We’re hearing a lot about TIF these days. For the most part, that’s a good thing. Thanks to TIF, or tax incremental financing, communities statewide have developed infrastructure necessary to grow and remain vibrant. TIF dollars have been used to lay sewer lines, bring in utilities and create roads where neighborhoods will evolve. They have turned farmlands into mixed-use developments (not applauded by all), and transformed neighborhoods into job-generators. TIF has also helped build hotels.
Mayor Dave Cieslewicz’s recent endorsement of $16 million in TIF money for public portions of the proposed Edgewater Hotel redevelopment in downtown Madison (a sure job-creator and/or maintainer) made IB wonder how TIF has been used in the past, and whether surrounding communities use the tax money in the same manner.
We found that, in general, they do, because they all operate under state statutes to do so. But interpretation of those broadly-defined statutes appears to vary widely.
A Brief History
TIF law was enacted in 1975, and Madison was the first city in Wisconsin to develop the idea, said Joe Gromacki, TIF Coordinator for the city. It is a concept widely used nationwide — in some states more than others — as an economic development tool to incentivize municipalities to grow. Wisconsin’s TIF statutes require municipalities to prove their projects will benefit the public when deciding on the use of TIF dollars, and most often, TIF is used to eliminate blight, rehabilitate neighborhoods, and promote an expansion in the tax base.
State statutes require industrial projects to pass a “but for” test, indicating that “but for TIF” a project would not be funded because of a financial gap.
In February, the Madison City Council also elected to change the focus of its TIF projects, shifting the focus away from housing development and on to projects promoting “living wage” job creation. In other words, Madison TIF is not just for upscale condos and speculative office buildings anymore.
Around the state, there have been reports of some Wisconsin municipalities struggling to meet taxpayer debt obligations due to declining property values, which result in fewer tax dollars collected. The scenarios are putting some communities on shaky ground when it comes to repaying TIF debt in the prescribed number of years — usually 20 or 27. One senator, Jim Sullivan] (D – Wauwatosa) is even planning to introduce a bill soon asking the state to change the maximum life of a TIF loan from its typical 27 years, to 40 years.
“That’s pretty bad,” said Gromacki, who describes TIF as a self-regulated program. “Some communities must have simply gotten in over their heads.”
Not so in Madison.
“We haven’t had a failed project here [because] my predecessors found it very important to do the proper analysis to make sure taxpayer projects would be there for years and improve the districts,” Gromacki said. Still, he said he would welcome some changes to the state’s TIF statutes, such as a more defined set of criteria and a list of best practices regarding TIF usage.
Gromacki has what some might consider the unenviable job of being the city’s TIF gatekeeper. “Before the law was created in 1975, TIF was used mostly for roads,” he said. “Now it’s a gap financing tool, and recently, there has been a very wide, open debate about the appropriateness of that.”
Danisco Denied
Many in the business community, however, might be questioning the appropriateness of the Madison Common Council’s recent decision to turn down a proposed $300,000 TIF loan to Danisco USA for storm sewer and other infrastructure improvements because it did not conform to the city’s industrial TIF policy, which holds that a financial gap is needed in order to get a loan. In other words, if the company was planning a multi-million million expansion in Wisconsin and could prove that it was $300,000 short, Madison alder Judy Compton said the city would have approved the loan.
[Check out IB’s more pointed blog on this subject by Joe Vanden Plas.]
Danisco, a biotechnology company that produces enzymes and cultures used in agriculture and food processing, did not demonstrate that. Compton views the Danisco turn-down as a lost opportunity to bring more decent paying jobs to Madison.
“Our process is so impeding,” she said, “and Danisco is an upwardly mobile company for which time is of the essence. They don’t have time to play games. They can go anywhere in the country they want. Because the door was shut in [Danisco’s] face when they made the move to go after the TIF, it could be the final straw.”
Now Danisco, headquartered in Copenhagen, Denmark, will create those jobs in New York, rather than Madison. “I think the perception is, we’re [simply] giving them the money, when in reality what we’re doing is investing in the city.”
Danisco, Compton said, is exactly what the city wants — a dairy-based biotech that offers sustained job creation. While it still plans to do some minor expansions here, she said Madison had an opportunity to expand an anchor sitting in the middle of its industrial park in the southeast quadrant of the city, right at the mouth of the Bio-Ag Gateway campus.
