The 21st edition of our WDM Magazine hit households in West Des Moines yesterday. For my column in this issue, I felt it was timely to address the concept of Tax Increment Financing districts, which are frequently misunderstood. I'd like to reiterate that information here.
Tax Increment Financing, also known as TIF, is one of the least understood economic development tools available to Iowa cities. TIF is used to encourage businesses to locate or expand their operations in our city by directing the tax revenues generated within the TIF district to investments in the district. The ability to create TIF districts is a real asset for the City of West Des Moines, and therefore merits further explanation.
Before creating a TIF district, an urban renewal plan outlining the geographic boundaries of the area slated for development (or redevelopment) is reviewed by the Plan and Zoning Commission and adopted by the City Council. A public hearing is held prior to adoption of the ordinance.
There are several common misconceptions about TIF districts. Here are some realities that clarify why TIF works to benefit an area and the city as a whole.
First, property in TIF districts is taxed. TIF is not a tax abatement. In TIF districts, the taxes generated over and above the base value of the property are retained by the government (in this case, the city, though TIF can be used by counties and community colleges) for use within the district. Only taxes generated on the improved value of the property, known as the increment, are retained for investment in the district.
TIF districts are commonly used for public improvements within the identified district. They can also be rebated back to the developer in exchange for their private investment in new buildings and/or jobs.
Without TIF, we would be at a real disadvantage in competing with other states for significant projects. There are 44 other states that also use TIF to attract economic development.
The use of TIF does not hurt county and school revenues. Counties and schools continue to receive tax revenues calculated on the base value of the TIF property – basically, the same amount of tax revenues they received prior to establishment of the TIF district. When the district expires, counties and schools benefit from the improved value of the property. During the TIF lifespan, schools are reimbursed by the state for lost capacity to levy school taxes for operation. However, public schools and counties benefit immediately from TIF districts with the ability to collect taxes for debt incurred on capital expenditures against all growth in valuations.
Since they are designated for a specific purpose, TIF districts have a 20-year lifespan, but most are retired early. In West Des Moines, we typically retire TIFs in 10-12 years.
We have had success with TIF districts in all areas of our town, not just in our current growth areas to the west and south. For example, our Westown IV TIF, located East of I-35 between I-235 and University Avenue, was created in 1998. That TIF was retired in 2006, at which point there was $140 million in new taxable valuation in the district and over $10,000,000 had been constructed in new infrastructure, such as streets and sewers. This infrastructure was financed entirely by TIF funds, and the area’s debt was paid off in just eight years. Today, there is over $180 million in new taxable valuation in this area, generating over $5.5 million in annual tax revenue for the city, schools, and county.
The City has also used TIF in the Valley Junction/Railroad Avenue area. This TIF initially served to reconstruct Railroad Avenue, make improvements to the Fairmeadows Creek drainage basin, construct Lincoln Street, and purchase residential properties no longer in conformance with current land uses. It has also been used to landscape Railroad Avenue, reconstruct Grand Avenue from E.P True to the Raccoon River Park entrance, and make streetscape improvements in the Valley Junction Business District.
The Valley Junction TIF district was created in 1995 with the expectation that it would require a longer lifespan that our typical TIF district in West Des Moines to accomplish more initiatives. This TIF will be retired in June of this year having accumulated an incremental value of $101,096,220. This valuation will now be available to all taxing authorities for their operating budgets. Our work in this area continues, however, and a smaller TIF district has been created to address specific initiatives like shared sprinkler systems in the commercial blocks, economic development south of the railroad tracks, and further enhancements to the streetscape.
The bottom line: without TIF, we would have fewer new businesses, slower expansion, a smaller tax base, and lower retention rates of businesses in Iowa, resulting in fewer jobs. In West Des Moines, TIF has been used appropriately to the benefit of the entire community, and has been instrumental in getting the right public improvements in place to make exceptional things happen.
