Column: Explaining the importance of TIF

by Stan Walk

Tax Increment Financing (TIF) is a very valuable economic development tool for cities and counties.  The following will be an attempt to have you understand how TIF operates.  The process is difficult to understand, yet it should be noted most governments use some form of TIF.  Why do governments use TIF, because it is an advantage to local property taxpayers.

A piece of property pays property taxes of $10,000 annually.  Let’s say someone decides to build a new building costing $1 million on this property.  If this property would be located in the county, the Board of Supervisors (BOS) can place this and other properties into an Urban Renewal District.  Now the Urban Renewal District will allow the BOS to “TIF” the property.  By TIFing the property, the new increment of property taxes can be diverted entirely to a county to use for a specified period of time in certain instances, as long as the governing body had legitimate debt.

Under TIF, one of two things can occur:  In all cases property taxes will be paid on the old increment, the basis.  In other words, the land will continue to pay property taxes into all taxing entities. The taxes on the land will never be exempted.  The property taxes on the new increment or the $1 million, can go one of two ways:  debt can be incurred in this Urban Renewal District and the taxes can be used to pay off this debt.  Two, the property taxes will be collected and then returned to the new taxpayer, thus the taxpayer in essence does not pay property taxes for a certain number of years. In no cases, can TIF funds go into the general fund, it can only be used to pay off legitimate debt.

Under TIF, property taxes can be garnered up to twenty years.  After twenty years, property taxes revert back to all taxing bodies. 

When Absolute Energy located in Mitchell County, property taxes on the land will always be paid to all of the taxing entities:  The St. Ansgar School; General Basic; Rural Basic; General Supplemental; MH –  DD Services; County Hospital; NIACC College; County Assessor; Otranto Township; Ag. Extension; Debt Service and Bruc/TB.  The new physical buildings built on the land pay taxes into the county and then the taxes are returned to Absolute Energy.  These taxes were rebated in full for the first 10 years and rebated 95% for the second 10 years.  Your BOS gave this rebate to Absolute to help insure Absolute would locate their highly desirable facility in Mitchell County as opposed to locating across the border in Lyle Township, Minnesota.  

The Pioneer Prairie Windfarm located in the eastern part of the county had a state option on paying property taxes.  The windfarm could choose to pay the state utility tax or the windfarm could choose to pay on local property taxes that would be assessed at zero the first year, increasing five percent a year until year seven or at the 30% rate which will remain in effect for an additional 13 years.  Since the local rate of taxes is substantially lower than the state utility rate, so far all windfarms in Iowa have chosen to go with the county tax rate.  

In the case of the Pioneer Prairie Windfarm, the county choose to include in their Urban Renewal District, all of the wind turbines, all county roads, the county conservation building area and the site of the old courthouse.  The county then occurred debt by paving over a hundred miles of roads, added an addition onto the conservation building and built a new courthouse, all being paid for by the new tax increment on the Pioneer Prairie Windfarm.  Local property taxes did not pay for these upgrades.  

As a bonus, the State of Iowa was concerned for the local school districts not receiving their share of the new increment.  State law requires the State to backfill 87 ½% of the new increment back to the school district.  

Here is the HUGE bonus to the people of Mitchell County.  Not only does the county receive 100% of the tax monies generated from the windfarms new increment, the school by receiving the 87 ½% backfill, a total of about 140 % of tax monies come into the county and the school with the additional 40% coming from the State of Iowa.  

Allow me to repeat this, by using TIF in this manner, 140% of tax revenue is generated as opposed to 100% if the wind turbines were not TIFed.  This is a huge increase in tax monies coming into the county.

So far, Mitchell County has spent over $15 million towards roads, over $8 million in a new courthouse and a $400,000 addition to the conservation building have occurred without utilizing local property taxes.  

We are also in the process of purchasing the last mile of Wapsi-Great Western Bike Trail, a total renovation of Riverside Park in Stacyville, purchasing most of the gravel for this year’s rock run, assisting in over a million dollars’ worth of Commercial or Industrial Building, apartment complexes or single family housing, plus we have set aside monies for our share of a new high pressure natural gas line from Joice to St. Ansgar,  all being assisted through TIF without utilizing local property taxes.  Worth repeating, all of these projects being financed without utilizing local property tax dollars.  Local taxpayers benefit without having to personally pay the bill.

TIF is the best economic development tool a rural county could ask for.  We will have over $20 million in county improvements, all without spending any locally generated property tax monies.  If Mitchell County did not use TIF, your local property taxes would need to be raised substantially in order to receive these same benefits now being paid for by TIF.  Mitchell County is the envy of most counties in Iowa.  

Until next time,

Stan