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City mulls opposition to proposed tax increment financing changes

in News

By Shereen Siewert

Members of Wausau’s finance committee could formally oppose a state bill that would limit the use of tax incremental financing, a discussion that will take place Tuesday night at City Hall.

The SB560 bill, drafted in October by State Sen. Duey Stroebel, R-Saukville, and co-sponsored by State Rep. Bob Kulp, R-Stratford, changes the voting requirements for a tax incremental district’s joint review board, generally limits the amount of cash grants that a city can offer a developer as part of TIF project costs and requires that a TID project plan include alternative economic projections.

City Council President Lisa Rasmussen said the finance committee will discuss the proposal’s potential impacts on local development before deciding whether to officially oppose the measure.

“As written, the requirement for a unanimous vote of the joint review board to amend the boundaries of a district or extend its life seems to place a hardship on local municipalities where these tools have proven to improve the overall performance or results of a TID when used in the proper way,” Rasmussen said. “TID Financing is one of the most effective tools communities have to reduce blight, create jobs and spur private sector investment in areas they may not otherwise revitalize but for the partnership model allowed by TIF plans.”

Tax Increment Financing was first used in California in the 1950s and was formally adopted in Wisconsin in 1975, when central cities were in steep decline. But the tool has come under fire by critics who say that TIF is an outdated tool: Cities are no longer in such peril and the real estate market has rebounded significantly. In addition, critics point to evidence that shows such financing can result in higher property taxes in the name of economic development.

Put plainly, TIF supporters argue that if TIF was not available, the new investment wouldn’t have happened in the first place. Others aren’t so sure. 

The biggest issue: TIF can temporarily take funding from the city’s general fund, local school districts, and counties that are forced to wait until the borrowing is paid off before they enjoy any new tax revenue.

Municipalities are required to close a TID as soon as its projects’ costs are paid off, or after the TID has been open for 20 years.

But municipal leaders have found ways to circumvent those rules. Any TID can be extended for three years, while TIDs created before October 1995 can stay open for 27 years. Blighted TIDs can also stay open for 27 years plus the three-year optional extension.

According to the Wisconsin Policy Forum, municipalities traditionally have financed TIF projects by borrowing money for infrastructure or other improvements that are needed to accommodate the desired development. The additional taxes generated by that development are used in turn to pay off the public debt. Over time, however, it has become relatively common for developers to borrow money to pay for the costs of TIF projects, taking on risk that had previously been assumed by the local government. Municipalities then pass on some or all of the increased tax revenues within TIF districts to the developer to help pay off the debt, with the payments classified in Wisconsin as “cash grants.”

TIF is frequently criticized by those who point to transparency issues that have been problematic in cities across the state. Often, project expenses are not fully identified in operating or capital budgets. In addition, some municipalities are prone to offering grants or forgivable loans to private companies for building facilities in a TID, as has been the case in several Wausau developments.

TID financing is, however, incredibly popular, according to state data.

Wisconsin municipalities used $4.1 billion of new property tax revenues derived from TIF districts to support private development and public infrastructure within those districts between 2007 and 2017, according to Wisconsin Legislative Fiscal Bureau data. In 2018, there were 1,261 active TIF districts in Wisconsin worth a combined $20.9 billion, up from 1,151 in 2014 with a combined worth of $16.2 billion. That’s a 29 percent increase in value just over four years.

The bipartisan bill would do the following, according to the Wisconsin Economic Development Association:

  • Limit the amount of cash grants to 20 percent of a TID’s total project costs. The cap would not apply if the development agreement specifies that the developer will finance the cost of public infrastructure improvements within the TID and will receive reimbursement for these costs solely from the payment of cash grants.
  • Require project plans adopted by a TID’s governing Joint Review Board to include alternative economic projections to highlight the potential financial scenarios in the event of more modest economic growth.
  • Clarify that a majority vote of the five-member Joint Review Board is three affirmative votes. It also requires a unanimous JRB vote for the following:
    • Project plan amendments to expand the territory of the TID.
    • Project plan amendments to keep the TID open longer than authorized under the current approved project plan.
  • Remove the statutory limit on the number of territorial amendments allowed.

The Wisconsin Economic Development Association opposes the bill, citing concerns that the proposal will “significantly diminish the value of TIF, prevent key economic development projects across the state and put Wisconsin at a competitive disadvantage.”

Rasmussen said the proposed changes could prevent communities from being able to maximize growth in some areas.

“In general terms, it goes without saying that those tools should be used responsibly, however amending state law to hinder their function and use at the local level could make the development tool less effective for many communities in Wisconsin that have limited options to spur new growth and investment,” Rasmussen said.

If the committee moves forward, the resolution would go to the full council to consider.

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