stay competitive.

"We're not going to give our county away, but if we have a big project come along we have to look at it," said Larry Gibbs, chairman of the Clayton County Board of Supervisors, who said Winneshiek County recently lost an ethanol company when Chickasaw County offered a better deal.

"If you don't give them a little incentive, the next county surely will," he said.

The stumbling block is the delays that TIF districts create for municipalities and other entities, like school districts, in seeing tax benefits, although proponents argue the long-term advantage of bringing in industry outweighs the temporary sacrifice.

"The shorter number of years we can negotiate the better," Gibbs said. "At least it's going to be there; that tax base will be there in the future."

There are major disparities in how the communities surrounding Dubuque use TIF, and the reason is simple.

"Not everyone has the same opinion of what economic development is. It means different things to different communities in different circumstances," Lansing said.

In Cascade, it means one district that encompasses the industrial park, which has been expanded a few times since its birth in 1996 and brought $320,000 in tax dollars into the district last year.

It's a very different picture from residential TIF districts in Asbury and Farley and a commercial one for the River Bluffs Inc.'s Highland Bluffs Golf and Water Play Resort in Clayton County.

"Over the years, TIF has been criticized when it's been used for things people didn't believe it was intended for," Lansing said.

Opponents say TIF districts should be strictly reserved for the devastated urban areas it was designed for in the 1950s and not developments like River Bluffs.

"It's just a pork barrel all the way around for these private economic developers," said Tim Mason, a member of Concerned Citizens of Clayton County, the environmental group opposed to the River Bluffs development.

Tearing up a large chunk of rural land for a golf course, resort and casino have nothing to do with preserving a blighted area, said Mason.

Clayton County officials say the TIF district is in tune with the spirit of development tool and is desperately needed in a county with high unemployment and lagging economic development.

"If everything goes, they're going to employ 300 people. That's economics. Plus the tax base, plus the growth," Gibes said. "If that doesn't qualify, then I guess I don't know (what does)."

Because of varying community needs, residential or rural commercial developments might work better for some areas instead of the more traditional TIF districts like the one in Cascade's industrial park, Lansing said.

"Some towns don't have an industrial base right now. Residential development might be their form of economic development," he said.

It's a theory echoed by Asbury Mayor Rick Anderson, who said it would be "silly" for Asbury to try to compete in the industrial scene when sitting in Dubuque's shadow.

"We're not fortunate enough to rake in the gambling dollars that the city of Dubuque does, so we've had to get somewhat creative with the TIF districts so we can grow and survive and look to the future," Anderson said.

"I think Asbury has found its niche. We'll let them create the jobs and we'll create the place for the employees to live."

Some say Asbury's large TIF district crosses the line.

"The city of Asbury has more TIF revenue than tax revenue," said Rhodes "Bud" Isenhart, a rural Dubuque resident and longtime critic of TIF practices.

But Anderson says residential growth can be directly tied to the job creation that has been the qualifying factor for TIF district development in many states.

"If you don't have an adequate housing supply they're going to move on, they're going to have jobs elsewhere," he said.

Using TIF funding for residential developments can have unforeseen citywide benefits, according to the Farley officials, who told residents this week that the city racked up $77,000 from the TIF district for the South Bend subdivision.

Having to set aside one-third of the district funding for low- to moderate-income households means the city can promise help to residents struggling with the assessments for the proposed $1.1 million First Avenue reconstruction project outside the TIF district.

"It can't be anything but good," said Farley City Clerk Janet Hingtgen of the flexible funding the TIF district has provided the city. "It attracts new people to your community."

TIF is offered as an incentive to encourage a company or developer to build a new project or rehabilitate a property in that district.

Here's how it works: Company A wants to build a $1 million building on a $100,000 piece of land. Under a 10-year TIF incentive plan, the company will pay property taxes on the new $1.1 million total value, but only the taxes on the original $100,000 will go to the local taxing bodies - the city, county and schools.

For 10 years, the property taxes on the $1 million improvement - the new tax increment - can be paid back to the company to help pay for its investment.

The city can offer the company two types of TIF plans. The company could get an upfront one-time grant, which would be smaller because of the cost of a bond; or it could get the taxes it pays every year in an annual rebate.

Once the TIF incentive expires, the increment goes into a fund to be used for improvements in its district.

In the industrial parks, that could be water, sewer and road systems. In the downtown, it could be loans to companies, parking ramps or other infrastructure.

Dubuque's Greater Downtown Urban Renewal district, which includes the Port of Dubuque, has no time limit. The money from TIF projects will continue to go into its TIF fund indefinitely to help pay for ongoing improvements.

Other TIF districts, like the industrial parks, have a lifespan of up to 20 years. At the end of that time or as soon as all its infrastructure and other debt is paid off, the property tax dollars from those developments go to the city, county and school districts.

The time frame for an urban renewal, or TIF, district can be extended by a vote of the City Council. Property taxes would be based on the new value at that time, with all of its businesses and improvements, which would go to the city, county and school district.

There are some differences in Wisconsin and Illinois TIF laws.

Wisconsin TIF districts extend to cities and villages, but not towns or counties, according to the Wisconsin Towns Association.

To create a TIF district, the municipality must show that at least 50 percent of the area is "blighted" or in need of rehabilitation work, to prove the development wouldn't have occurred otherwise.

Although state and federal approval isn't required, Illinois communities also have to prove that development wouldn't occur in an area without being designated a TIF district. A redevelopment plan must be created by local governments followed by a public hearing for approval.

There are three TIF laws in Illinois, including: Allocation redevelopment, jobs recovery and economic development, according to the Illinois Tax Increment Association.

When properly applied, TIFs can be effective catalysts for development and result in job creation and growth of the tax base.

A TIF allows communities to make necessary public improvements to induce private investment. When the value of that property goes up, the additional tax revenue generated - the increment - is used to repay bonds that financed the public improvements in the area.

Can TIFs be overdone? Sure they can. Can TIF tax breaks outpace the incremental dollars they generate? It certainly could happen. That's why communities have to be judicious in designating TIF districts.

TIFs are a fact of life, and they aren't going away. A single city can't just unilaterally withdraw from the TIF game, lest it give all other communities a huge advantage in creating new business and industry. The town without TIFs would be stuck on the platform, watching the economic development train roar past.

That's why TIF management is so important. When a whole community (or close to it) is designated a TIF, that town has passed the saturation point.

If a community establishes a TIF district in an area that would have developed anyway, the designation simply serves to draw dollars away from other taxing bodies. Likewise, if an area is already highly developed, the incremental increase will be small, reducing the benefit to taxpayers.

Dubuque has done a good job managing eight urban renewal districts over the past 20 years, assisting 22 private projects. Private entities invested $106.8 million in the districts. TIF dollars accounted for a little more than $16.1 million. At 7-to-1, that's a pretty good public-to-private match ratio.

What that doesn't take into account is whether growth would have occurred anyway in an unfettered free market. It also overlooks the fact that other local governments - school districts, for example - do without during the life of a TIF.

Taxpayers might look at it the way school district officials do. If TIFs help businesses grow and create jobs, the whole community benefits - eventually including the school district. When the tax base expands, there is a long-term gain, even if there is a short-term loss.

When properly managed, TIFs provide a valuable economic development tool with long-term benefits for the entire community.