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Neighbor vs. neighbor:
Incentives lure store to nearby town

But critics of tax-increment financing say the costs are often high and not worth the benefits.

CORALVILLE, Iowa — When the leaders of this small Iowa city became desperate to land a new department store, they didn't have to look far: They lured one from the city next door, along with up to 100 jobs.

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The Von Maur store in Iowa City, Iowa, will move five miles to Coralville, probably sometime in 2013. “It’s a big blow to that mall and a big blow to that area of town,” said Rod Sullivan, a supervisor in Johnson County.

The Associated Press

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The store called Von Maur agreed to leave Iowa City for a platter of incentives offered by Coralville, which promised to put up a bigger, $9.5 million building, to provide a $1.5 million parcel of land and to discount the store's property tax bill. It even offered $650,000 to cover any penalties related to the store's departure.

As the economy slowly strengthens, neighboring cities and states can be pitted against one another in the competition for jobs and development. But it's not always clear how many positions are actually created, rather than just poached and shuffled around. And some people question whether the deals are worth the high cost.

"I think it's ridiculous," Amber Wherry said after buying a pair of jeans at Von Maur in Iowa City, expressing concern about what will happen to Sycamore Mall when the store moves to the new location, probably sometime in 2013.

Coralville first tried to negotiate with Nordstrom's, Target and others, but those companies weren't interested or the talks fell apart. Local leaders say the deal with Von Maur will attract other stores and restaurants to a new retail development. But Iowa City officials are bitter.

"It's a big blow to that mall and a big blow to that area of town," said Rod Sullivan, a supervisor in Johnson County, which includes both cities.

Communities of all sizes are launching a dazzling number of taxpayer-funded schemes to bring in new businesses or keep existing ones. They're giving grants and loans, cutting business taxes and building new infrastructure.

"You don't have to be a mathematical wizard to figure out that's never going to pay for itself," said Peter Fisher, research director of the Iowa Policy Project. "It's simply not economic development. You are moving a store from one place to another. It doesn't do anything to increase the economy of Johnson County."

Making matters worse, he said, Iowa City residents are helping subsidize the move because Coralville is diverting tax money from the county and schools to pay for the project.

The system known as tax-increment financing allows cities to use property tax revenue in once-blighted or undeveloped areas to pay for incentives to attract businesses and for improvements such as streets and utilities.

But critics say the incentives have strayed from their original mission and are increasingly used to recruit employers to suburban developments, at high cost and questionable benefit.

"It's really tough to tell a community they shouldn't do something when they are looking at it from the perspective of, 'We need jobs. We need the tax base,"' said Toby Rittner, president and CEO of the Council of Development Finance Agencies, which represents 300 state and local government agencies.