Kraft Foods was also denied TIF financing for a major expansion, Compton said. “Now, we sit at the council and talk about $37 million to a library and say it’s going to create jobs. It’s going to create jobs for the length of time it takes to build it. Danisco and Kraft create 25-year jobs plus retirement.”
Compton would like to alter the city’s industrial TIF policy to be more accommodating. “The state statutes do not specify what the ‘but for’ test has to be. The TIF financing these companies were turned down because of our TIF policy with regard to industrial TIF [indicating] there is a financial gap needed in order to get a TIF loan.”
What she would have rather seen as a measure is a different type of “but for” test: “But for this $300,000 investment in the city, [Danisco] could possibly choose not to stay here. They can go somewhere else,” she said.
Varying Uses
Overall, Madison Alder Tim Bruer agrees that TIF projects have saved Madison’s center on several fronts: “We’ve pumped millions into the central city, and TIF commitments were an overwhelming success in slowing the flight from the central city to the periphery,” he said. “They’ve had an incredible impact on the economic vitality of downtown.”
But he also firmly believes TIF projects need to be measured not only by the letter of the law, but by the spirit of the law.
Bruer said he gets frustrated by what he sees as a manipulation of TIF policy, by developers and municipalities alike, largely because of varying interpretations of the statutes. One challenge he sights is a perception that there is one set of rules for Madison, and one set of rules for everyone else. “If Madison so much as misses crossing a t or dotting an i, the state comes down on us like a ton of bricks,” he said, as opposed to other municipalities whom he claims use much more liberal interpretations of TIF policies in their planning.
What’s happening in the out ring cities and communities?
In Fitchburg, Mayor Jay Allen said TIF dollars have funded just a fraction of his city’s development, for basic infrastructure, such as building roads, streetlights, and traffic lights. “We will use TIF for the Highway 14 interchange south of the beltline, because that’s a public piece of infrastructure,” he said. But Fitchburg has also used TIF to sound-proof rooftop generators on the Berbee/CDW building, lessening noise pollution for nearby neighbors.
“You have to be able to find a public benefit to using public money,” Allen said. “Within that category, there is a fairly broad capacity in describing ‘public use.’”
Sun Prairie mayor Joe Chase said his city has used TIF on a couple of occasions, though he has concerns: “If you’re really trying to put a destination business into your TIF district, it may not generate enough taxes to meet the increment,” he said. Chase said he’d love to see a multi-entertainment venue in downtown Sun Prairie, one that might include a restaurant, arcade, and comedy club, for example.
“That’s what you need to make your downtown viable — places you can walk to and be entertained. But I found out that [such a building] wouldn’t raise enough increment.” Apartment buildings and retail might be better suited for that task, he said.
Mike Davis, Middleton’s city administrator, said his city is careful to follow the state statutes using the “but for” test, asking, “if it wasn’t for TIF, would this project happen on its own?” The answer was “No,” for one undeveloped piece of Middleton property off Airport Road. Davis said the city used TIF financing for storm water management and environmental enhancement that transformed an undeveloped parcel of land in a flood plain into developable land which allowed Electronic Theater Controls to expand and remain in the city. At the same time, more high tech jobs were created.
Middleton also used TIF dollars when it decided to transform its downtown area from a couple of small manufacturing operations, a car dealership and some run-down businesses into the gleaming city center it is today. “We wanted to restore historic buildings and redevelop the entire area,” Davis said. The Alexander Company won the job through a bidding process, and asked the city for assistance in providing parking. TIF financing helped provide several hundred underground parking stalls that serve the downtown today, enabling ground-level development of tax-generating condos, a hotel and strip mall.
“We can look ourselves in the mirror and say almost all of it wouldn’t have occurred [but for TIF],” Davis said. “The flood plain wouldn’t have contracted itself. Storm water management wouldn’t have improved itself. We wouldn’t have preserved environmental corridors — which now have plantings and beautiful flowers. ETC would have moved elsewhere to find land to expand upon, and downtown Middleton would still have a car dealership and several dilapidated buildings.
“If the general taxpayers would have done all of that, it would have cost an arm and a leg.”
