Senate passes TIF reform, but some say it does not go far enough

Rod Boshart, CR Gazette –

DES MOINES — The Iowa Senate voted Tuesday to place new restrictions on cities and counties that use tax increment financing (TIF).

Sponsors of the Senate plan said they wanted to curb abuses without impeding an important economic development tool, which they feared would happen under a broader House-passed plan.

Sen. Rick Bertrand, R-Sioux City, trashed the Senate approach as a bureaucratic “deal killer” loaded with “poison pills” that is a “distraction” keeping lawmakers from dealing with the real hurdles to development,such as Iowa’s commercial property, corporate and unemployment taxes.

After a sometimes-fiery floor debate, senators voted 26-22 along party lines to establish new yearly reporting requirements for cities, counties and rural improvement zones. A searchable database of that information would have to be online by Dec. 1.

The Legislative Services Agency also would be required to issue an annual report to the General Assembly and governor that would summarize and analyze the data provided by local entities.

Another provision of the bill would require a city to conduct a public hearing and vote on any amendments or modificationsto an adopted urban renewal plan.

Senators also adopted an “anti-piracy” provision that would bar TIF incentives from being used for the relocation of a commercial or industrial enterprise not currently located in the municipality.

That would be waived if the governing body where the business currently resides approves the relocation in writing, or if the governing board where the business plans to relocate can show written proof that the TIF would be in the best interest of the public.

A TIF effectively freezes the property taxes on a site at predevelopment levels and diverts the new taxes, or increment, into a fund often used for the project. Tax-collecting bodies like the city, county and school district do not get the increment during the term of the TIF agreement.

“This bill does not hurt TIF in any way,” Sen. Bill Dotzler, D-Waterloo, said Tuesday of the Senate plan. “TIF basically will function the way it is. But we just want to have accurate reporting, accountability and transparency for it, and make sure the piracy stuff is taken care of at least in a moderate way.”

In a key departure from the House, senators voted to strip out a provision that would have required a portion of TIF proceeds to be returned to counties and school districts after 25 years. The Senate also decided not to place new restrictions on proceeds from wind-energy TIFs in rural areas.

Closer legislative examination of such agreements was sparked this session by Coralville’s use of TIF for the Iowa River Landing commercial project, which last fall landed a Von Maur department store as its retail anchor.

Dotzler said he had “no idea until we got into it” the kind of abuse that was going on with TIF.

“But then, on the other hand, there’s so much good that’s happening because of tax increment financing. It’s kind of like a Dr. Jekyll and Mr. Hyde type of thing where it was working great in some areas, but in other areas you’ve got problems.”

Sen. Herman Quirmbach, D-Ames, offered his “reluctant support” for the Senate plan, but said it did not go far enough.

“We could have done so much more,” said Quirmbach, who urged lawmakers to revisit the issue in the future to “deal more forcefully and directly” with the problems not addressed this session.

Bertrand agreed with Quirmbach, calling the Senate bill a political “paper tiger” that does not accomplish what proponents want, but is viewed by municipalities and developers as the “lesser of two evils” when compared to the House approach, which passed on a vote of 54-43 earlier this month.