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Editorial: Reduce or remove Chauncey TIF funding

BY DI EDITORIAL BOARD | JULY 24, 2014 5:00 AM

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At the center of the controversy surrounding the Chauncey is the city’s plan for funding the project.

Last week, Iowa City’s Economic Development Council approved the allocation of $14.1 million in tax-increment financing for the construction of the $49 million high-rise. The Editorial Board acknowledges the potential of such a building, but we feel wary about using TIF, considering the effect it has had on surrounding communities as well as other factors.

For those who don’t know, TIF is a scheme in which property-tax rates are frozen in a “TIF District” for up to 20 years under Iowa law. When property-tax values rise, the city still collects the full tax value of the property. The “extra” tax revenue is then used to funnel money back into the district through investment in private construction.

In theory, the TIF model is meant to revitalize economic development in economically depressed communities by incentivizing private businesses to provide jobs and services for said communities. In theory, this seems like a sensible, public/private partnership to break the vicious cycle many poor neighborhoods face, where blighted economic conditions discourage private businesses from setting up shop in the community.

The devil in the TIF details is that the revenue collected can only be used in the TIF for non-municipal services. This means that, unless the city (and the county) wants to, potentially, cut municipal services such as the police, libraries, schools, the fire department etc., property-tax values will have to be raised in order to compensate for the loss of revenue. 

A helpful illustration of this is the city of Coralville, the municipality with perhaps the most extensive use of TIF in the state of Iowa (almost 70 percent of Johnson County’s TIF value is in Coralville). In a paper studying the effects of TIF on Johnson County, the Iowa Policy Project found that Coralville’s TIF-funded construction of the Coral Ridge Mall resulted in an $80 increase in Iowa City’s county property taxes and a $319 hike for the Clear Creek/Amana School District’s property taxes.

These increases also reveal another hidden cost to TIF, the offsetting of city TIF spending on the county’s overall tax base. Turning back to Coralville, the Iowa Policy Project found that, without TIF, the property tax collected from the district that currently encompasses the Coral Ridge Mall (built mainly with TIF) would be split among the county ($4.96 million), the city ($6.66 million), and the School District ($7.4 million). With TIF in place, $14.8 million are now going to the city of Coralville with around $2 million each going to the county and school districts.

It would be one thing if the increased taxation and diversion of costs were a tradeoff, used to bring struggling neighborhoods out of poverty. But as the Chauncey project demonstrates, the city seems much more focused on enriching the already affluent downtown rather than helping working-class communities away from the city’s center.

This has merits of its own, considering how permanent residents of the city have expressed interest in having access to a permanent movie theater, something the building would house. It would also include more hotel space, something the city needs. The funding is, of course, also much smaller than in Coralville’s case. 

But considering how successful such financial endeavors would prove without the aid of city money for construction, based on demand alone, the reasoning behind providing taxpayer funding for such a project seems shoddy. Buried in the list of reasons that create an allowance for TIF is the creation of affordable housing, something the project has valued at $1 million for five units, which — even with calculated expected expenses — seems lofty. The budget for the project seems marked up higher than needed, and, in short, the TIF funding allotted seems too extensive.

At the beginning of 2013, the city of Coralville faces a $280 million budget shortfall as a result of massive TIF spending on projects such as the Marriott Hotel and the Iowa River Landing development, which has led to the city’s credit rating being downgraded by Moody’s Credit Agency.

If Iowa City wants to avoid a similar fate, the City Council ought to reject Chauncey’s TIF — or decrease it drastically — and scrutinize future TIF spending on projects.


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