By Keene Winters
The joke is on you!
It’s one of those exclamation that you never want to hear and occasionally must resist blurting out.
Something like that surely must have been on the lips of readers as they combed through city officials’ attempts to divert blame for their colossal failure to do a background check on Quantum Ventures. Mayor Robert Mielke tried to parse a difference between investors and developers. Finance Chairperson Lisa Rasmussen tried to blame “lack of process.” Economic Development Chair Tom Neal remained silent and seemingly unwilling to acknowledge any error.
While readers are still howling about the fact that no good excuse for this failure has been offered, the original sin that has doomed the riverfront development from the beginning still passes largely unnoticed.
That sin is the bastardization of Tax Incremental Financing (TIF) in Wausau, changing it from a tool to create new tax-base into a shell game aimed at maximize the diversion of tax dollars from the county, the schools and the technical college system to city use.
Property owners know their annual tax bill is split among four entities. They are the municipality, the county, the school district and the technical college district. Under the TIF laws, all of the incremental property tax revenue from a certain area—money that would otherwise go to city services, the county, the schools or the technical college—are temporarily re-directed toward helping a private development get started. The theory is the new development creates tax base and should return more revenue to the participating government entities than was lost in the diversion.
But, the revenue is addicting, so city policy has become focused on capturing as much of it as it can. That is why Wausau never closes a Tax Incremental Financing District (TID) until it reaches its statutory limit. Take TID 5 for instance. It was founded in 1997 to support the third expansion of the industrial park. The 2014 city budget showed all of the TID 5’s debt as being repaid and the TID closing in 2015. However, the city is going to keep it open until 2020 so that it can transfer more than $1.1 million per year to other TIDs. It now exists as a “donor TID.”
Wausau needs donor TIDs because other TIDs invest in project that produce no future revenue to repay bonds. For example, the city used TIF money for the Thomas Street road project. There, land was acquired and paved over for the expansion of the road. This project actually had a net negative impact on tax base.
The use of TIF money leads to other policy dysfunctions. Continuing with the Thomas Street example, there are no traffic congestion or accident safety data that make doing Phase II of Thomas Street a pressing issue. Rather, it is the desire to use TID 6 as the financing mechanism for Thomas Street before it sunsets that is behind the rush.
Getting back to downtown, even donor TIDs have a sunset date. Therefore, the nut to crack became finding a way to keep the diversion of county, school and technical college money going. Out of that desire, two schemes were hatched. One was to “re-tif “ much of TID 3 as TID 12 and extend its life a second time, and the other was this land-lease structure which the city put into its request for proposals (RFPs) for the riverfront development.
In the lease model, the city takes tax dollars from the four participating jurisdictions, buys an asset and then leases the asset to produce an income stream for the city alone. Had the asset—in this case land—been sold to the developer, the sales proceeds would be used to retire debt, close the TID and return the TID increment to the tax rolls sooner. Leasing keeps the diversion of county, school and technical college district money to the city going on longer.
Moreover, the scheme just does not work—at least not as an economic development tool. The odd circumstance of owning a building on land that belongs to a municipality is a non-starter for reputable and experienced developers. They do not want the complication on operations or the drag on the value of their investment.
To compensate for this adverse effect on the developer’s return on investment, the city has to offer greater financial incentives. At the same time, the discount also lowers the tax base that the city gets in return for its investment. If creation of tax base is your main goal, leasing the land is an inherently flawed proposition.
With large doses of TID money in its financial bloodstream, the city acts like an addict. It does not care whether its naked money-grabs poison relations with the county, the schools or with neighboring communities. The city does not care whether the economic development projects in TIDs reach the break-even point in a reasonable time. Wausau does even not care if all the borrowing makes economic sense.
Consequently, it is pointless to try and have a reasoned discussion with city officials on any of these issues because Wausau’s policies are mindlessly focused on maximizing the amount of county, school district and technical college district revenue it can capture. Everything else is secondary.
Sooner or later, we are going to have to face it, we are addicted to TIF revenue, and this borrowing binge will not end well. If there is not enough new tax base created to pay-off the loans, the joke will be on all of us—or at least at our expense.
Editor’s Note: This is one in a series of opinion editorials by Keene Winters on decision-making at City Hall. Winters served as an alderman in Wausau from 2012-2016. Opposing viewpoints are welcome; email guest editorial submissions and letters to the editor at firstname.lastname@example.org.