CEDAR FALLS - A proposed tax increment financing district using option sales tax money to benefit College Square mall would be one of the first in Iowa under a new state law.

Under that law, a local government can create a sales tax TIF district without voter approval for use of the money.

Cedar Falls is developing plans for such a district. It would be only the second using a state law modified in 2008.

The new TIF would allow the city to capture all of the 1 percent local option sales tax revenues above the taxes currently collected. That additional tax revenue could then be sent back to the mall as a rebate to allow the mall to pay for improvements or even give rebates back to businesses.

The timing could come just before or just after Black Hawk County residents vote on renewing the local option sales tax, which has traditionally been used only for street repairs.

Staff members at City Hall are working with attorneys and bond experts to put the pieces of a sales tax TIF in place.

"It will be at least a month before anything gets to council and more likely two months," said Richard McAlister, director of administrative services.

The Nov. 3 general election ballot will include a renewal of the 1 percent local option sales tax. The first council meeting in November will be Nov. 9.

The City Council would have to do two things to establish the TIF: approve an ordinance setting up the TIF; and create a development agreement with the mall for use of the TIF.

Such a sales tax TIF became possible during the 2008 session of the Legislature. A component allowing for a sales tax TIF was inserted into the standings appropriations bill on the final night of the session.

A sales tax TIF applies only to the 1 percent local option sales tax that has been in place since 1991. If approved, it would set a baseline for sales tax collections at the level collected when the TIF goes into effect. All sales tax revenue generated above that amount will go solely to the city. Cedar Falls does not plan on bonding for improvements, but rather would probably rebate those sales taxes to the mall.

The law allows for a sales tax TIF to stay in effect for up to 20 years.

To date, Sioux Center is the only Iowa city to establish a local option sales tax TIF. City Manager Paul Clousing said the TIF district encompasses an area with existing retail businesses and they hope to attract more.

State Sen. Mike Gronstal, D-Council Bluffs, backed the original bill. Council Bluffs had intended to use the sales tax TIF to support a new retail project, but the project, as well as the TIF, never developed because of the recession.

Alan Kemp, executive director of the Iowa League of Cities, said the sales tax TIF could serve as a tool to help spark retail development.

"The idea was to take a retail development and have something that can be done quickly," Kemp said.

Several Iowa cities expressed interest in the TIF initially, but most have taken a wait-and-see approach. Kemp said the TIF would only be useful for unique projects where the developer and city could count in increased retail sales.

While state law requires voters approve a resolution stating where the local option sales tax can be used, the sales tax TIF requires no approval from voters. Kemp acknowledged a sales tax TIF could create some discontent among voters who approved the tax for a specific purpose.

"I think you've always got a little potential for backlash on anything a city government does," Kemp said. "I think the key is giving it a full vetting."

The Iowa State Association of Counties has long lobbied for reform of TIF laws. They opposed the sales tax TIF and expect changing that law will be among their top priorities in the coming year.

"I guess our complaint is if a city wanted to do that and they're using their own (local option sales tax) to do it, that's fine. But in this case, they take the revenues from others," said ISAC executive director Bill Peterson. "The citizens in this community voted for a specific purpose for use of that local option sales tax."

A bill changing the sales tax TIF law passed both the House and Senate this year, but never made it out of a committee. That bill would have only allowed cities to use their own portion of the tax revenues for a TIF. It also would require a general election to approve such a TIF if someone filed a petition against it.