Government Oversight-Coralville use of TIF Funds

Coralville City Administrator Kelly Hayworth was brought before the House Government Oversight committee last Thursday. The committee members raised questions regarding the way the city is using tax increment financing in its Iowa River Landing commercial development.

Retail growth in Coralville has exponentially grown since the city began using TIF in 1998 to develop land that is now Coral Ridge Mall. The city has borrowed over $200 million in bonds to be repaid by tax increment financing.

Currently, Coralville is using TIF to finance its Iowa River Landing commercial project. The large concern among lawmakers and Iowa City is when last fall when the project added a Von Maur department store. The retail store was subsidized with TIF, concerning the city of Iowa City with the possibility of them losing its own Von Maur department store at Sycamore Mall. An attorney for the builders argued that the city’s providing a grant to private development partner Oliver McMillan to buy the Von Maur for site for $1.4 million, with agreement that it sell the land to Von Maur for a certain amount violates the spirit of the state’s economic development grant law.

Tax Increment Financing is a system under Iowa law that cities and counties can use to finance public improvement projects and to fund economic, housing and residential development incentives. TIF is based on the idea that the improvements will increase the local government property tax base, and that the increment (difference) between the original tax base and post-development tax base, can be used to finance the cost of the improvement. Local governments create a special district meeting criteria for the TIF program. Local governments and schools receive property taxes based on the original property tax valuation and funds from the increment are set aside to pay back bonds used to finance improvements. Backers say the system helps cities develop areas that might otherwise remain run-down, while those critical of TIF say cities can abuse the system to pay for projects that should be left for the private sector.

Hayworth presented information on the city’s use of TIF to redevelop industrial brownfields in Iowa River Landing, to bring over 1,000 jobs to the University of Iowa’s Oakdale Research Park and to facilitate the headquarters of Integrated DNA Technologies. Hayworth stated that Johnson, Scott and Linn County continued to have retail sales growth during the city’s period of TIF-financed retail projects. He said the Coralville Marriott Hotel and Convention Center is a success for the community by keeping University of Iowa-related conferences in Iowa. TIF backers for Coralville argue that the system is a job investment and that it’s a fair exchange for other local taxing bodies such as schools and counties. However, many businesses are concerned about the TIF use to fund projects that compete with private developers.

Kevin O’Brien spoke in committee for the Citizens or Responsible Growth in Taxation on behalf of private builders that believe this is unfavorable to the taxpayers and surrounding competing businesses. Those that are critical claim Coralville has $11,049 in TIF debt per person. They stated the city-owned and TIF-financed Coralville Marriott Hotel and convention center actually lost $3.4 million in years ended June 30, 2009 and June 30, 2010.

TIF is also concern for the superintendent of Clear Creek-Amana Community School District, Denise Schares, who was also called before the House Government Oversight committee. Schares stated she began hearing community concerns weekly about the concerning effects of Coralville’s TIF use on district revenues after she became superintendent. TIF use in Johnson County diverted $2,974 per child in property tax revenue in the last year of tax collections. The superintendent says the state makes up the shortfall to 87.5 percent

The introduction of a TIF reform bill is expected in the Ways and Means committee this session. HSB 540 would set an end date for almost all of the TIF districts in the state. Documents presented to the oversight committee are linked below:

Citizens For Responsible Taxation–Talking Points
Citizens For Responsible Taxation- Handout 1
Citizens For Responsible Taxation- Handout 2