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Legislative letters - TIF fundiCity Manager's Office City Hall 50 West 13th Street Dubuque, Iowa 52001-4864 (563) 589-4110 office (563) 589-4149 fax ctymgr@cityofdubuque.org VIA E-Mail and 1st Class Mail mike_connolly@legis.state.ia.us February 21,2003 The Honorable Mike Connolly Senate Chamber Iowa Capitol Building Des Moines, IA 50319 Dear Senator Connolly: I have just had the opportunity to review the material presented by the Farm Bureau to Iowa legislators relative to eliminating TIF funding. This measure would be a fatal blow to economic development efforts at the State and local levels. Almost all states have some version of TIF financing that is used as an economic development tool to provide incentives for projects that would not happen or would happen elsewhere without this important financing tool. These incentives can include funding public improvements or providing a direct incentive to the company. When you use TIF, the existing base level assessed valuation continues to generate taxes for the city, schools and county. Only taxes from the newly created incremental assessed value are captured for use as a financial incentive, or to do public improvements to help with the project. This new incremental assessed value would not exist if the incentive was not used. This new incremental value is usually captured for a fixed number of years, and then that incremental value also starts flowing to the taxing bodies. It should also be noted that TIF is not just used for economic development projects, but it is a very important tool to eliminate slum and blight. This is very important to an old community like Dubuque, and has been used very effectively in our downtown and to clean up the riverfront. The Farm Bureau material states that taxpayers in a TIF district pay the same rate as those outside the TIF but that their payments are intercepted before they ever get to the local governments that would otherwise have received the payment. This is misinformation. If TIF funding was not used as an economic incentive or to eliminate a blighting condition, the increment wouldn't exist and the taxing districts wouldn't receive Service People Integrity Responsibility Innovation Teamwork Senator Mike Connolly February 21,2003 Page 2 any dollars from the project. They wouldn't otherwise have received the payments, as those payments wouldn't exist if it weren't for the use of TIF. The Farm Bureau also developed a graph labeled "Tax Increment Financing: The Reality" that they use to indicate valuation increment. What they graph dramatically demonstrates how successful the TIF program has been in changing the trend line that we were seeing in Iowa from an outlook of expected valuation loss to a very positive trend line due to consistent growth in valuation due primarily to TIF supported economic development projects. Somehow the Farm Bureau interprets this as a bad thing. The Farm Bureau handout (page 7) states that TIF allows a City to use Other People's Money. That is correct in the sense that economic development TIF districts allow cities to create new valuation and to use the tax dollars raised from that new valuation to support the related incentive. Without the TIF project, there would be no increased valuation and no taxes paid by the project. It is a revenue neutral situation. No TIF incentive means no TIF revenue and no related jobs, sales tax and other spin off benefits to the citizens. The tax burden isn't shifted as they contend, but rather the new tax dollars generated by the project support the related incentive. Without the TIF incentive, counties, schools and cities continue to receive the same tax dollars as before. With the TIF incentive, counties, schools and cities continue to receive the same tax dollars as before, plus the spin off benefits noted above and when the TIF debt is paid off, they receive the benefit of increased valuations and the taxes that generates. The Farm Bureau material indicates that except for the increment to manufacturing jobs, there is no evidence of economy wide benefits (trade, nonfarm jobs), fiscal benefits or population gains. This is just not true. The following matedal spells out the economic benefit the Dubuque community has realized from TIF funded activities. Dubuque has used TIF very successfully, but we were late in taking advantage of TIF, and in the 1980's we paid the price. Dubuque did not start using TIF until the mid- 1980's, and not extensively until the 1990's. From 1980-1989 the average annual unemployment rate in Dubuque was 8.9%, compared with the state-wide average of 6.6%, and the national average of 7.3%. In 1982 the Dubuque unemployment rate was 14.2%. Then Dubuque became more aggressive in the area of job creation, forming economic development organizations and beginning to use financial incentive tools, the most important of which was TIF. From 1997-2002 the average annual unemployment rate was 3.4%, down from 8.9% in the 1980's. The current unemployment rate for Dubuque is 3.5%, as compared to the statewide average of 3.9% and the U.S. average of 6.5%. If you compare the number of jobs in Dubuque County in 1980 (43,700) with 1990 (46,000) with 2002 (51,600), you can see that the efforts being put forth are successful. Most of our TIF projects are used to help existing companies grow. Senator Mike Connolly February 21,2003 Page 3 You might recall that the Greater Dubuque area was selected in 2001 through the "Metro Business Retention Index" as 2nd in the nation for business retention for the nation's 324 metro areas. Also, the Greater Dubuque area was ranked 14th nationally by the Milken