Supervisors ponder options for urban revitalization

The Montgomery County Board of Supervisors is looking at options for a county-wide urban revitalization plan.
The supervisors met with John Danos of Dorsey & Whitney in Des Moines, which serves as bond counsel to the county and helps them  on a variety of matters.
“In addition to assisting Montgomery County, we also do quite a lot of work in our practice for cities and counties across Iowa with respect to Chapter 404, which is Iowa’s urban revitalization law, and it’s a primary source for property tax abatement powers for both cities and counties. We also do quite a lot of TIF related work with Chapter 403, the urban renewal law,” commented Danos.
Danos said he was there to specifically talk about opportunities and possibilities using property tax abatement for residential and commercial development. Danos said there were two distinct tools available to aid in supporting urban revitalization.
“The two tools are property tax abatement and tax increment financing or TIF. They are related in that both of these tools allow your county to use some kind of power related to property taxes in order to try to help leverage private development, but they do very different things,” explained Danos. “Similarly, TIF and tax abatement do very different things in terms of the effects that they bring about. Property tax abatement is a process by which the county allows private property owners who construct new improvements on their property, such as buildings or facilities, structures, that would cause the county assessor to come and take a look at that and say the valuation of the parcel has gone up because they built a structure there. Property tax abatement creates a program by which a property owner builds a new structure, and if it’s in an urban revitalization area, and if the building qualifies for tax abatement under the county’s program, they can submit an application, and assuming the criteria is met, not have to pay full taxes on what was built.”
How many years and what percentage of the abatement was up to the determination of the supervisors.
 “For commercial and industrial properties under chapter 404 urban revitalization, you can allow for up to three years of 100% abatement. That would mean all of the new valuation for a new building, for three full tax cycles, would be ignored by the property tax system and the tax burden would stay as it was for three tax cycles when the builder had a bare lot,” Danos stated. “Alternatively, you could offer a 10-year sliding scale which diminishes over time. So in year one, the percentage is 80%, meaning 20% of the value of the building will be recognized by the tax system and will get taxed. But the other 80% will be ignored. So with that tax abatement, they pay a little bit more tax, but not full freight. Then in year two, the percentage shifts to 70%, and it dwindles away so that by the time we get to the 11th year, they are paying full freight. On the residential front, as a county, you are allowed to offer up to 10 years of 100% abatement for what I’ll call multi-family residential. That would essentially be anything that’s a triplex or more units under one roof. If it’s apartment buildings, far and away they get the most generous treatment under this statute.”
For single-family residential structures, Danos said the county allowed under ordinary circumstances to offer something much more limited, which is a five-year abatement, which is 100%, but only on the first $75,000 of assessed valuation of the home.
“If someone builds a $400,000 house in that type of revitalization area, they could apply for abatement, but it’s only going to abate the first $75,000 of their $400,000 home. So $325,000 would go into the rollback and then hit the tax rolls, and they would be taxed on that, unless the county has some kind of special finding of need, like blighted conditions in the area or a historic preservation type of need, but that’s more inside city limits than out in the unincorporated county. I’m not saying it’s unimaginable, but it doesn’t happen often. So we are much more limited on residential.”
A few legislative sessions ago, the legislature made a determination that tax abatement on residential properties would no longer be effective with respect to school district property tax levies, so school district levies remain in place, and the homeowner can apply for the abatement 10 years of 100%, but only with respect to the taxes being imposed by everybody other than the school district. They would still have to pay full freight on the school district levies. Danos said that was only on residential properties, and school district protection does not apply on commercial and industrial assessed properties.
Under the urban revitalization law, counties are only allowed to include property that will be used for commercial, industrial, or residential in a county urban revitalization area.
“If you’re scoring along at home, the type of property use that is notoriously left out of that list is agricultural land. And that sentence keeps me really worried that it would be outside the bounds of the law to establish that sort of county-wide urban revitalization area, because we all know probably 90 to 95% of the real estate that would be included is going to be used for ag. So how do we deal with that? We implement tax abatement on a project-by-project basis. If you’ve got property owner and she knows she wants to take 20 of her acres adjacent to the highway and put in a convenience store and the truck wash and she’s looking for tax abatement, well, we can set up an urban revitalization area that covers her property that you know because of her platting submissions, her zoning submissions, the plans that she’s developed, it’s not going to be used as agricultural. It’s going to be converted and used for commercial and industrial,” advised Danos.
Similarly, if the county has a business park outside of town and if the county wanted to try to help promote development at that business park, and wanted to set that particular 80 acres up as a county urban revitalization area and offer tax abatement for the commercial and industrial businesses that are going to develop out in that park, it could be done.
“The county would either use that first method, or just change that into a residential subdivision, which we have sometimes, where a developer wants to take his 60 acres and build out a nice subdivision. We can set that up as an urban revitalization area and offer tax abatement. Again, within those limits of what I described as the potential benefits. These things can be done in rural areas. However, I am not going to be the one telling you it’s okay to just throw a blanket over the entire county because of those ag land restrictions that I’ve seen in the law.  We may simply need to get creative and do it on a project by project basis,” said Danos.
If the county wanted to use TIF funding, then it would need to set up a special geographic area, and call it an urban renewal area.
“You would need to adopt a plan to govern the area, just like you would with tax abatement. But with the TIF law, it’s even more project specific. The urban renewal TIF law would require you to identify a slate of projects that the county is going to be getting involved with. It might be repaving a highway from point A to point Z. It might be providing economic development support to a developer with an implement dealership, the list goes on and on. But infrastructure and incentive deals are probably the two most frequently used types of projects that we work on,” commented Danos.
Danos felt that poperty tax abatement is a tax reduction tool that in the development context is usually very useful to the realtors.
“They love it as a marketing tool, because they can tell property owners, you build here, your tax burden will stay artificially low. TIF is a revenue generation tool, right? You are allowed to marshal property taxes as a county and bring them specifically to bear on a particular project need for a period of years. And it will help you fund extraordinary sorts of project costs,” stated Danos. “The county can adopt one county urban revitalization plan and one county revitalization ordinance and then just add properties to it as development projects present themselves. You could certainly do a separate area and plan for each time, and you’re not going to get a big shortcut on the procedural side of it either way. If there were an advantage, I would steer you that way, but there isn’t one.”
Danos felt it was in the best interest of the county to wait until it knew a developer wanted something before starting the process of anything.
“In most instances, I would say you’re waiting. Now, if you’ve got a particular business park that you know you want, you’ve met with the realtors and the economic development corporation that owns the ground or whatever, and there’s a concerted effort to say they’re going to start really renewing their marketing efforts to try to sell lots out here and they want to have the abatement in place, you could go that route and get it set up. Similarly, if you had a residential subdivision that you knew was going to pop, you might take action ahead of time and get it set up,” Danos advised. “I think it’s just as effective to have sort of a non-binding policy determination on your part as a board of supervisors to be able to say, ‘We know what these tools are. We know the ground that you’re talking about. We are open to business. We want to have a conversation.’ I think that’s enough, and rarely is that less advantageous than sort of getting out ahead of it and getting an area pre-established. It also helps to prevent you from racking up fees with somebody like me for a project that goes away on you. If you pay me to help set up an area and do a plan and get you through ordinances and notices and all of that, I’m going to send you a bill for that. I’ve got to send you that bill whether it ever develops or not, because I’ve done the work, put in the time. If you wait until you’ve got more of a known commodity, it’s less speculative. Then you’re paying me when you know you’ve got something that’s more than likely moving forward.”
The supervisors took no more action on the urban revitalization plan.