Ensure Good Jobs and a Strong Tax Base

[Note: This post can also be found on Facebook at “Jim Throgmorton for City Council” (www.facebook.com/Throg4IC?sk=app_190322544333196) in the Notes section of the left hand column.]

Throg4IC Position Paper #3

The financial crisis that occurred in late 2008 continues to ripple through the national economy, and through national and state politics. Iowa City has been fortunate to escape the most adverse economic effects; the unemployment rate for our metropolitan region (4.2% in May 2011) is less than half that of the nation as a whole. But there are worrisome signs on the horizon.

We need to ensure that Iowa City continues to provide good jobs and have a strong tax base, and I intend to work closely with the city manager, other members of the city council, the Chamber of Commerce, and the Iowa City Area Development Group (ICAD) to make sure this happens.

Although I continue to learn from other people and organizations, my present sense is that ensuring good jobs and a strong tax will require three types of action: first, to attract new investments that build on our existing strengths, and to nurture networks for innovation and creativity; second, to respond effectively to competition from nearby cities, especially Coralville and its very aggressive use of Tax Increment Financing (TIF); and third, to respond creatively to future cuts in federal funds and possible state-mandated cuts in commercial property tax revenues. Prior to approving specific actions, I think we also must ask whether they will enhance the longer-term sustainability of our city and the region in which it is embedded. This is a question I expect to consistently raise during my term in office.

Build on strengths and nurture innovation

The region’s economic strengths lie in education, health care, and advanced manufacturing, and I understand that ICAD is targeting five economic clusters (advanced manufacturing, biotechnology, educational services, information technology, and renewable energy) that would build on those strengths. ICAD is also promoting spaces, events, and networks that will facilitate creativity and innovation. These impress me as wise actions, and I support them. However, conversations with business leaders and read relevant reports lead me to conclude that (with the important exception of the renewable energy cluster and Wind Energy Supply Chain Campus) considerably more attention could and should be given to the relationship between these initiatives and longer-term social and ecological sustainability.

Respond effectively to competition from nearby cities

The fact that ICAD is the Iowa City Area Development Group demonstrates that Iowa City is embedded in a regional economy and laborshed. Even so, I am very concerned about the adverse effects of Coralville’s actions on Iowa City’s economy and tax base.

Before saying more about this, I want to congratulate Coralville’s leaders for their success in envisioning and publicizing their city’s transformation. I especially admire their success in creating a new town center, greatly improving the Highway 6 streetscape, and renovating the brownfield area along the river.

But these visible successes have come at a big and largely invisible cost to property taxpayers in Iowa City and other jurisdictions, for they could not have occurred without Coralville’s very aggressive use of Tax Increment Financing (TIF).

Some observers have vigorously criticized Iowa City’s use of TIF. If we lived in an ideal world, I would agree with them that the use of TIF would be neither necessary nor desirable. But we do not live in that ideal world. At present, TIF is one of the few tools local governments can use to attract or influence new developments in their jurisdictions. Moreover, Coralville’s use of TIF far exceeds Iowa City’s. Almost 42 percent (roughly $528 million) of Coralville’s total taxable valuation (roughly $1.27 billion) is TIFfed, whereas only 0.9 percent (roughly $25 million) of Iowa City’s (roughly $2.71 billion) is. Measured differently, 72 percent of the total amount of taxable valuation that has been TIFfed in Johnson County is located in Coralville, and only 3.5 percent in Iowa City. Almost 80 percent of the ICCSD’s total TIFfed valuation is located in Coralville.

Although Coralville’s leaders dispute the point, my sense is that its aggressive use of TIF has caused property tax revenues to be drained away from Johnson County, the Iowa City Community School District, and the Clear Creek-Amana School District, while also enticing business to move from Iowa City into Coralville. In the end, Iowa City has been losing tax revenues and Iowa City residents have been paying higher property taxes as a result of Coralville’s aggressive use of TIF.

