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Iowa Watchdog

Coralville debt spurs record number of candidates challenging incumbents

9/25/2013

POACHED: This 2012 photo shows a shopper arriving at Von Maur’s Iowa City store. The city of Coralville promised millions in incentives for the story to relocate.

POACHED: This 2012 photo shows a shopper arriving at Von Maur’s Iowa City store. The city of Coralville promised millions in incentives for the story to relocate.

CORALVILLE, Iowa—The City Council of Coralville has piled up about $280 million in debt in recent years, the highest debt per capita for a city in Iowa.

The $14,511 burden for each of its 19,219 residents is seven times higher than Des Moines or Iowa City. It’s enough to pay for 38 Iowa Hawkeyes football season tickets or three semesters of tuition at the University of Iowa.

Moody’s Investors Service, after having downgraded the city’s debt four times, was, in a recent report, particularly tough on Coralville’s “history of issuing debt of non-essential government purposes, including the construction of a hotel, golf course, performing arts center and brewery, all of which are city owned.”

Spurred on by activists railing about the city’s growing debt, a record-breaking number of candidates have filed for the Nov. 5 election. Six challengers are vying with two incumbents for three council seats, and four people are competing for mayor, according to city records.

“The amount of debt compared to the size of the population positions Coralville to be the Detroit of Iowa,” said Mark Lucas, the Iowa director of Americans for Prosperity, who lives nearby in Iowa City. “The city’s debt load is unsustainable and will eventually lead to higher sales taxes on local retail businesses or increased property taxes for residents,” Lucas said.

Mayor Jim Fausett, in office since 1995, is not seeking re-election. City Councilman John Lundell and challengers Matt Adam and Logan Strabala want to take his place.

Council members Tom Gill and Bill Hoeft are seeking re-election, and will face challengers Laurie Goodrich, Dave Petsel, Jean Schnake, Chris Turner, John Weber and Mark Winkler.

Photo by IowaRiverLanding.com.

Photo by IowaRiverLanding.com.
NEW HOME: The Von Maur project is taking shape at the Iowa River Landing in Coralville.

John Deeth, an Iowa City-based Democratic blogger, has posted more about the candidates, their backgrounds and partisan affiliations for the officially non-partisan positions here.

Personalities, however, will not be front and center in the political contest. Debt will be, although it’s not clear whether it will be enough to galvanize voters to throw out incumbents.

Moody’s most recent downgrade in June left the city’s level just two notches above junk status.  Lower bond ratings mean that the city must pay higher interest rates to borrow money. The city’s bonds are selling for just 70-cents on the dollar.

The city’s elevated debt burden and highly leveraged Tax Increment Financing districts leaves it vulnerable to future stress, Moody’s said.

Coralville has offered a case study in how TIF has evolved from a tool to redevelop blighted areas to a way to subsidize private development projects, often for corporations that compete with other area businesses.

“The City of Coralville has become a developer that’s working against local business owners,” council candidate Chris Turner, said. “The TIF was extended in a weird gerrymandered way to let Coralville use it miles away (from the Coral Ridge Mall) at Iowa River Landing, a completely different area on the other side of town.”

Winkler, the director of the Business Solutions Center at the University of Iowa Tippie School of Business, said that Coralville needs a creative solution to the TIF issue to avoid raising taxes.

“If the only tool you have in your toolbox is a hammer then everything looks like a nail,” he said. “We’ve over used TIF in Coralville, and we basically went from developing infrastructure to having ownership in these projects, which I think is way too risky.”

Essentially, TIF allows a government to freeze property tax rates on properties for a certain period. Any increase, or increment, in taxes can be used by cities to fund projects within the TIF district

About 40 percent of taxable property in Coralville is part of a TIF area, according to a 2012 study by the Public Interest Institute, a limited government advocacy group.

Coralville’s largest TIF area includes the Coral Ridge Mall and the Iowa River Landing, a $400-million development near Interstate 80. The city borrowed $47 million to build a Marriott Hotel and another $9.5 million to $16 million in incentives, depending on the estimate, for the Von Maur department store.

At a September 2011 meeting, the Coralville City Council unanimously approved TIF financing — to critics, a means of retail piracy — to lure Von Maur from the Sycamore Mall in Iowa City to the Iowa River Landing site, which enraged Iowa City officials.

No public debate preceded the Von Mauer vote at the Coralville City Council, and the council didn’t even discuss the deal until the night it voted. The state Legislature passed an update to TIF law in 2012 that contains an “anti-piracy” provision that prohibits cities from using TIF funds to poach businesses from nearby areas.

The deal has other controversial elements. In order to circumvent Iowa law prohibiting cities from selling land below market value, Coralville gave San Diego-based developer OliverMcMillan a $1.5-million grant to purchase the Von Maur site, which the developer then sold to Von Maur for $10.

Turner said if elected to the council he would suggest shorter periods and a more focused area for TIF districts. The Iowa River Landing TIF expires in 2017, but the City Council is seeking to extend its life.

The Johnson County government and local school districts have criticized Coralville’s broad use of TIF districts as it diverts revenue that would otherwise flow to county projects and schools.

For example, 40 percent of taxable property in the Clear Creek Amana Community School District is in a TIF area. The district missed out on $4.4 million per year in tax revenue — $2,974 per pupil —  in fiscal year 2012 because of the TIF, according to a study by the Iowa Association of School Boards.

Citizens for Responsible Growth and Taxation , a local taxpayer advocacy group, opposes Coralville’s expansive TIF policy.

Kevin O’Brien, a local McDonalds owner who leads CRGT, said the city’s debt load is unsustainable without painful tax increases, which the city has put off. CRGT says the Marriott, for example, is losing more than $3 million per year.

“Instead of paying down their debt (by increasing taxes), which would mean political suicide, the city is essentially just opening up another credit card. In order to pay this off, they’re going to have to significantly raise property taxes,” O’Brien said. “It’s like saying, ‘Honey, our monthly expenses didn’t go up. Well, that’s because I just put everything on my credit card.’”

O’Brien said that his group isn’t opposed to TIF in general. They make the city competitive when used properly.

“But when TIF is abused, it creates this free money idea,” he said. “Cities should be held fiscally responsible with a cap on city debt. Most every other city in the state has been pretty responsible. Coralville is the red-headed step child.”

O’Brien said Coralville has generated so much TIF debt that the taxes generated by the Iowa River Landing project won’t be enough to pay off the city’s bond obligations.

Fausett, the city’s mayor, has defended the TIF project as a way to boost jobs, increase sales tax revenue and improve blighted areas, while other city officials defended the sustainability of the project’s debt burden.

“The city’s debt load is definitely sustainable with our current tax rate,” Coralville City Manager Kelly Hayworth told IowaWatchdog.org. “The use of tax increment financing has been discussed and approved by the Coralville City Council.”

This story originally appeared on Watchdog.org.

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