A Closer Look at TIF

Council held a work session last night on Tax Increment Financing (TIF) as we continue to consider the One University Place project. We had two speakers talk with us, and it was a very informative and illuminating meeting.

The first presenter was Dr. Peter Fisher, Research Director of the Iowa Policy Project. Peter is national expert on public finance and is a frequently cited commentator on what is viewed as the abuse of TIF projects.

I spent a good deal of time speaking with Dr. Fisher in 2010 when in my first term on city council and the idea of TIF was proposed for One University Place. I find him to be very approachable and gracious with his time and expertise. Last night he had a PowerPoint presentation that he shared with the council and public who attended the meeting.
The slideshow can be downloaded from the U-H Municipal website:  TIF Presentation

The portion I found most helpful were the last two slides he shared. The first slide was guidelines for Responsible TIF Use:

These guidelines generally correspond with what I've said I would support in a TIF: a project based, rebate TIF with a definite time/cost ending. The only area above that I haven't supported is the last one in that I have mentioned TIF as a means to pay for the Community Center which would be a tax exempt facility. I will now need to consider bonding for a center in light of Dr. Fisher's suggestions.

The last slide was Questions to Ask:

These are the questions we should apply to One University Place, some I can answer now, others not yet:

Question One: YES ( we are only considering a rebate TIF, for the project site only)
Question Two: YES (I view the commercial space as a public benefit. The developer has said they could build a residential only project without TIF. I believe the public benefit of commercial space justifies a TIF)
Question Three: Not Yet (I'll talk about this down below)
Question Four: To ensure public benefit (This can be explained in my answer to question 2 as well as my firm belief that this property, which currently generates zero taxes, should be on the city rolls. If this development does not take place there is a high probability that it could be purchased by the University of Iowa, which would effectively remove any possibility of it generating taxes)

The second speaker was Tom Jackson of the National Development Council. City Council has hired Tom evaluate the One University Place project and recommend whether or not a TIF would be necessary. Tom has also performed this duty for the City of Iowa City as they consider re-development projects. Tom's work will heavily influence how I judge the answer to question 3 above.

Tom said he will have a full written report delivered to the City prior to our May 27th Public Hearing on the One University Place Planned Unit Development (PUD). He did have some preliminary remarks last night. Here are what I considered major points of what he said last night:

• While Tom didn't say outright that the project deserves a TIF, he did talk in general terms about amounts and time limits, so I am assuming he has deemed the project as viable and worthy of TIF
• Financing model is predicting an 8% return on the project 
• Local bank financing would be approximately 5% which would be paid first
• Private equity firms are not interested in projects generating under 15% return
• A TIF time limit of 12 years is the rough projection
• The payment would be a flat amount per year, so that after the first several years of payment, any excess amount generated from site would flow through normal channels to all other entities: county, city, school district
• A gap amount of $4 million is the rough projection

As I said at the beginning of this post, I found last night to be extremely helpful and what I learned will certainly influence and clarify my judgement regarding this project.