In the middle of our Great Recession, the City of Madison has seen fit to reject a number of proposed economic development projects that would have added or retained many thousands of jobs in the city.
First, Eastgate Theaters (by Marcus Corp.) proposed to build a state-of-the-art theater facility with a restaurant and games that would have been the envy of other cities nationwide. Unfortunately, after years of frustration with the arbitrary nature of the review and approval process, Marcus Corp. abandoned Madison in favor of building the new theater complex in Sun Prairie, near the new Target store and the new St. Mary’s Emergency Center. (Anybody see a pattern here?!)
Part of the problem in this particular case was the length of time to secure approvals, and part of the problem was the number of individuals on the various commissions who thought it was okay to add costly conditions to the project. A number of them seem to think they know more about developing theaters than the Marcus Corp. professionals.
The Edgewater Hotel is another recent example of the bureaucratic process that a developer has to go through to provide $93 million of tax base and thousands of new jobs. Whether you agree or disagree with the project, think about this: In Madison, a property owner who buys a hotel has to jump through hundreds of hoops to renovate and expand a hotel on property he owns, even though the proposed use is exactly the same: a hotel!
Then there is Kraft Foods’ request for $400,000 for new boilers to bring their Madison facility up to a standard competitive with their other facilities nationwide. Kraft’s request didn’t qualify under the city’s TIF “but for” test, which means that the city’s TIF coordinator must believe that the project would not proceed “but for” the TIF funds being granted, regardless of the competitive landscape. (This request failed the “but-for” test because Kraft “could afford” it.)
Danisco requested a modest $300,000 for 25 jobs on a $13 million project; I am told that 371 jobs were at stake if the much larger planned project proceeded. Again, Madison rejected Danisco’s request because of the
financial “but for” test. Excuse me, but for the $300,000, Madison may have captured and/or retained up to 371 jobs! To me, the city is just looking for excuses to say “No,” instead of finding ways to say “Yes!” (Fortunately, in the case of Danisco, the Wisconsin Department of Commerce stepped in with tax credits and saved the day! Otherwise, those 25 jobs may have been lost.)
Madison’s TIF policy is outdated and hamstrings new development. Major flaws in the city’s TIF “but-for” test include:
- It’s subjective (it’s difficult to prove a negative).
- It does not take into account the benefit of retaining jobs.
- It fails to account for the fact that cities across the nation are competing for these businesses to relocate.
I’m not in favor of throwing money around, but it seems to me that but for a few hundred thousand dollars in a couple of these cases, the City of Madison could have retained or attracted thousands of jobs. (That’s called a wise investment.) These businesses are comparing city incentive packages, and if Madison comes through with nothing, the decision to relocate out of Madison becomes the default decision for company management.
Two other major flaws in the city’s TIF policy are that Wisconsin statutes don’t require a “but-for” test for individual projects once the district is formed (the city made up the “but-for” test), and by imposing a “but-for” test, the city is only investing in companies that are on the financial edge or assisting marginally feasible projects. In other words, good, strong projects and companies need not apply because they will be denied regardless of the economic benefit of the jobs created or retained.
Another factor to consider is that other cities that use TIF don’t have a “but-for” test, which means Madison is artificially handcuffing itself from a competitive perspective.
Madison is currently reviewing its TIF policy. One proposal by Economic Development Director Tim Cooley seems to have merit. Cooley wants the TIF policy to be simplified to be used to attract or retain companies that produce sustainable jobs with high multiplier effects, rather than the “but-for” test. It is about economic development and jobs, isn’t it?
In the case of the Edgewater and Eastgate Theater, the city has the problem known as “too many cooks in the kitchen,” i.e. too many committees that are too large, with too many members, each of whom has an opportunity to kill a project (or add costs) based upon their own personal agenda. The decision to kill economic development proposals should not be made by one commission when the overwhelming majority of the city wants the project and the jobs that go with it. (Why does Madison give commissions that kind of power?)
What these commissions and committees don’t realize is that every dollar spent on the approval process is a dollar taken out of the project quality. And worse, projects are being designed by committee rather than by professionals or by the developer who understands what the customer wants.
Each committee member’s individual demand may seem like no big deal, but the collective impact adds up. When the applicant adds up the costs for all those demands, that’s when the applicant starts to consider the alternatives, like Marcus Corp. did.
Unfortunately, the collective cost to the city taxpayers is hundreds of millions of dollars in lost tax base, as well as thousands of jobs lost — jobs desperately needed today when thousands of our neighbors need work so that they can provide for their families. The city needs to make economic development a priority during the recession, so that we can put people back to work and generate new tax revenue.
The city can start by a) reconsidering the TIF policy; b) reducing or eliminating superfluous commissions; and c) changing the rule that commission decisions require three-fourths of the Common Council to override them. ‘Nuff said!
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