Institute for High Tach Output Growth from 1996-2001. TIF has helped diversify our economy. The job creation numbers and unemployment numbers I have given you are very favorable, but no more so than the construction numbers. From 1990-1998 the City of Dubuque averaged 350,000 square feet of non-residential construction each year. During the four-year period from 1999-2002, the City of Dubuque averaged over 1.2 million square feet of non-residential construction each year, and 2003 is shaping up to be another banner year. The total community assessed valuation has increased 70% over the last twelve years, to $1.659 billion, an average of almost 6% a year. Much of this valuation is the direct result of projects that were assisted with TIF. The year 2002 also saw a resurgence in residential units, with 192 total units. The City of Dubuque does not use TIF for residential developments, except downtown to clear slum and blight. Therefore, these residential units are going right on the tax rolls, even though they are a spin-off of the jobs created through Tlr. Partnerships and the use of Tlr were instrumental in the $188 million America's River project. The City was required to issue $12.5 million in debt to get the $40 million Vision Iowa grant. This $12.5 million is being partially repaid with TIF. What kind of impact will the America's River project have on Dubuque? Besides the 1,000's of jobs and the 500,000 new visitors, the $188 million represents an amount equal to 11.3% of our existing $1.6 billion assessed valuation. The consultant's analysis shows that after this initial investment, the City can expect over $150 million in additional private development, an amount equal to 9% of the City's assessed valuation. However, the consultant also indicated that $21,807,000 in financial assistance would be needed to create the additional $150 million in new development. Tlr would be one of the tools considered to create this incentive. Partnerships and the use of TIF have been key in the redevelopment of downtown. Since 1985, the following has occurred in downtown and Port of Dubuque: Net Facade Building New Real Estate Public New Renovation Rehabilitation Construction Sales Improvements Jobs $3,520,000 $48,156,155 $63,817,663 $72,739,517 $23,002,760 +1,777 (+25%) Senator Mike Connolly February 21, 2003 Page 4 While we can be proud of the level of recent investment in our downtown, much work is yet to be done, and TIF will be an important tool. Recognizing the long-term nature of this project, the City Council has adopted a policy that generally 75% of the TIF revenues will be claimed, with the remaining 25% (almost $10 million) going to the city, schools and county. This is allowed by state law and goes back to the taxing districts as miscellaneous revenues. Sharing the downtown new incremental value has helped to address local school and county concerns about TIF financing. TIF projects are useful for other purposes. First, this tool allows the City to leverage Federal and State resources for projects, as those programs require a local match. But more importantly to the schools, is that job creation creates other assessed property that does pay taxes immediately to the taxing bodies. The 6,700 jobs created since 1990 are held by people who own homes and rent apartments. The 600,000 square foot Asbury Plaza retail development on the Northwest Arterial is under construction and will open Phase Il late this summer. Retail development pays sales taxes and real estate taxes and only comes with job growth. No TIF was used in this retail development. The creation of all this new value, among other things, has allowed the City of Dubuque to avoid a property tax increase for the average homeowner for the last nine years, with five of those years seeing a property tax decrease, including the current year's 5% reduction. The average homeowner in Dubuque has seen a tax decrease of 7% over the last nine years on the City portion of their property taxes. The City of Dubuque's portion of the property tax bill is the second lowest rate of the nine largest cities in Iowa. This takes some of the pressure off of the schools and the county as they consider their budgets. The City of Dubuque has been fiscally responsible in all areas. If you combine the City portion of property taxes, the sewer fee, the water fee, the refuse fee and the stormwater fee, the average homeowner in Dubuque pays only 34¢ more in Fiscal Year 2004 than they paid in Fiscal Year 1995 for their City services. In fact, this conservative fiscal policy by the City Council, and the close working relationship with the schools and county, probably contributed to the passage by the school district in the last 3 years of the Instructional Support Levy and the school's 1% local option sales tax. The City of Dubuque has allowed two TIF districts to expire (Swiss Valley Dairy in 1998 and Westmark in 1999). This added $2,019,210 and $10,540,618 respectively in valuation to the City, County and School District tax rolls. Based on the Farm Bureau proposal, as I understand it, each taxing district will lose 4.5% of their taxable value to the Statewide Tax Increment Revenue (STIR). All existing TIF obligations will be retired by STIR funds. Modest reforms (unspecified in Senator Mike Connolly February 21,2003 Page 5 their material) will slow down the growth in TIF needs. The material refers to TIF under- utilized assets of $3.6 billion over 20 years, with no explanation of this but with the mention of redirected economic development. What does this mean? Does it mean that cities who have historically used TIF financing as an economic tool and have benefited from