Your Town Now: Following the Money

Your Town Now—now featuring twice as many writers as a 1,000-word column should need—is Little Village’s monthly look at local news items of interest. In this edition, we look at two proposed initiatives of the City of Iowa City: to restrict payday lenders, and to focus school district spending, once again, outside Iowa City proper.

Who will benefit from new regulations on payday lenders?

Keeping the Buzzards Off or Market Forces at Bay?

Keep an eye out for new regulation of so-called payday lenders by the City Council. During their Aug. 21 meeting, the City Council gave unanimous approval to the first consideration of an ordinance which would place limitations on payday lending businesses in Iowa City. The proposal passed second consideration unanimously on Sept. 4 as well.

The ordinance, which must pass a third consideration to be adopted, would force these lenders to keep a minimum distance of 1,000 feet from parks, churches, schools and day cares. Similar policies are currently in effect in Des Moines and Ames.

Why the constraints? Opinions vary. But, first, it’s necessary to understand how these lenders operate. So here’s how it works: A borrower goes to the payday lender and receives a short-term loan by writing a postdated check to the lender for the amount borrowed plus the amount of the lender’s fees. Often, the maturity date of the loan is the borrower’s payday, hence the name. So, on payday, the borrower is required to repay the loan. But if the borrower fails to repay, the lender can redeem the check.

What happens then? If the borrower doesn’t have the funds, he or she has essentially bounced a check, which leads to more fees and potentially higher interest rates on the loan. Keep in mind that because of the short-term nature of the loan, the APRs on payday loans are already in the 300-400 percent range.

When borrowers don’t have the ability to pay back the loan, they roll over the loan and incur more fees and interest payments. One study showed that 40 percent of payday borrowers roll over a loan five or more times in a year, thus entering a cycle of debt repayment.

Payday lenders target low-income neighborhoods when building offices, because that’s where cash-strapped folks tend to be. In Iowa City, the five existing payday lenders are all located in the south and south-east of town. To proponents of payday lending, it’s simply business. To detractors, it’s blatantly predatory.

A 2007 report by the New York Fed, however, did not find payday lending to be inherently “predatory,” citing the fact that payday lending can actually increase household welfare. This is true, provided everything goes according to plan and borrowers avoid the vicious cycle of rolled-over debt. But, of course, things don’t always go according to plan.

Back in Iowa City, opponents of the ordinance claim payday lenders are necessary simply because Iowa City has few other lenders willing to take on these borrowers. Community credit unions sometimes offer comparable services, but they are limited in number and still have more stringent credit policies.

So what’s worse, not being able to get the cash or the high risk of getting sucked into a spiral of debt? And what about the five existing payday lenders in Iowa City, which will be grandfathered in under the ordinance? Will less competition from traditional payday lenders leave current customers worse off?

Keep these questions in mind as the city council acts in the coming weeks.

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The Iowa City Community School District is focusing on development outside of Iowa City.

Think of the Children! (Not Those Children)

The Iowa City Community School District was deluged with letters from residents prior to its Sept. 4 board meeting expressing concern over the district’s plan to revitalize its facilities, particularly a proposal to build a third high school in the northwestern-most reaches of North Liberty or Coralville.

“Over the past decade I have seen a steady decline in the academic focus and opportunities at City High,” wrote Andrew Russo, a University of Iowa professor, in a letter to school district Superintendent Stephen Murley. “Shifting resources to a new school will only exacerbate the decline of our current schools.”

The school board is currently developing a long-term plan for its facilities that centers around the building of a new high school that would ease rising enrollments at Iowa City’s two learning emporia: City High and West High. The proposed high school would likely accommodate 800 students, according to a June report by school district administrators, a majority of which would be taken in from West High.

Though the plan is still in its formative stage, some believe that the school district is ignoring major problems inside Iowa City (like its aging elementary schools) by focusing on development outside the city.

“It makes no sense to pursue that expensive and unnecessary option,” wrote Iowa City resident, parent and professor in the UI Department of Neurosurgery, Matt Howard, in reference to the building of a new high school. “We will be much better off using our limited resources to increase elementary school capacity within Iowa City, update our older schools, and use the capacity that we already have at City High to the fullest.”

Iowa City’s elementary schools are operating much nearer to their full capacity than their counterparts in North Liberty and Coralville, but student populations are growing at virtually the same rate. Despite that fact, no new neighborhood schools have been built in Iowa City since 1993, while five neighborhood schools have been built in North Liberty and Coralville since 1997, at a total cost of $32.1 million.

The asymmetric concentration of development (and spending) on the outskirts of the metro area is problematic for many Iowa Citians concerned with the future of their schools. While 78.7 percent of the property taxes that fund the Iowa City Community School District come from tax payers inside Iowa City, the school district has largely set aside the needs of Iowa City’s elementary schools in favor of saving up $25.6 million for the building of the new high school.

However, the school board may be becoming more receptive to the charges of inequity being voiced in the Iowa City community. In a Sept. 4 meeting, the board discussed using some of the tax funds set aside for a new high school to make improvements to the district’s elementary schools.

The Iowa City Community School District has consistently provided quality public education to Iowa City and the surrounding area. Keep an eye on the school board’s plan for renewing their facilities and decide for yourself whether they’re doing what’s best for students inside Iowa City and beyond.

Skaaren Cossé is an undergraduate at the University of Iowa studying Finance and International Studies.

Zach Tilly is an undergraduate studying Journalism and Political Science. He also writes for The Daily Iowan and the Washington Post‘s swing-state blog, The 12.