We must respond effectively without trying to beat Coralville at its own game. In my view this means we must use TIF, but do so wisely. This means using TIF to improve blighted areas and to facilitate new investments that will yield important and measurable public benefits that would not otherwise occur. These would be benefits that enhance the longer-term sustainability of the region rather than just shuffle businesses around within the region. I would, for example, be likely to support offering TIF to a basic sector employer who would create a large number of jobs that paid far better than average wages and provided full benefits, and which would use advanced technologies to minimize the use of fossil fuels.

Respond creatively to recent and future cuts in federal and state funding

In addition to responding effectively to Coralville’s use of TIF, we must be prepared to respond to reductions in federal funding. In the short run, we actually will be receiving an influx of federal flood mitigation and recovery funds, but current pressures to reduce spending at the national level are likely to have a significant effect on us over the longer run.

We are also facing the possibility of a significant decline in commercial property tax revenues as a result of actions that might be taken by the Governor and the State Legislature during next year’s legislative session. The magnitude of this decline, and its effects on Iowa City’s budget, are uncertain at the moment. If elected, I would go to Des Moines to make sure that state legislators understand the likely consequences of their actions and how Iowa Citians feel about them.

A recent Iowa State Supreme Court decision also enables commercial apartment owners to convert their buildings to co-ops. This decision might lead to a 6+ percent reduction in Iowa City’s total property tax revenues. I believe that, as a simple matter of fairness, property owners who convert their apartment buildings to co-ops should pass their tax savings along to their tenants. If elected, I would want the staff to investigate possible ways of accomplishing this.

These likely reductions will take place as our tax base is leveling off and our pension costs are increasing. Given this context, I understand that the city manager thinks we will have to find new sources of revenues, reduce services, or invent strategies to do better with less. I would support his efforts to facilitate creativity, innovation, and more effective interaction among city staff. There might be more we can do.

We have historically been very conservative in borrowing funds, and I would want to explore the possibility of financing investments more creatively and courageously. (The city’s total debt obligation cannot exceed 5 percent of total assessed value of property in the city, and our debt for FY 2012 is currently projected to be about 1.8 percent, or $79 million.) One possibility is for the city to borrow money to create a revolving loan fund (or something similar) that would be used to facilitate the construction of lower cost workforce housing (housing that low-to-moderate income workers can afford) in new developments. An equivalent fund could be created to promote more efficient use of electric power by residences and businesses located in the city.

In brief, we need to ensure that Iowa City provides good jobs and has a strong tax base long into the future, and do so by investing in our strengths, nurturing innovation, using TIF wisely, and investing in activities that will promote long-term sustainability.

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This entry was posted in 2011 City Council campaign, Iowa City, sustainability and tagged , , , , , , . Bookmark the permalink.

2 Responses to Ensure Good Jobs and a Strong Tax Base

  1. Garry says:

    Jim,

    Are you concerned about the recent Iowa Supreme Court Case that allows apartments to be taxed at a residential rate by turning them into “co-operatives”? How do you foresee that impacting the taxbase? How can TIFs help if the city loses revenue from current commercial property and what impact will that have on future real estate development and affordable housing?

    • jthrog65 says:

      Garry,

      Good questions. Yes, I am definitely concerned about the impact of the Court’s decision. Two of the paragraphs in my initial post address your questions further:

      “We are also facing the possibility of a significant decline in commercial property tax revenues as a result of actions that might be taken by the Governor and the State Legislature during next year’s legislative session. The magnitude of this decline, and its effects on Iowa City’s budget, are uncertain at the moment. If elected, I would go to Des Moines to make sure that state legislators understand the likely consequences of their actions and how Iowa Citians feel about them.

      A recent Iowa State Supreme Court decision also enables commercial apartment owners to convert their buildings to co-ops. This decision might lead to a 6+ percent reduction in Iowa City’s total property tax revenues. I believe that, as a simple matter of fairness, property owners who convert their apartment buildings to co-ops should pass their tax savings along to their tenants. If elected, I would want the staff to investigate possible ways of accomplishing this.”

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