By Shereen Siewert
The Wausau City Council on Tuesday will discuss in closed session a proposal to spend $4.7 million to help fund demolition and redevelopment of the Wausau Center mall.
The Wausau City Council in October 2019 approved a proposal by Wausau Opportunity Zone, Inc. to purchase the 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.
The funding request grew significantly after WOZ, earlier this year, made the decision to close the mall on Jan. 31, 2021 and submitted a request for demolition and street construction, Rosenberg said. The incentives push the city’s expected participation in the mall project to more than $6.3 million.
The development agreement, introduced by former Wausau Mayor Robert Mielke and former Economic Development Director Chris Schock, has gone through significant changes since its inception and would save the city’s taxpayers about $2.6 million. Current Mayor Katie Rosenberg said she began meeting with the mall property’s new owners over the summer months to renegotiate the original proposal to one that could most benefit taxpayers.
That process, Rosenberg said, is not over.
“We have our attorneys drafting the amendment to the development agreement,” Rosenberg said. “Once the council approves moving ahead, we’ll have to work with WOZ’s attorney to ensure we’re speaking the same language from the term sheets. Eventually I’d like the council to approve the entire agreement.”
The Finance Committee incorporated the proposed $4.7 million in WOZ proposed developer payments and street and utility construction costs of into the 2021 budget during their Oct. 20 budget planning meeting.
A new agreement, new terms
Under the terms of the new agreement, the city will eliminate future annual payments to WOZ of $327,000 per year – roughly the same amount as the 2018 tax burden for the property at the time the agreement was reached – and will reduce the existing loan to WOZ from $1 million to $660,000. Rather than a forgivable loan, as the former administration approved, that $660,000 will be converted to an interest-free loan with annual payments of $110,000 beginning July 1, 2022.
WOZ will also agree to give up the existing option to purchase for $1 the Sears parking ramp, which is owned by the city.
The money earmarked by the city will include up to $3.5 million to demolish the mall including the former Sears and J.C. Penney anchor stores, and restore exposed walls for Hom Furniture, which acquired the former Prange’s anchor. Work will begin as soon as July 2021 and conclude about 15 months later, according to the most recent term sheet summary.
After demolition, WOZ will dedicate about 95,000 square feet of land for extending streets, sidewalk and utilities of Second, Third, Jackson and Washington Streets.
A significant change is a new commitment by WOZ will guarantee real estate taxes based on an assessed value of $7 million beginning Jan. 1, 2024, regardless of construction. The developer expects the value of improvements to range from $18 to $21 million.
Questions, objections remain
Dist. 3 Council Member Tom Kilian, who represents the mall district, is asking the council to table the matter and said there are too many unanswered questions and issues that need to be addressed. Kilian is openly questioning whether the original agreement violated state law.
“Based on publicly available information and records that are not confidential, I believe that contents related to property tax reimbursement of the term sheet for the WOZ mall purchase and redevelopment approved by the Wausau ED and Finance Committees on September 10, 2019 were unconstitutional and thus prohibited in Wisconsin due to its uniformity clause,” Kilian said. “The public has a right to know if this is the case and, if it was, it should have been told to the public in a timely fashion after it occurred.”
At issue is the $327,000 annual developer payment, eliminated in the latest rendition of the term sheet. Early on in the process, term sheets between WOZ and the city contained 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. During a Nov. 4 meeting, Dist. 7 Council Member Lisa Rasmussen reiterated that the city is unable to forgive property taxes.
But at the same meeting, Wausau Finance Director Maryanne Groat pointed to other developments for which incentives were issued based in whole or in part on property taxes.
“We just wrote a check for $660,000 to Great Lakes Cheese,” Groat said. “It was simple math. I took their tax bill, multiplied it by half, and wrote them a check.”
In a Sept. 20, 2019 email string obtained by Wausau Pilot & Review, 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.”
“We’re in big trouble if we’re not supposed to be doing it because we’ve been doing it for many years,” Groat said.
Kilian is now calling for all confidentially and privilege on mall-deal related records to be waived for public view, except for those which the city is expressly prohibited by law from sharing or discussing with the public. He is also calling for the existing environmental indemnification clause, which holds WOZ harmless for any environmental issues discovered during the demolition process, to be eliminated, calling the environmental consideration “fiscally risky” for the city.
“Through the indemnification provided to WOZ, the city’s taxpayers are on the hook for an unknown amount of money for testing and remediation,” Kilian said. “A representative for WOZ recently stated that he anticipated the amount of contamination on the site will be minimal. If that is the case, there should be no problem with WOZ ‘putting its money where its mouth is,’ so to speak, and allowing the indemnification to be withdrawn.”
Also at issue, Kilian said, is public involvement. Kilian hosted a public engagement session in September attended by about 50 residents. While residents were generally happy with the vision for redevelopment, most objected to public funding attached to it.
The general section of the city in which the mall redevelopment resides is diverse with a notably high percentage of residents living below the poverty line, according to Census Bureau data. Kilian said he is concerned that those residents were not involved in “any meaningful way” to contribute to the vision presented.
“This should not be the case and government-subsidized efforts should have made an effort to identify and satisfy the needs of Wausonians who live in and nearby the redevelopment area,” Kilian said.
Mayor Rosenberg called WOZ a “unique collaborative community partner,” rather than a private developer looking to make money off the taxpayers’ investment in this project.
“Most communities couldn’t pull together an entity like WOZ and Wausau is fortunate that this group stepped forward to save this property from falling into disrepair and blight, and ultimately landing it in the hands of out-of-the-community owners with no reason to care about investment in Wausau,” Rosenberg said. “WOZ’s commitment through the updated development agreement ensures that the city will continue to generate taxable revenues off the property comparable to what they were late last decade at a minimum, while ensuring fairly good odds that taxable value will grow several-fold in years to come.”
The mall is within one of several Wausau areas identified as part of a federal “opportunity zone,” part of the federal tax cuts and job acts of 2017. The program aims to drive long-term investment into designated, economically distressed areas across the country, while offering potentially lucrative tax incentives to real estate investors. Under the terms of the program, investors can defer capital gains on a previous investment if the money is reinvested into an “opportunity zone” asset. Investors can also take advantage of additional assistance such as tax increment district (TIF) funding.
“This area is officially an ‘Opportunity Zone,’ but the process at hand begs the question: an opportunity for whom?” Kilian said.
But Rosenberg said there are risks to not approving the changes. That would mean Wausau would be guaranteed to spend another $2.6 million on the current agreement and see no repayments on the initial million dollar loan. The request for demolition will still be out there. Tax revenues generated on the existing property would continue to dwindle.
“While I didn’t put the initial mall deal together, I am going to continue doing my damnedest to ensure it will pay off for the people of Wausau,” Rosenberg said. “This project is a strategic investment and my goal is to ensure the public’s investment garners taxable property and jobs. The goals of municipal economic development are to create and retain jobs, generate revenue, and improve quality of life. We will demand that we – and our partners – keep a laser focus on those goals. We need this project to succeed.”
The City Council meeting is slated for 6:30 p.m. Tuesday, Nov. 24 at City Hall, 407 Grant St., Wausau. Due to the COVID-19 pandemic, the meeting is being held in person and via teleconference. Members of the public can attend in person or by calling 408-418-9388. The meeting access code is 146 815 7666 and the password is wausau.