Guest Column: Ames, CYTown and property taxes
I never thought I would see the day when the equivalent of the Belt and Road Initiative came to Ames.
After reading both draft Memoranda of Understanding between The City of Ames and Iowa State University relating to the development of the proposed “CyTown," I’ve concluded that the same “heads I win, tails you pay” concepts in China’s B&R Initiative, which have impoverished half of Africa, were adopted by the ISU Athletic Department and handed over as a proposal to the City of Ames. The City Council needs to send these draft agreements back with a firm “No!” along with instructions to renegotiate them to accommodate the larger needs of the city and university as a whole.
The draft memoranda anticipates challenges from the local business community, which is rightly concerned, about restaurant and hotel competitors leasing university property and competing with them free of property tax. They include a “Payment in Lieu of Tax” which is intended to address these concerns. They also include complex provisions that divide up the receipts of this PILOT collection into two fiscal pots which are to be used over time for a variety of purposes. One major goal of both the university and the city was to finance the renovations of the Iowa State Center facilities, including Fisher Theater, C.Y. Stephens Auditorium, and the Scheman Conference Center. Under these draft Memoranda, none are likely to occur within our lifetimes.
There are a number of problems with them:
PILOT receipts are divided into two pots: Operating and Capital. The Operating portion is to be included in an overall budget for CyTown and will be used in part to pay for “Construction costs and/or debt service payments for the 'Proposed Facilities,' infrastructure, and common areas … and developer rebates.” In other words, commercial tenants renting “Proposed Facilities” will pay PILOT amounts, which in turn will be used to finance the buildings, including developer costs. This financial stream will enable them to enjoy reduced rents and an effective city subsidy of their operations.
The Capital pot is intended to be used for renovations of Iowa State Center. Under the Memoranda, this is forecast to be only 20 percent of total PILOT revenues and, at the projected rate of collection, will come nowhere near the expected renovation costs of more than $100 million within our lifetimes. While the Memoranda contains vague statements of intent regarding renovations, the fact is that the funding for them will be materially insufficient for anything other than cosmetic repairs. None of the “commitments” by the ISU athletic department to complete major renovations will be enforceable in the absence of a robust funding stream.
The PILOT concept is subject to legal challenge by local businesses. In particular, the use of the majority of PILOT revenues by the athletic department to finance the construction of what are intended to be commercial facilities as well as pay developer fees will enable the developer to offer lower rents. If financed through conventional bank loans, the CyTown rents would be comparable to others in Ames. Were this PILOT concept to be enjoined by a court (as is likely), ALL of the property taxes would be remitted to the city. The city would then be free to contract with ISU to assist in financing the renovations without diverting funds into athletic department accounts.
Regardless of your opinion about the economic merits of CyTown, located on a remote floodplain within a market area of 67,000 people of whom 29,000 are students, we should at least ask that it be required to stand on its own financial footing. It should be financed through normal bank loans like any other commercial development in town. It should pay property taxes at normal commercial rates. If the city chooses to collaborate with ISU to employ a large portion of those incremental taxes to help renovate Iowa State Center, then I, for one, would support that. What reasonable people cannot support is a diversion of the equivalent of those taxes into athletic department accounts to help subsidize the construction of CyTown.
Sincerely,
Stephen Ringlee
Ames
This article originally appeared on Ames Tribune: Guest Column: Ames, CYTown and property taxes
