Understanding TIF

University Heights City CouncilApril 28, 2015

Peter FisherThe Iowa Policy Project

How TIF Works$2 m building built in 2011 on a $.5 m lot

0

1,000,000

2,000,000

3,000,000

Total Valu-ation

No TIF

FY12 FY13 FY14 FY15 FY16 FY170

1,000,000

2,000,000

3,000,000

TIF Increment

Base value

TIF Cre-ated in 2011 or 2012

How TIF Diverts Taxes

City Tax:

$40,000

County Tax:

$20,000

School Tax:

$45,0000

City General Fund

County Funds

School Funds

$10,000

$30,0000

$5,000

$15,000

$15,000

$30,000

CityTIF

Fund

$75,000

TAXES COLLECTED

WHERE TAXES END UP

The Original Rationale for TIF

• To be used in blighted urban neighborhoods.• Recognizes that cities, not schools or counties,

have the major responsibility for facilitating and regulating development.

• Cities assume some risk in financing or assisting the redevelopment of blighted areas.

• But if the redevelopment is a success, schools and counties benefit from higher tax base.

• So: TIF allows cities to be repaid for their investment first; then when the project is paid for, the TIF ends and the tax base is fully available to all local governments.

Solon TIF

Areas

In Three Cities, Over Half of the Tax Base is tiffed

Iowa City

Solon

North Liberty

Lone Tree

Swisher

Coralville

Oxford

Shueyville

Tiffin

0% 10% 20% 30% 40% 50% 60%

0.9%

18.5%

18.6%

24.0%

27.4%

39.7%

50.7%

55.4%

56.7%

TIF as a Cash Cow: Share of Property Taxes from TIF

Hills

University Heights

Iowa City

North Liberty

Solon

Lone Tree

Coralville

Swisher

Oxford

Tiffin

Shueyville

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

0.0%

0.0%

1.7%

37.5%

39.9%

47.6%

58.5%

58.6%

75.4%

78.0%

83.8%

For Some Cities, the TIF Fund has become a Second General Fund or

a Substitute for the Debt Fund

ShueyvilleFiscal Year 2012

TIF fund is over 5 times as large as the general fund.

What TIF revenue is used for:• City hall/community

center• 12th street project

Overlying

Entities Means TIF will

Shift Taxes

Outside the City

How TIF Shifts TaxesSchool Taxpayers$6 million

$6 Million

School District:$10 millionspendingauthority

Without TIF

State Aid $4 Million

School District:$10 millionspendingauthority

School Taxpayers:$7.1 million

State Aid

City TIF$2 Million

$5.1 Million

$4.9 Million

With TIF

Percent of Property Taxes from Outside the City

Iowa City

North Liberty

Solon

Lone Tree

Coralville

Swisher

Oxford

Tiffin

Shueyville

0% 10% 20% 30% 40% 50% 60% 70%

0.6%

23.2%

24.1%

30.7%

30.8%

42.0%

48.1%

48.8%

62.1%

Coralville TIF Areas

Coral Ridge Mall – Highway

6 Combined Area (blue)

Other Areas (cross-hatch)

TIF $

Mall/6 TIF: Where Taxes Go, With and Without TIF Diversion

Without TIF With TIF

4,963,320 2,289,052

6,660,283

14,839,644

7,407,516

2,418,891

Kirkwood & Other

School Districts

City of Coralville

Johnson County

Mall/6 TIF Forces County & School Property Taxes Higher

School District

Iowa CityClear Creek

AmanaIncrease in levy rate ($ per thousand)

School tax $0.34 $2.83County tax 0.45 0.45 Other countywide taxes 0.06 0.11 Total $0.85 $3.40

Additional Property Taxes on anaverage ($200,000) home $80 $319

Responsible TIF Use• Project Based: All diverted revenues are used

to repay the costs of the original project causing the development (e.g., infrastructure for Coral Ridge) or are rebated to developer (e.g., Plaza Towers in I.C.)

• When those project costs are paid, the TIF diversion ends.

• Rebates do not exceed what is justified• No continued use of TIF to finance projects

elsewhere that couldn’t stand on their own. • No use of TIF to pay general costs of city

government, tax exempt facilities, lobbyists, etc.

Questions to Ask• Will the project itself generate sufficient

revenue to pay the TIF project costs? (If it is a rebate, the answer is yes.)

• Is there a public benefit from this project, or are there features that the city is demanding that the developer would not otherwise incorporate?

• Does the project really need incentives, or does it need all of the incentives requested?

• If it does need incentives to be profitable, why should the city subsidize a project that the market cannot support?