This report provides an overview of the use of tax increment financing (TIF) by cities in Polk County, Iowa, and its impact on school and countywide tax rates. TIF is a program used to support development projects in targeted areas, allowing cities to divert incremental taxes generated by improvements to the area from the school district, county, and other taxing authorities. The report highlights that significant portions of the property tax base in Polk County are locked in a TIF district, which affects all jurisdictions that derive tax revenue and provide services to residents in those communities.
The report suggests that some cities in Polk County have included most, if not all, of the city in a TIF area, and they continue to divert all TIF revenues long after the original project costs have been recovered. This negatively impacts taxpayers in other cities and rural areas because TIF allows cities to bypass referendum requirements for bond issues and to exceed the constitutional limitation on debt through the use of “annual appropriation” TIF bonds.
It is important to note that there is a wide variation in TIF practice across Polk County, with some cities using the program judiciously, while others do not. The Southeast Polk School District is the most affected district in the county, as TIF diverts money from the school district to the TIF fund.
The report highlights the need for TIF reform to ensure that the program focuses on its core purposes of redeveloping blighted areas and promoting economic development. Sensible reforms could prevent TIF areas from becoming cash cows for financing city infrastructure at the expense of taxpayers living outside the city. The report suggests requiring TIF projects to be subjected to a “but for” test, demonstrating the likelihood that the project could not proceed without TIF incentives or subsidies. TIF projects should produce an increase in taxable value, and TIF areas should be narrowly confined to the area that will directly benefit from TIF-financed improvements. TIF revenues should only be used to retire original TIF project debt, and the TIF diversion should end once that project debt has been retired.
In conclusion, TIFs have been used differently by different cities in Polk County. The report highlights the need for TIF reform to ensure that the program is focused on its core purposes of redeveloping blighted areas and promoting economic development. Sensible reforms can prevent TIF areas from becoming cash cows for financing city infrastructure at the expense of taxpayers living outside the city. The Southeast Polk School District is the most affected district in the county, as TIF diverts money from the school district to the TIF fund.
