The Fiscal Effects of Tax Increment Financing on Rural School Districts: The Case of Iowa

Abstract

Tax increment financing (TIF)—an economic (re)development tool originally designed for urban cities—has been available to rural communities for decades. This is the first study to focus solely on TIF in rural school districts, to examine TIF effects on school districts’ property tax base and rates, and to conduct event-study estimations of TIF effects. The study finds that TIF has mostly positive effects on rural school districts’ property tax base and mixed effects on property tax rates, and that TIF-induced increases in tax base come primarily from residential property and slightly from commercial property. The study’s findings assert the importance of returned excess increment if rural school districts in Iowa and many other states are to benefit from TIF.

Introduction to Special Topic: Rural Education Finance and Policy

“…Again, in line with Combs and Foster (2021), Nguyen-Hoang (2021) finds that the local effects of TIFs are interconnected to details of the state policy. The effects on rural local property tax base were mostly positive and small and effects on rates were mixed.…”

“…Policies that negatively affect resources at the local level can be mitigated by state funding formula design. Nguyen-Hoang (2021) looks at tax increment financing (TIF) in Iowa and whether it potentially affects rural districts differently than urban ones. All states, except Arizona, allow TIFs.…”

“…Determining the expected effects of TIF on property tax base is complicated by Iowa districts' ability to use alternative measures of their base value and the way in which the state returns revenues to the TIF localities. After modeling these institutional elements, Nguyen-Hoang (2021) estimates the TIF effects using school district data from FY 2002 to 2017.…”

“…Nguyen-Hoang (2021) looks at tax increment financing (TIF) in Iowa and whether it potentially affects rural districts differently than urban ones. All states, except Arizona, allow TIFs.…”

Can Tax Increment Financing Benefit U.S. Rust Belt Communities?

“… 2. In addition, some recent studies have extended the focus from urban areas and municipalities to rural settings and school districts (see, for example, Nguyen-Hoang, 2021). …”