Iowa’s urban renewal law allows cities, counties, community colleges, and rural improvement zones to establish urban renewal areas. Usually, you hear about cities and counties (municipalities) establishing an urban renewal area. These areas are primarily established for economic development projects including but not limited to, streets, sewers, sidewalks, and other infrastructure related to residential, commercial, or industrial development, improving of blighted areas, or to fund private economic development. The main source of revenue used to fund these projects is generated by tax increment financing (TIF).
How is TIF revenue generated? In very basic terms, property assessments on taxable property in an urban renewal area are frozen on a date as allowed under Iowa law. This process is similar to taking a snapshot of that property on a specified date. The property taxes being generated, as it looks at the time the snapshot is taken, are generated and then divided among the entities that generated them (cities, counties, schools etc.). But, the increase in property taxes generated above that frozen base are now directed to and used by the municipality instituting the TIF for the urban renewal activities they are undertaking. These funds can then be used by the municipality in various ways. For example they could pay off bonds issued to support the activities or they can be directly paid back to developers.
Since it was enacted in Iowa in 1969, TIF has been the topic of many conversations. Those discussions have focused on TIF as an important tool to promote local economic developments as well as claims of TIF abuse. Specifically, proponents of TIF claim that it is a worth-while economic development tool that helps attract business, create jobs, expand the tax base of local areas, which in turn helps pay for services to the public (once the bonds are retired), and add to amenities citizens enjoy in their community, which ultimately increases the quality of life. Proponents also claim that the increased valuations from TIF eventually go to help the other taxing entities to provide better services for the people they serve.
Currently, there are 2,238 active TIF areas in Iowa. Of these 1,567 generated TIF revenue in FY 2012. Property tax financing of TIF for FY 2012 totals $283.2 million. Data shows that of the entities receiving TIF revenues in FY 2012, a significant majority of them were cities.
We created a new TIF in the 70th and Douglas area during the time I was mayor of Urbandale. This was a good investment for Urbandale taxpayers because more new tax dollars were generated to cover the bond payments. In other words, because of the streetscaping, this generated new buildings and commercial remodeling for this area. This is just a small example of the positives of TIF. However, there are several abuses with TIF throughout the state of Iowa. For example; municipalities constantly extending TIF areas, lack of accountability and TIF areas created because of referendum defeats. I am supportive of discussing and making changes to tighten up TIF laws.
Brad Zaun is a State Senator representing Iowa Senate District 32.
- Tax increment financing getting legislative scrutiny (thegazette.com)
- Iowa City prepares TIF district in area set for redevelopment (thegazette.com)
- Crains Reports Unique Profit-Sharing TIF Proposal (chicagotalks.org)