Commentary

Tax Abatement Plan for Home Construction — To Renew or Not to Renew

by Helen D. Gunderson, Gazette editor
June 15, 2002

The City of Gilbert has announced a public hearing to be held at its June 17 meeting to receive public input regarding whether or not to renew its tax abatement plan. 

It is intriguing that the official notice of the hearing, as published in the Ames Tribune and accompanying the city's recent newsletter, does not use the term "tax abatement" but simply refers to a "proposed plan for an urban revitalization tax exemption." A person might ask why the mayor has hesitated, in his official notices of the hearing, to call the business at hand by a name (i.e. tax abatement) that would perk up the ears of the Gilbert citizenry.

There are pros and cons of renewing the plan; however, the important thing is for citizens to be aware of the public hearing, know the issues, talk with friends and colleagues, attend the meeting, listen and speak up.

History of the Plan

In 1992, the City of Gilbert adopted a tax abatement plan to encourage construction of new homes. Apparently, for several years prior to that time, there had been little or no construction in Gilbert. The abatement plan did prime the pump, so to speak, and the result is evident with the new homes that Rich Lepper, a local developer, has built and is continuing to build in his additions in the south part of town. 

I'm not sure of the details of the abatement plan since it was not available for perusal even though the official notice of the hearing invited people to examine the proposal at city hall. However, what I did learn at city hall is that any person who built a new home or remodeled a home, to the extent that the value of the property increased by 10 percent, qualified for an abatement.

Council Discussion

At the last council meeting, the mayor presented his thoughts about renewing the abatement plan. Again, it is intriguing that the agenda for that meeting did not include the term "tax abatement" but simply referred to "discussion of renewing property tax exemption." It is also intriguing that at the last meeting, there was no report from the Gilbert Planning and Zoning Commission. Apparently, the commission has not met in the last several months. It is also intriguing that there was no report from the consultants who are helping the town prepare its long-range plan. The mayor and council would be wise to request such reports, study the material, and make it available to the public before deciding to renew the abatement plan.

No "Free Money"

It is important to remember that the money a homeowner saves under an abatement plan is not "free money." Let's say, hypothetically, that over a five-year period of time, a family who purchased a $160,000 home in Gilbert saves a total of $6,635 in property taxes via the abatement plan. If there were 10 such houses, the total savings would be $66,350 for homeowners. If there were 20 such houses, the total savings would be $132,700. Who makes up the $66,350 or the $132,700 that is not available in property taxes for the city, school, and county coffers? According to a source at the Story County Assessor's Office, the answer is that other property owners make up the difference by paying higher taxes.

A couple years ago, two families in the older part of town were concerned when the assessed value of their homes went up 25 percent. When one of the men called the county assessor's office to complain, the official response was that the increased assessment was due to new curbs and gutters. Ironically, there are no curbs and gutters on First Street where the families live; however, there are new curbs and gutters in Gilbert's recent additions.

How does this anecdote relate to the abatement issue? Perhaps there is no connection. However, the point is that Gilbert has distinctly different residential areas — the old section that is a reminder of small town America of yesteryear, the middle-aged area, and the new part. Some of the old and middle-aged areas have major drainage issues, and it would come as no surprise to discover there are other serious problems. What special, long-term plans are in place to resolve those concerns?

The Iowa code that deals with tax abatement plans actually uses the term "urban revitalization" and not a phrase such as the encouragement of new housing sub-divisions. In what ways could Gilbert’s abatement plan do more to fulfill the stated mission of the law and generate increased urban revitalization in the older parts of the town?

In his presentation at the last council meeting, the mayor presented data and concluded that, contrary to things he has heard from some of his constituents, the old part of town is not carrying the new part (in terms of taxes). Hopefully that is the case; however, more questions need to be answered.

Long-range Planning

The city council and its committees met two years ago to begin a long-range planning process. Understandably, it takes a time to complete such a plan, and the job is not done. However, there should be at least a glimpse of what the goals are for Gilbert so that questions, such as the abatement issue, can be discussed in the context of an overall plan.

Questions to Consider

City officials should provide a report or presentation that answers the following questions, in plain English, for its citizens to study:

1.) What has Gilbert's rate of growth been in the last few decades, especially since enactment of the tax abatement plan?

2.) What do the City Council, the Planning and Zoning Commission, and the planning consultants envision for the growth of Gilbert in the future? How big should the town get and how fast? What should its neighborhoods be like?

3.) Considering that housing construction in Gilbert is no longer stagnant, is there still a need to prime the pump by providing abatement incentives for people to purchase homes here? 

4.) Would the new homes sell anyway even without abatement incentives?

Information to Consider

The council's report and presentation should also provide the following information:

1.) criteria for renewing a tax abatement plan.

2.) sample figures regarding the cost of a new home and the amount of money a new homeowner would save via the abatement process and that would be unavailable to the city.

3.) total amount of abatement money for all homes over the five years of the plan that the city will lose in tax revenue.

4.) additional costs the city will incur to provide infrastructure and services to the new homes.

5.) the increase in the value of taxable property (i.e. the city's tax base) and the anticipated additional revenue that new construction will provide the city over a 10 or 20 year period of time.

6.) some basic math to compare the increased long-term costs to the city (to provide infrastructure and services to the new homes) compared to the increased long-term income for the city minus the amount for the abatements.

The bottom line in estimating this information and doing the math is whether the benefits to the community from the abatement plan outweigh the costs. Some of the information will be hard to determine because of its speculative nature. However, the questions still should be discussed with information provided as thoroughly, accurately, and clearly as possible. 

The Importance of Growth

I am not opposed to growth and construction in Gilbert. In fact, in workshops conducted by the Iowa League of Cities that I attended as a city council member, I learned that Iowa law is designed in a way that a town must either grow or face a decline in population and prosperity. 

Look around the Ames area. The towns of Shipley and Ontario have nearly disappeared as have others in Story County, and anyone who is familiar with rural Iowa will recognize the pathetic plight of several of the state's small towns. Gilbert is more fortunate. The town is growing. It is close to Ames and ISU, and its schools are held in high esteem. It still has a small town feel, a demand for housing, and much more that is solidly good about the place. That's why many of us live here and care about the health of the community — about how public decisions are made and the style of growth we want the town to incur. 

We certainly don't want our town to decline or die — but I dare say that most of us residents don't want Gilbert to have the kind of sprawl found in Coralville, Ankeny, or the towns on the western edge of Des Moines. So the key is good discourse and planning today about where we want the town to go from here and what policies and steps are appropriate to get there.
     

Note: This column was last revised on June 17, 2002.