Tax Increment Financing in Iowa

Tax increment financing (TIF) is a popular urban renewal and economic development tool. First implemented in California in 1952, TIF has since spread to all states but Arizona. Although originally intended to address urban blight, TIF is frequently used by rural local governments, especially in Midwestern states. In Iowa, 431 rural cities—45.5% of all incorporated cities in Iowa—used TIF between fiscal years 2001 and 2017.

Under TIF, local governments (municipalities or counties) fund development projects within a designated district through property taxes generated from that district over a multiyear period. In effect, this means that a certain amount of property tax revenue (the increment generated above an established base value) is diverted from affected entities, including school districts. Within-district property values are a key determinant of education aid in 42 states (including Iowa), and school districts also use property tax base to set property tax rates for residents. Critics of TIF suggest that the during-TIF reduction of property tax revenue can have an overall harmful effect on school districts. This brief summarizes three studies by the Public Policy Center’s Phuong Nguyen-Hoang that examine TIF’s effects on school districts, including the first examinations of effects on rural school finance and on education expenditures.