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Making the Pieces Fit PDF Print E-mail
News/Features - Feature Stories
Tuesday, 25 March 2003 18:00
What finally emerges as Iowa’s Big Plan for revitalizing the state’s economy might actually resemble a lot of smaller ideas pieced together like a jigsaw puzzle. It started with a basic concept and a challenge from the governor, and the response has been so strong that legislators have no shortage of initiatives from which to choose. The task now is taking elements of disparate plans and turning them into a cohesive whole over the course of the next month.

In January, Iowa Governor Tom Vilsack unveiled a proposal called the Iowa Values Fund, a $500-million initiative meant to provide a long-term foundation for economic growth in Iowa. The program includes money for high-speed Internet access; alternative-energy development; research parks at the state’s Regents Universities; incentives for companies in the fields of life sciences, information solutions, and advanced manufacturing; and regional economic development. (See “Why Does Everybody Love Michael Blouin?” River Cities’ Reader Issue 412, February 12-18, 2003.)

The catch was that the governor and his new economic-development director, Michael Blouin, didn’t propose a way to pay for the program. “There are a lot of ways [to raise the money] if the legislature wants to,” Blouin said in February. The reasoning was that legislators and interest groups might be more willing to support the plan if they had a hand in crafting it.

If the goal was to prompt an exchange of ideas on a major economic-development package and how to fund it, the plan worked. To date, the Iowa Chamber Alliance, the Iowa Farm Bureau, the Iowa League of Cities, and state Republicans have all offered proposals.

The governor and legislators say they want to pass a major package this year, and a draft of the plan might be ready in a matter of weeks. Blouin told the River Cities’ Reader this week that the legislature should be getting a look at a proposal in early April.

That would leave several weeks for a plan to wend its way through the legislature before the close of the session. Blouin said he’s confident the legislature will pass and the governor will sign a major economic-development package this year. “There’s a general consensus that the state needs to do something dramatic, bold, and now,” he said. In addition, he said, there’s agreement that life sciences, information solutions, and advanced manufacturing “are the right targets … as the primary focus of this new program.”

There’s also some skepticism, though. “There are a lot of pieces, but there doesn’t seem to be a lot of effort to put those pieces together,” said Representative Cindy Winckler (D-Davenport).

Yet there are hints at what the plan might look like.

The final package will likely include some form of the governor’s Iowa Values Fund, restrictions to Tax Increment Financing (TIF), provisions to give more input to taxing bodies (such as school districts) on TIFs, money for job re-training, and some mechanism to equalize funding for school-infrastructure projects.

Furthermore, “it’s going to be done in concert with some major piece on taxes and some major regulatory reform,” Blouin said.

Those last two elements are seen as critical components of any economic-development package by many business and civic groups. “Nothing will have a greater long-term impact on our state’s future than its tax system,” notes the proposal from the Iowa League of Cities.

“Iowa needs to have an extraordinary business climate,” said Dan Huber, president of DavenportOne and co-chairperson of the Iowa Chamber Alliance. The Alliance represents the chambers of commerce of Iowa’s larger cities and has presented its own plan, called The Balanced Approach. The Alliance believes that because the state doesn’t have the typical characteristics of a business “hot spot” – great weather or topography, a reputation for being business-friendly – it needs to make up for that with its regulatory and business climates.

The size and scope of the proposal will likely depend on how the legislature chooses to pay for it. Vilsack initially mentioned paying for $500 million in bonds through gambling proceeds. (More money could come from expanded gambling, but that would require a resolution to the current tax dispute involving Iowa racetracks and riverboat casinos.) The package “will be as big and as flexible as the revenue source will allow it to be,” Blouin said. The Iowa Values Fund was conceived as a five-year, $500-million program, but he said it could end up lasting 10 years and costing $1 billion.

“There will be components from a number of the proposals,” said Susan Judkins, director of governmental affairs for the Iowa League of Cities. The league was invited by the governor to craft a plan and delivered it March 3. The legislature will probably patch together elements of different plans because “no one proposal is complete,” she said.

And these aren’t necessarily competing proposals. Groups that have floated plans have praised elements of other groups’ initiatives. “We think the [Iowa] Chamber Alliance’s is particularly strong,” Judkins said.

STIRring Things Up

The State Tax Increment Renewal (STIR) Iowa plan was introduced first, on February 11, by the Iowa Farm Bureau. While the most dramatic proposal, it’s also the least likely to get serious consideration from the legislature. Yet the plan is worth discussing as a contrast to other proposals, showing the elements they avoided.

STIR would eliminate TIF altogether and have the state assume the bonded indebtedness of existing TIF districts.

The $2-billion plan would be funded by a state property tax. In addition, the plan provides $400 million to equalize school-infrastructure funding.

The plan is seen as politically infeasible because TIF is one of cities’ favorite economic-development tools, allowing communities to issue bonds to assist with projects and using taxes from increased property values to pay for them.

Cities are concerned that STIR essentially removes economic-development decisions from local communities and puts them in the hands of the state. Furthermore, STIR doesn’t give cities new economic-development tools to replace TIF.

On the subject of eliminating TIF, “We’re hearing from a vast majority of legislators that they’re not going to do that,” Judkins said.

One unique feature of the STIR proposal is its straightforward funding mechanism. STIR would be funded by a $2-billion bond sale that would be re-paid through a new statewide property tax. The state would receive revenue from a property-tax levy applied to 4.5 percent of total taxable value. In other words, 95.5 percent of a local property-tax levy would go to its current beneficiaries: the county, cities, schools, community colleges, and other property-taxing bodies. The remainder, for the 20-year life of the plan, would go to the state for debt service on the $2 billion.

That would mean that if a community currently without TIF debt experiences no property-valuation growth, it would need to raise its property-tax levy by 4.7 percent to generate the same amount of money for taxing bodies.

