By Shereen Siewert
Numerous public records from the city show that Wausau intended to reimburse property taxes to the entity that purchased Wausau Center mall, a practice prohibited under state law.
Instead, the city appears to have pivoted, providing Wausau Opportunity Zone, Inc., a grant for $327,000 – roughly the same amount as the 2018 tax bill for the property, according to city documents.
The new information, including confirmation that Wausau Finance Director MaryAnne Groat has resigned as a voting member of the governing board of WOZ, comes as city officials consider a plan to borrow $4.7 million to fund the first step to demolish and re purpose Wausau Center mall, a property no longer owned by the city. The incentives push the city’s expected participation in the mall project to more than $6.3 million.
The Wausau City Council in October approved a proposal by WOZ to purchase the financially troubled mall with $1.6 million in taxpayer-funded incentives that included a $1 million forgivable loan and transfer of city-owned assets to the LLC for $1. Those assets include the former Sears building, which the city purchased in 2017 for roughly $650,000.
Early on in the process, term sheets between WOZ and the city regarding the purchase contain phrasing about reimbursing WOZ for “property taxes.” But later, that phrasing was struck out and changed to “cover anticipating operating costs shortfalls,” a change that could be the result of communication advising such action would be illegal.
In a Sept. 20, 2019 email string obtained by Wausau Pilot & Review under a public records request, city officials were advised by Quarles & Brady attorney Isaac Roang that the 2018 tax bills for the property were “approximately $327,000.” In the same email string, the attorney provided a link to the specific League of Wisconsin Municipality’s page that states a municipality can’t “offer to waive or reimburse payment of property taxes, as an incentive to businesses or other property owners to locate in the community” – and also advised that “the City is still thinking of ways to restructure the payment.”
On Sept. 1, WOZ received a Tax Increment Financing grant of $327,000.
Municipalities are prohibited from granting property tax breaks by a clause contained in the Wisconsin Constitution, which is referred to as the Uniformity Clause. Although the provision contains language which allows the state legislature to classify and exempt property for tax purposes, municipalities do not have the power to create full or partial exemptions, according to the League of Wisconsin Municipalities.
The initial agreement between WOZ and the city, negotiated under the previous City Council and mayor, included projected future annual $327,000 developer payments through 2026. Under the latest terms being proposed, those those annual payments will be eliminated when the developer agreement and grants are finalized.
“I would like to know, and believe the council and the citizenry deserve to know, was the $327,000 TID grant ultimately paid in 2020 intended to reimburse WOZ for an estimated amount of property taxes that it might incur?” Kilian said. “If the language was changed in the later term sheets, but the intent, action, and dollar amount were essentially the same, I will have further questions.”
Groat steps away from dual role
Until last month, Groat played a dual role with the city and as a voting member of the WOZ governing board. Then-Economic Development Director Chris Schock, who resigned earlier this year, made the non-standard request that resulted in her appointment, Mayor Katie Rosenberg said.
But the appointment raised alarm bells for Dist. 3 Council Member Tom Kilian, who openly wondered how the city’s finance director could act in the best interest of the city while at the same time operating in the best interest of a corporation seeking money from the city. Those concerns prompted him on Oct. 9 to submit an inquiry to the city attorney about what he saw as a potential conflict of interest. That inquiry was then shared and discussed with outside counsel, specifically highlighting the percentage of voting rights or control Groat had on the WOZ board, which was at least 20 percent, according to city documents.
Consequently, Kilian said he learned that Groat’s presence on the WOZ board could be potentially problematic “or potentially facilitate problematic scenarios in the future.” Groat, who was appointed to the WOZ board at the request of former Wausau Economic Director Chris Schock, subsequently resigned from the board.
Mayor Katie Rosenberg, who spoke with Wausau Pilot & Review about the perceived conflict last month, has confirmed Groat’s WOZ board resignation.
“Since you initially asked about this a month or so ago, I’ve continued to roll this around,” Rosenberg said. “I assume the seat on the WOZ board was negotiated into the development because the former community development director, administration, and council thought it would be a good position for the city but the appearance of it is a distraction.”
Rosenberg said she will not appoint anyone to fill the city seat because elected officials cannot serve in such a capacity.
“I’m also not going to appoint a random citizen,” she said, adding that she is recommending removing the city appointment from the development agreement along with several additional updates.
“I don’t want a future mayor or council to pick up the development agreement and wonder why it isn’t being honored,” Rosenberg said.
Environmental questions linger
Compounding the challenges to the city’s role in the agreement is the question of environmental cleanup. The property upon which the mall now sits has a history of potential environmental challenges that were at least partially revealed during an early assessment of the property. The cost of remediation, however, has not been publicly released.
WOZ commissioned a Phase I Environmental Assessment of the mall property. The document, referenced in the development agreement but never provided to the City Council, identifies four sites on the mall property that could require remediation: a former gas station, former auto repair location, former dry cleaner and a former photo and printing facility.
REI consequently recommended a Phase II assessment for a more detailed analysis, which could have clarified the cost to remediate.
But WOZ, in a Nov. 27, 2019 email, concluded that such an assessment would not provide clarity and instead requested an indemnity agreement. WOZ attorney Joe Mella then insisted that the city indemnify the corporation against “any and all losses, liabilities, damages, fines, penalties, costs and expenses of any kind,” according to city records. That includes attorney fees and court costs.
The city council was never briefed on their potential liability should the mall be demolished.
WOZ already received a $1 million forgivable loan to aid in the purchase of the property, an amount that was agreed upon in August 2019.
“We’re good with the $1m ( although maybe $900k has even better optics),” then-Economic Development Director Chris Schock wrote, in an Aug. 27, 2019 email to WOZ attorney Joe Mella.
The Economic Development Committee meets at 5:15 p.m. Wednesday, Nov. 4 to discuss the terms of the agreement. Members of the public can attend in person, subject to the social distancing rules of maintaining at least 6 feet apart from other individuals, or by calling 1-408-418-9388. The access code is 146 036 6753. The password is wausau.
Kilian said he will be asking plenty of questions at the meeting and encourages the public to weigh in.
“The public deserves to have all the facts on this deal, and the manner in which it occurred – the more I learn about it, the more questions and concerns I have,” Kilian said.