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Tax-increment funding should not be used in Vito’s renovation

BY DI EDITORIAL BOARD | APRIL 21, 2011 7:20 AM

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Provided you pay taxes in Iowa City, your money is propping up local business endeavors.

The latest of these may be Marc Moen’s purchase and intended renovation of the space formerly occupied by Vito’s, which may receive $250,000 in city funding on the condition that it does not become a bar or restaurant. While this arrangement seems amenable to both the interests of the Iowa City City Council and those of Moen, the use of tax-increment financing for the Vito’s renovation is exactly the kind of partnership that reflects an inappropriately close relationship between business and government.

Tax-increment financing was initially part of urban-renewal initiatives, aiming to give an extra boost to private development that would ostensibly boost tax revenue in the long run. It is commonly used in burnt-out warehouse districts to combat decay and blight and sponsor new infrastructure and industrial facilities.

The financing effectively funnels predicted future tax revenue into private construction, offering a grant drawn from property taxes to the project. This money comes directly from the general fund and is allotted by municipal governments.

Iowa, as with many other states, determines the appropriateness of tax-increment financing using a “but for” benchmark: But for the financing, would a project fail? If a particular economic development is contingent on public funding, there may be a justification for using such financing.

But Johnson County Supervisor Rod Sullivan maintains that this benchmark is failing to constrict the use of public funding. “The answer the cities hear every time for every project is, ‘This could never happen without this money.’ So the answer is, always we have to have it,” he told the DI Editorial Board Wednesday. As more and more projects are seen as eligible for tax-increment financing, the line between economic assistance and city-developer synthesis blurs.

This appears to be the case for the Vito’s conversion. Moen’s development group is hardly struggling to stay afloat; it’s difficult to believe that the storefront would remain a vacant blemish on the heart of downtown without $250,000 in government money. The prime location on the Pedestrian Mall seems as though it might attract investors of many stripes with little danger in investment.

Call us skeptical, but that seems to be part of the problem. The city has based its offer on the provision that Moen does not convert the space to a bar or restaurant and appears to be using the grant to influence the real-estate market.

If this kind of interference isn’t enough to foster doubts, the money eaten by the tax-increment funding projects comes from the general fund. More than $30 million in taxes have fallen into tax-increment financing over the last 10 years — barring this drain, taxes might well be lower.

If the tax money were easily recouped by the finished project, that would be one thing, Sullivan said. “But we don’t see that happen a lot; the tax-increment financing stays in perpetuity, and that’s a huge problem.”

In other words, this particular financing deal is corporatist to the core — particularly given Mayor Matt Hayek’s comment that a close past relationship encouraged the City Council to back Moen’s plan.

The council should reconsider distributing tax money away from social services and toward developers’ latest glitzy projects. Iowa City should be better than this.


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