Tax Increment Financing: A double edged sword for Le Mars?

Taxes on more than 60 percent of Le Mars commercial properties aren't going into the city's general fund.

That money is being set aside to be used for economic development.

So are property taxes on 83 percent of industrial property in Le Mars.

The city of Le Mars heavily uses a process called Tax Increment Financing (TIF).

The TIF process allows the city to capture certain tax dollars and use them for projects like connecting a new industrial site to the storm sewer or offering a tax rebate to a business to encourage it to relocate to the community.

The question is, is this heavy TIF strategy working for Le Mars?

What TIF is

Iowa communities of all sizes have been using TIF as an economic development tool for more than a decade.

This dates back to an Iowa law enacted in 1987 which stated economic development related to private businesses is a "public purpose." Because of that, cities and counties may provide grants, loans, guarantees and other financial assistance.

With TIF, a target district in the community is outlined. That district's current valuation is determined -- this is the "base valuation." Once the governmental body wants to begin collecting TIF, taxes on any new valuation above that base can be used for economic development projects in the set district.

TIF in Le Mars

Economic development is a pretty broad umbrella, according to Le Mars City Administrator Scott Langel.

TIF money can be used to pay for physical projects like extending streets, water, sewer or storm sewer; adding street lights; putting in electrical, telephone or gas lines; or extending railroad tracks.

Or it can be used to offer financial bonuses to businesses that are considering relocating to the district and promising to add jobs.

Langel said Le Mars has mostly used TIF money to pay for physical improvements.

For example, TIF money was used to clear an "unsightly cesspool" from property along Business 75 to encourage O'Reilly Auto Parts to locate there, Langel said.

But city officials have also used TIF to promise dollars to businesses.

TIF money is being used to lower Wells' Dairy's lease payments on the new corporate center, Langel said.

Standout

So Le Mars is using TIF. As was mentioned earlier, so are many communities in Iowa.

But the amount of property in TIF districts in Le Mars sets the city apart.

Le Mars' numbers -- 60 percent of commercial valuations and 83 percent of industrial valuations in TIF districts -- are "extremely high," according to Iowa State University economist David Swenson.

Swenson has written several reports on TIF and its impact in communities.

"You don't have percents like that in other towns," he said.

Through the years, Le Mars grew in those districts. The new tax dollars coming in paid for millions of dollars of development in those areas, as planned.

However, as the city grew, few new tax dollars were added to the general fund, even though the area the government serves got larger.

"That other percent of taxpayers is having to pick up the slack," Swenson said, indicating that, in a situation like this, a city might have to raise taxes for the general fund.

In Le Mars, that "other percent of taxpayers" is the remaining 40 percent of commercial property taxpayers, 17 percent of industrial property taxpayers and nearly 90 percent of residential taxpayers that aren't in TIF districts.

Payback time

But TIF isn't designed to drown taxpayers outside TIF districts.

It's designed to bring in new businesses that will eventually be on the general tax rolls.

TIF districts do have an expiration date. For most it is about 20 years.

Deadlines, however, can be extended. To do so, the governmental body has to go through the same process it went through to create the district: make a plan, hold public hearings and consult with other taxing bodies like the county and area schools.

Once a TIF period is over for a district, all the property taxes (not just the base) go to the general taxing bodies. And that promises to release some of the other taxpayer burden.

For Le Mars, that means eventually the property tax for places like BoDeans, Wells' Dairy's corporate headquarters, 4 Brothers, Holiday Inn Express and even Wal-Mart will be paying into the city's general fund.

But some, like Swenson, wonder if those places shouldn't already be doing that. He argues that some development in TIF areas would have happened even without the promise of TIF incentives.

Langel disagrees.

His example is Wal-Mart.

Formerly located in north central Le Mars along Business 75, the Wal-Mart moved to a new business park created with the help of TIF money on south Business 75. There Wal-Mart expanded to become a Wal-Mart Supercenter complete with grocery store.

"They told us they wouldn't have moved there if it hadn't been for that," Langel said. "We would not have had a Supercenter."

People like Langel have more success stories; people like Swenson have more doubts.

It may be an argument only time will decide.

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Read tomorrow's edition of the Daily Sentinel.