Tax Increment Financing : A Case Study of Johnson County

Tax Increment Financing (TIF) is a tool that cities use to promote the development of economically challenged areas. The mechanism works by establishing an urban renewal area (URA) and diverting taxes on the increased value in the URA to a TIF fund. However, in recent years, TIF has become a topic of controversy. Some cities have overused it to subsidize development projects that offer little or no public benefit, resulting in the cost of infrastructure being shifted to rural taxpayers and neighboring cities.

According to a report by the Iowa Policy Project, TIF has had a negative impact in Johnson County, Iowa. The report highlights how TIF has evolved from a tool for redeveloping blighted areas to a means of subsidizing all types of development projects, often with little or no public benefit. Currently, nearly 15% of the county’s urban tax base, or $759 million worth of taxable property, is part of a city TIF increment. Four cities have over a third of their tax base in a TIF increment, with the City of Tiffin having the highest proportion of 56.7%.

The report further reveals that the City of Coralville accounts for 68.4% of the TIF valuation in the county, with the Merged Highway 6/Coral Ridge Mall URA being the largest in the county, generating $12.8 million in property taxes diverted to the city’s TIF fund. While $5 million of the school property taxes diverted is offset by increased state funds through the school aid formula, the remaining 56% is recovered through higher school property taxes. As a result, the Iowa City district levy is higher by $0.56 per $1,000 of taxable value due to the Mall/6 TIF, while the Clear Creek Amana (CCA) levy is $2.83 higher. TIF revenue diverted from the county and school district also forces higher property taxes on county and district taxpayers residing outside the city, as well as higher state taxes through higher school aid payments.

The report also shows that five small towns are using TIF revenues primarily or exclusively to retire debt for water, sewer, and street projects that could otherwise be retired entirely from a city debt service levy or water charges. The average residence in Johnson County, with a market value of $200,000 and a taxable value of about $94,000, pays an extra $373 a year because of all TIFs in the county if it is located in a city or $112 if it is located in a rural area.

In conclusion, while TIF has its benefits in promoting economic development, it has become a topic of concern in some areas where it is being overused to subsidize development projects with little or no public benefit. This ultimately shifts the cost of infrastructure to rural taxpayers and neighboring cities. The Iowa Policy Project report on the negative effects of TIF in Johnson County, Iowa, sheds light on the consequences of overusing TIF in a community. It is essential for cities to use TIF responsibly, with the long-term benefits of the community in mind.

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