taking charge of their future, will somehow be put Iow on the pecking order for future TIF revenues and therefore not be able to compete until such time as other Iowa communities catch up? Are we going to be penalized for foresight and leadership? A major problem statement put forth in the Farm Bureau material, is that local TIFs are lumpy: some taxpayers affected a great deal, others not at all. This is just not true. Property tax payers are not affected because without TIF financing, the projects would not occur. They are revenue neutral. The taxpayers aren't paying more because a TIF project was constructed: The taxes on the project are tied up for a specific time, but the taxes currently paid by taxpayers are not being diverted to TIF use. I think we all recognize that there are abuses of TIF financing, but do not throw out the baby with the bath water. While the Farm Bureau recognized the abuses, they do not point out that most communities have not abused TIF and have gone so far as to work with their other taxing bodies to minimize the impact of TIF through self imposed limitations, shared increments and formally closing out TIF districts. The Farm Bureau proposal isn't about "lumpy" effects or citizens not having a voice in determining where and how to fund economic development in their communities. The lumpy effects just don't exist and citizens have direct and daily access to their local government representatives through public hearings, regular City Council meetings, news coverage, and web pages and emaii, among other methods of communicating with their City Council and Board of Supervisors. The Farm Bureau is trying to tell Iowa cities and counties what their long-term economic goals should be (page 44 of their handout). What happened to the voice of the citizens heard through their elected representatives? What is becoming of home rule? What about the belief that the level of government closest to the people is more accountable to the people? Before any such proposal is given credence, the bond rating bureaus should be contacted for their reaction. My guess is that the proposal would lower ratings for the State of Iowa and all Iowa communities. Yes it is bold and innovative. It also is not based on facts or reality, as I'm sure you are hearing from other City officials and economic development experts throughout the state, it will not address the two problems identified in the Farm Bureau material. Especially since one of the problems identified doesn't exist: The problem is stated in terms of TIF contributing to higher tax rates. TIF is leading to significantly higher taxable valuations, increased jobs, higher sales taxes and viable communities. What it is not leading to is increased taxes. Without TIF, the projects Senator Mike Connolly February 21,2003 Page 6 wouldn't be happening. TIF revenue is only generated by the increment: no TIF, no increment and no additional taxes for anyone. It is revenue neutral. Does the State of Iowa really want to have the most unpopular revenue sources in the state---property taxes--as one of their new revenue sources? Adopting a plan, being inclusive, courageous political leadership and developing partnerships to build on our assets is the key to our community's success, but TIF is an important tool that is needed in its current form to assist in growth. TIF is used across the country. If Iowa puts more limitations on its use, it will be more difficult for us to compete. Please resist any efforts to further erode the use of TIF in the State of Iowa. Comments have been made stating, "if you don't like the Farm Bureau's Plan, give us other ideas or suggestions", tn response, I would beg you to at least seek input and reach consensus among the affected parties regarding what the problems are relative to the tax system. The Iowa League of Cities and individual cities support overall tax reform versus piecemeal "fixes" that address individual symptoms. All of the parties need to put their cards on the table in terms of defining what each of us believes is the problem to be addressed. Clearly the Farm Bureau defines the current problems differently than local government officials. I do not believe we can do justice to our individual communities or the overall state until we can reach agreement on the issues. Then and only then can we begin to develop effective and comprehensive solutions via the legislative process. Sincerely, Michael C. Van Milligen City Manager MVM:pj cc: Mayor Terry Duggan Dubuque City Council Mike Blouin, Director of the Iowa Department of Economic Development Tom Bredeweg, Executive Director, Iowa League of Cities Susan Judkins, Director of Governmental Affairs, Iowa League of Cities Rick Dickinson, Executive Director, Greater Dubuque Development Corp. Steward Sandstrom, President, Dubuque Area Chamber of Commerce Barry Lindahl, Corporation Counsel Cindy Steinhauser, Assistant City Manager Bill Baum, Economic Development Director Pauline Joyce, Administrative Services Manager The Honorable Mike Connolly Senate Chamber Iowa Capitol Building Des Moines, IA 50319 The Honorable Roger Stewart Senate Chamber Iowa Capitol Building Des Moines, IA 50319 The Honorable Pat Murphy House Chamber Iowa Capitol Building Des Moines, IA 50319 The Honorable Steve Lukan House Chamber Iowa Capitol Building Des Moines, IA 50319 The Honorable Julie Hosch Senate Chamber Iowa Capitol Building Des Moines, IA 50319 The Honorable Pam Jochum House Chamber Iowa Capitol Building Des Moines, IA 50319 The Honorable Robert Osterhaus House Chamber Iowa Capitol Building Des Moines, IA 50319 The Honorable Gene Mantemach House Chamber Iowa Capitol Building Des Moines, IA 50319