City, county differ on TIF philosophy
Complex and sometimes controversial, tax increment financing (TIF) is one of many mechanisms local governments can use to attract developers to bring new projects to the area. It also impacts the budgets of local government entities including schools, agriculture extension, community colleges, counties and cities.
Two different philosophies on TIF use have emerged between City of Marshalltown officials and Marshall County officials. Businesspeople, like Marshall County Supervisor Dave Thompson, have used TIF funding for a variety of projects.
Making sense of TIF
Tax increment financing’s history traces back to California in 1952, according to the Lincoln Institute of Land Policy. It has since been adopted across the country, including in Iowa in 1969.
TIF changes the way property taxes are used. For properties that aren’t in TIF districts, the property owner pays taxes based on the taxable value of their property multiplied by the local tax rate — for example, a dollar amount per $1,000 in taxable property value depending on the tax bracket that property value fits into.
To explain how TIF works differently from non-TIF areas, Marshall County Assistant Auditor and Recorder Whitney Hunt used the example of an empty lot with a taxable value of $100,000 being purchased as a site for a new Target store within an area that uses TIF.
If the imaginary store raised the property’s taxable value from $100,000 to $1 million, the $900,000 increase would be the increment.
In a TIF district, the initial taxable property value of $100,000, would be frozen and would not change until the TIF period ends. Therefore, government entities that collect property taxes (including the county, city, school district and others) would only get their portion of property taxes on the frozen $100,000 value, not the total $1 million taxable value of the property brought by the store while the TIF is in place.
“Let’s say the next year (the Target store property) is worth $1.5 million. Well, now you’re still frozen at that $100,000, so cities, schools, counties, colleges, ag extension, they’re all still frozen at $100,000,” Hunt said, continuing her Target store analogy.
She said a small amount of governments’ property tax revenues do escape the TIF, including debt service funding.
Meanwhile, the portion of property taxes raised off the increment, in this case the $900,000 added by the Target store multiplied by the property tax rate, would go into the local TIF funds. The government entity can then use that money on economic development projects as allowed under state law.
Such projects can include giving incentives to developers to come to an area or to attract businesses to set up shop. Another allowable use of TIF money is to demolish dangerous and dilapidated buildings, and Marshalltown has such a fund.
“The whole point of it is that, eventually, it will go back on the tax rolls and you’ll have money from it,” Hunt said of the TIF period ending.
When exactly that happens depends on the agreement in place, but examples include 5-, 10- and 20-year TIFs.
Marshalltown City Administrator Jessica Kinser said the funding collected by TIF is a useful tool for economic development.
“It’s a tool in our toolbox. Sometimes you use it, sometimes you don’t, but it’s a nice thing to have available as an option,” she said.
In Marshalltown, TIF districts are called “urban renewal areas” and there are five of them. One example covers much of northeastern Marshalltown’s industry sector. Another contains the retail and restaurant businesses on the south side of town, and another, appropriately called the “downtown TIF,” contains many of the businesses in north-central Marshalltown.
Tax increment financing can be controversial, and different entities and people have different views of what it should be used for.
The city philosophy
The City of Marshalltown’s position on TIF use is relatively simple: if TIF is an option, they will consider its use for a given project.
“It’s always a council decision on whether or not to move forward on any particular project,” said city Housing and Community Development Director Michelle Spohnheimer. “If we have other resources available, by all means, we usually try to capture those, especially for outside resources.”
She said those resources can include grants, private fundraising efforts and other sources of funding.
The city has approved the potential use of TIF funding for several projects in the downtown area, including on the Veterans Memorial Coliseum, the former location of the Senior Citizens Center, demolition work, facade improvements, code upgrade grants and more.
Thompson recently received more than $14,000 in TIF funding from the city’s dangerous and dilapidated buildings fund to help demolish his Thompson True-Value building, 109 S. Center St. The property falls within the city’s downtown TIF district.
“Even with the personal use of TIF for the demolition of my building, without question it was a dilapidated building,” Thompson said.
The old building had severe roof problems discovered in spring of 2018. Thompson said his new store under construction across the street, which also falls within the downtown TIF district, will add a lot of value.
“They’re going to go from a taxable investment of $198,000 to a taxable investment of $1.4 million,” he said of the new building.
Another recent project that used TIF money was the demolition of the old funeral home building, which was located at the corner of East State Street and North Third Avenue. An official agreement document for the funeral home demolition confirms that $16,770 of TIF money was used for that project.
“It was TIF money that was used for the funeral home, which is what really set the precedent for us. So, the same offer was made to Dave (Thompson),” Kinser said.
While county officials, including Thompson, have shown opposition to the city’s use of TIF on tax-exempt public projects, city officials said just because TIF has been authorized for use by the city council does not mean it will be used.
“Each project would have to be reviewed and approved individually when you’re actually moving forward with it … and if so, what are the funding mechanisms that are going to be used,” Spohnheimer said.
Despite its detractors, Kinser said TIF produces results for local governments looking to bring in new development.
“It’s been made out to be something that is this horrible, awful thing, but it is quite literally one of the best economic development tools that all communities in Iowa have, not just Marshalltown,” she said.
For Fiscal Year 2019, the city has about $905,000 in TIF dollars.
The county philosophy
County officials have opposed the city when it comes to proposals for TIF use on public projects because they do not collect property taxes to be used by local government entities.
“It’s my feeling that, let’s say a building, should not be ‘TIFed’ if it is owned by a government entity,” said Marshall County Supervisor Bill Patten. “It’s sort of like you’re borrowing from yourself.”
That sentiment was echoed by fellow supervisors Steve Salasek and Thompson.
“The reason we’re against it is there is no possibility of return on investment to the taxpayer,” Thompson said of use of TIF on public, tax-exempt projects.
He also said he was concerned that TIF could be used as a way for local governments to avoid bonding for projects. Bonding requires the approval of voters to go forward.
“TIF removes the democracy portion of that,” he said.
Salasek, who was recently elected as the board chairman, said he had a conservative view on TIF before he was elected to the board in 2016.
“I don’t think we’re against TIF, but we think it needs to be used appropriately,” he said.
The three supervisors have decried the city’s proposed uses of TIF on tax-exempt projects. In one example, they sent a letter to city officials “to notify the City of Marshalltown that Marshall County is opposed to the tax exempt projects listed on the 2017 Amendment to the Urban Renewal Plan Area #4,” referencing the city’s downtown TIF district. That letter was received by the city on July 31, 2017.
A similar letter was sent for public projects in the TIF district on the northeast side of the city.
“Because TIF diverts taxes from overlying tax entities (school, city, county, college, etc.) those entities are forced to raise taxes to make up for the lost revenue from the increment, or cut back on services,” the May 18, 2018 letter read.
The county has been far less active when it comes to TIF than the city. There is only one active TIF district in the county, and it is the “Consumers (Energy)/Gateway TIF,” according to Hunt. That TIF area is located near the intersection of U.S. Highway 30 and Iowa Highway 330 in Washington Township. It is projected to end in about six years.
The Harvester TIF near Rhodes recently ended after 17 years and saw the development of a golf course and several houses.
For Fiscal Year 2019, the county is estimated to have $45,639 in TIF dollars.