There is a lot to be proud of in Coralville.
Beginning in 1997 Coralville used a financial tool called “Tax Increment Financing” (TIF) to accomplish an amazing transformation at Oakdale Research Park. The city also used TIF to improve the area around the Coral Ridge Mall, attracting this regional retail outlet and encouraging surrounding development.
These two positive projects used the Iowa TIF program as it was intended to be used. The projects were accomplished in broad daylight with cooperation between government bodies and plenty of public input. As a result, the use of TIF debt spurred surrounding development, helping to create new jobs and a prosperous community. When the projects were completed, the investments were paid off on schedule and the area was improved as a result.
So, what’s the problem?
Somewhere along the line, instead of governing the development process, Coralville City Hall began to establish itself as a private developer. Plans and decisions were made in secret, with little or no public input. Instead of open and public meetings, staff communicated with elected officials through one-on-one discussions with no quorum present. (read IC Press-Citizen Editorial) This closed-door process allowed the city to move quickly into high-risk projects almost entirely dependent on debt financing.
Instead of releasing to the county and the schools their fair share of the new taxes generated by the Coral Ridge Mall, City Hall is instead diverting the money to service the Iowa River Landing development and debt. In 2012, Johnson County lost $2,670,000 in revenue while $4,989,000 was diverted from the school districts. (see financial report on the Hwy6/Mall TIF) The state was forced to use money from the general fund to "backfill" about half of the school money. The other half was replenished with an automatic increase in property tax. There was no replacement for the money diverted from Johnson County.
Statewide, local officials, elected by a small number of voters, committed the 2012 Iowa general fund to backfill more than $47 million. This money was spent to cover projects over which the legislature had no authority and provided no oversight. In this regard, the TIF program opens the door for taxation without representation.
The same TIF program that provided the earlier successful projects was manipulated to create an enormous burden of debt impacting every resident of Johnson County. (read Feb 9 Gazette article) In the process, City Hall has abandoned even the appearance of cooperation with the school districts and county government. (read Jan 13 Press-Citizen Editorial)
Unfortunately, City Hall has chosen to position itself as a large private developer with the power to designate winners and losers. For example, Marriott Corporation does not own the hotel; it is a city-owned hotel managed by Marriott. Athough the project loses more than a million dollars a year, these losses do not show up on the Marriott books; they belong to the taxpayers of Coralville and Johnson County. Worse yet, not a single City Hall-owned commercial project operates at a profit. Incredibly, the total debt for the City of Coralville has already reached $280,000,000! (Jan 27, 2013 Gazette Editorial). Coralville's debt per household is $35,926! That amount is seven times higher than Iowa City or Des Moines. In fact, it is the highest municipal debt per household in the entire state of Iowa. (See comparison to other cities in Iowa.) Considering the debt from another perspective, if Des Moines carried as much debt per resident as does Coralville, Des Moines's total debt would be $2.9 BILLION dollars! (So far, we have not been able to identify a single city of 10,000 or more in the country with a debt per resident higher than Coralville. If any reader has data showing a city with a higher debt ratio, please let us know.) Paying off this debt is dependent on the success of multiple risky ventures, and even if every gamble is successful, the payback period is several decades.
Every taxpayer in Johnson County (as well as in the State of Iowa) is subsidizing Coraville City Hall's debt. "Development financed by shortchanging the county government is not responsible growth." (read Jan 13, 2013 article on Fairness to County) (read Feb 9 Gazette article on Johnson County taxes)
The visible progress at the Iowa River Landing is parallel to an irresponsible optimist who upgrades to the biggest house in town and parks a large Winnebago in the driveway, all on borrowed money. The relatives are happily impressed until the bankruptcy curtain suddenly drops. As a result of City Hall's high-risk gambles, Moody's Investors Service has already downgraded the city's bond ratings numerous times. (See Moody's June 7, 2013 downgrade of General Obligation Unlimited Tax rating) , (June 12 Press-Citizen story) , (June 11 Gazette story) .
Just as with a personal credit rating, the downgrades will generate higher interest costs and make it more difficult to service the out-of-control debt. According to the credit reports cited above, Coralville's 2014 debt service requirements are equal to 158% of the City's 2012 revenue. Worse, there is as yet no willingness to stop engaging in the high-risk behaviors that are pushing the city toward financial insolvency.