By Shereen Siewert
Members of Wausau’s finance committee on Tuesday voted to oppose a state bill that would limit the use of tax incremental financing.
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, Linda Lawrence, Dave Nutting and Michael Martens voted to oppose the bill, while Dennis Smith cast the lone vote against the opposition. The issue now moves to the full council.
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.
But a growing number of politicians and scholars are becoming increasingly wary with how tax incremental financing is being used. In general, critics say TIF was a good idea that has become a lucrative gravy train for wealthy developers, distorting free market principles.
The economic tool’s original intent, when then-Gov. Patrick Lucey signed a bill in 1975 that launched TIF financing in Wisconsin, was to fund infrastructure developments such as sewer lines or water improvements, or to clean up environmental contamination. Removing such expensive obstacles, municipalities encouraged development.
Today, many municipalities are handing out direct payments to developers in additional to financing infrastructure improvements.
The loudest critics complain about potential violations of the critical “but-for” test, in which municipalities must determine that developments would not happen “but for” the financial assistance provided by a TIF. Subsequently, critics say, municipalities offer handouts to wealthy developers who don’t really need the help.
In an interview with The Badger Institute, Sen. Stroebel specifically pointed to TIF projects such as apartment complexes and commercial buildings that put increased pressure on municipal services such as snowplowing, road maintenance and garbage collection.
Property typically increases in value and generates more property tax revenue, Stroebel told The Badger Instiute. But that additional revenue doesn’t go toward funding the increased demand for services. It also does not relieve the property tax burden on residents for decades because the bonds typically are issued in terms of 20 years or more.
David Merriman, a University of Illinois professor, said this in his 2018 report for the Lincoln Institute of Land Policy.
“Note that the formation of the TIF district has no impact on the property tax liabilities of real estate owners in the TIF district. That is, TIF is neither a property tax break nor an increase. Rather, TIF is a method for financing public expenditures that may then promote economic development. Of course, to the extent that TIF districts divert property tax revenue that otherwise would have been available to other areas or uses, TIF may result in higher taxes or lower services elsewhere, depending on how overlying governments, such as school and special districts, respond.”
The report recommends that states track and monitor TIF use, review the “but-for” requirement, and revise statutes to allow counties, school districts and other overlying local governments to opt out of contributing resources to TIF districts. Merriman’s research also recommends that local municipalities provide extensive, easily accessible information about TIF use, revenues, and expenditures — something Merriman implies is often lacking today.
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 early Tuesday.