By Shereen Siewert
More than six weeks after an application for taxpayer subsidies on a proposed downtown Wausau development was submitted city officials remain mum on the details involved, including the amount of assistance being requested for the project.
In July 12 a memo to Wausau City Council members, Development Director Liz Brodek said staff received a draft development agreement May 20 from T. Wall Enterprises, the developer Wausau Opportunity Zone selected for the former mall redevelopment site. Five days later T. Wall submitted a Tax Increment Financing application at the request of city staff, though the application itself was not received until May 31 “due to a technical glitch in the submissions system.”
“The TIF application is intended to help the city determine the necessary amount of public participation for the project to go forward,” Brodek wrote in her memo. But the application itself, contrary to prior practice, is not being made public “as it it is related to negotiations with the development agreement,” the memo states.
Then, according to city documents, city staff hired Ehlers Public Finance Advisors to perform an analysis of the gap funding required for the project. The projected cost for Ehlers’ work, said Finance Director MaryAnne Groat, is $5,000. In addition, City Attorney Anne Jacobson said the city has paid $3,118.50 in outside legal fees related to The Foundry on 3rd, the LLC formed by T. Wall for the project.
Some residents and council members say they are unhappy to be left in the dark about the amount of money taxpayers will be expected to pay to support the project, at a time when some are already balking at subsidizing high-end development within TIF districts.
What are the local revenue implications?
Cities are empowered to create TIFs, which subsidize companies by refunding or diverting some of their taxes to pay for redevelopment. In Wausau, like some other cities, TIF is heavily used – and also controversial.
Tax Increment Financing, or TIF, is a geographically targeted economic development tool, according to Good Jobs First. It captures the increase in property taxes, and sometimes other taxes, resulting from new development, diverting that revenue to subsidize that development.
That diversion means local public services do not get the new revenue they would normally get from new development, and the tax diversions will typically come at the expense of school districts and county governments.
In a typical revenue split, one half of property taxes might go to schools, one fourth to a city and one fourth to a county. But the TIF diversion captures all of those incremental streams and pours them all into one small area – for decades.
Here’s the basic idea. A city designates a small geographic area to be redeveloped, usually at the request of a corporation or a developer. When that redevelopment happens, property values go up, and property taxes increase. When that happens, the property tax will be broken into two streams.
The first stream, tied to the old property value before redevelopment—the so-called “base value”—will continue to go where it always went: schools, roads, parks, fire, sanitation, police etc. But all of the increase in property taxes tied to the increase in value—the so-called “tax increment”—will not go to public services. Instead, it will be diverted to subsidize the TIF district.
TIF defenders routinely point to rules in Wisconsin and some other states requiring that the developer must certify that “but for” the TIF, the project would not happen. The certification aims to protect the public interest by ensuring that the subsidy is not a corporate windfall, but that the subsidy is leveraging the project.
Critics, including the nonpartisan Good Jobs First, reject that notion, because so much is kept secret, as is happening in Wausau.
“Simply put, the ‘but for’ language enables the developer to say ‘trust me.’ At the end of the day, public officials and the general public never really know what factors drove the company’s decision.”
Excerpt from Good Jobs First 2022 TIF report
Benjamin Schneider, of Bloomberg, said the “but for” problem looms over nearly every TIF program that is intended to spur economic development.
“How can a city predict whether new investments or developments will take place if they do not create a TIF district?” Scheider wrote.
David Merriman, a professor at the University of Illinois of Chicago who spent two years producing a Lincoln Institute Report on improving TIF for economic development, said the “but for” clause may have outlived its already limited usefulness.
“It’s hard to demonstrate conclusively [that a development would not have occurred ‘but for’ the TIF], so nothing ever gets shot down. There should be a better hurdle for bad projects,” Merriman said. “It would be better to have something more concrete—to talk about a project filling 10 percent of the gap, for example.”
The case in Wausau
Some experts, including Anthony Flint of the Lincoln Institute of Land Policy, say TIF has become little more than a subsidy for the private sector, diverting revenue away from schools and other important services. They also contend that many TIF programs are woefully lacking in transparency.
The secrecy behind the negotiations for The Foundry on 3rd is being defended on the grounds that sharing the draft agreement and TIF application “could harm the negotiations,” Brodek’s memo states. But such applications are routinely included in multiple committee packets when they are received to allow for public participation in the process.
Brodek advised council members that staff is preemptively scheduling meetings internally, with counsel and the developers to keep negotiations progressing as she anticipates the gap analysis “will be within an acceptable range.”
“The development agreement and TIF gap analysis report will be presented to Economic Development and Finance Committees as well as Common Council when they are ready for review,” Brodek wrote.
An update on the $44 million project is set for presentation at Tuesday’s City Council meeting, but no materials are included in the packet – other than Brodek’s memo.
Joan Youngman, director of the Department of Valuation and Taxation and a senior fellow at the Lincoln Institute, said there are clear steps cities and states can take now to improve the performance of TIF.
As tempting as it might be to stick with something familiar, those seeking more equitable development might consider skipping TIF and developing alternative tools for financing infrastructure, affordable housing, and economic development, Youngman said.
Wausau Pilot & Review submitted several open records requests on June 23, one of which seeks emails that could shed light on the possible level of public participation in the project. To date, those requests for public documents have not been received, despite state law that requires an authority to fill or deny a request “as soon as practicable and without delay.” A request Monday for an immediately copy of the TIF application and draft agreement was not acknowledged by Brodek.