And cities that have used TIF sparingly would also lose out. The City of Davenport, for example, currently uses approximately 2.3 percent of its property-tax levy to retire TIF bonds. As a result, the city would lose roughly $900,000 a year to the state property tax, said City Administrator Craig Malin.

But designers of the STIR plan expect that property-tax rates could remain steady and still provide at least the same amount of revenue to local taxing bodies in the long run. For one thing, cities will no longer have to service TIF debt. A bigger selling point is that, if the plan works in improving the state’s economy, property values will increase across the state, helping to keep down property-tax rates.

But the prospect of a statewide property tax doesn’t go over well with business advocates supporting more localized decision-making. “We certainly shouldn’t have plans that centralize resources and power,” Huber said.

“Economic development is done best locally,” said Senator Maggie Tinsman (R-Bettendorf).

Winckler said that while the STIR proposal is attractive because it’s comprehensive and provides funding, “many of the elements are problematic.”

The Bring It On (BIO) Fund plan was generated by Republican legislators and mimics several elements of the STIR plan, except that it doesn’t eliminate TIF. The other major difference is that it doesn’t provide a funding mechanism to pay off $2 billion in bonds. Tinsman said the plan is “not fleshed out at all.”

These two proposals will probably be most useful in addressing the issue of equalizing funding for school infrastructure. Currently, school districts can ask voters to approve a 1-percent sales tax dedicated to capital projects. Both STIR and the BIO Fund would gradually move toward a 1-percent statewide sales tax that would be distributed to districts on a per-student basis.

More Palatable Plans

The other major plans are more compatible with each other and what legislators want. They are likely to serve as the basis for whatever the legislature and governor agree on.

Re-energizing Economic Vitality (REV) was put forth by the Iowa League of Cities earlier this month. It suggests paying for Iowa Values Fund bonds through, among other things, sales and income taxes generated by the program; Internet sales taxes; reduced sales-tax exemptions; gaming revenues; and increased cigarette, tobacco-product, and alcohol taxes.

Instead of eliminating TIF, REV puts some significant limitations on its use. The reasoning is that TIF funds economic-development projects often to the detriment of other taxing bodies, such as school districts and counties. If a city creates a TIF district for 20 years, the amount of property-tax revenues going to taxing bodies is frozen for that period, even though the value of the land is increasing.

TIF districts also cost the state money. The school-finance formula provides a base level of per-pupil funding, and if a district’s “uniform levy” of $5.40 doesn’t reach that level because taxable property values are frozen by TIF districts, the state makes up the rest. That costs Iowa $28 million a year.

Furthermore, limitations on TIFs have been dismantled over the years. The result has been that “cities have an incentive to overuse TIFs, since they capture all future valuation growth,” according to an analysis of the STIR plan by House Democrats. “Some jurisdictions have used TIF to build upscale housing and commercial developments. STIR Iowa proponents argue that taxpayers should not subsidize projects capable of paying their own way.”

Instead of throwing out the entire TIF system – as STIR does – the REV plan suggests new limitations on TIF use. For example, it would limit how much of a city’s or county’s assessed valuation can be placed within a TIF district without a vote of approval from other taxing bodies. This would address a long-standing complaint that bodies such as school districts have no say in the creation of TIF districts.

The plan also would require that existing TIF districts be limited to 20 years from the effective date of the legislation. Some districts created prior to 1995 have no expiration dates.

Furthermore, REV would create a definition of “essential” TIF uses such as in blighted areas. Those uses would not require the approval of other taxing bodies, but those jurisdictions would have the option of not contributing their share of increment on “projects of a regional nature.”

While REV fleshes out possible changes to TIF law, the Iowa Chamber Alliance’s The Balanced Approach expands on and tweaks some of the ideas in Vilsack’s Iowa Values Fund (spreading $430 million in spending over 10 years). For example, the proposal suggests that the state “expand 260F, Iowa Jobs Training Program, to provide expanded job-training and re-training services to existing employees of eligible businesses located in Iowa, moving from low-value to high-value industries in the targeted industry clusters.”

It also offers some principles for business-regulation reform. For example, the plan says the state should “establish timely and predictable approval processes (i.e., If regulators do not respond to a request within an established time parameter, the permit would stand approved).” The gist of suggestions is to eliminate duplication and inconsistencies in regulation, ensure that regulations do not exceed federal or state authority, and make processes easier and more convenient.

The Balanced Approach would also provide $30 million a year to the state’s Vision Iowa and Community Attraction & Tourism (CAT) quality-of-life programs, and add $10 million a year to market the state.

While the Balanced Approach does address the issue of TIF, it does so in the most vague terms: The state should offer communities “more clear and precise direction on the judicious use of TIF,” it says.

A key difference between The Balanced Approach and other proposals is that it recommends bonding only for the Vision Iowa/CAT programs and construction of the Commercial Transportation Network. The plan would use $83 million a year in gambling and lottery revenues to pay for programs and re-paying Vision Iowa/CAT bonds.

So what does all this mean? Each plan has an area of strength. TIF reform might be drawn from REV, while regulatory reform and some details for the Iowa Values Fund could come from The Balanced Approach. STIR and the BIO Fund provide a framework for discussion about school-infrastructure funding. Serious income- and property-tax reform might not be hashed out this session – it’s more likely that the legislature could set a sunset date for the state’s tax system – but few disagree on their necessity.

All the pieces are there, in other words. It’s just a matter of putting them together.

For answers to frequently asked questions about the Iowa Farm Bureau STIR proposal, click here. An analysis of the plan by House Democrats can be found here.

The Iowa Chamber Alliance’s Balanced Approach can be seen here.

The REV Iowa proposal by the Iowa League of City can be found here.
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