TIF changes on the horizon in Wisconsin

In a rare showing of bipartisan accord in Madison last week, the Wisconsin Assembly unanimously passed a bill allowing local governments to create new tax incremental financing (TIF) districts jointly between two bordering municipalities. The changes included in the bill raise several questions about how TIF currently is used in metro Milwaukee, and how it could be used most effectively.

TIF is a financing tool that allows municipalities to borrow against future property tax revenue to fund current development projects. Though few people are familiar with TIF, it is the most widely utilized economic development tool in Wisconsin. In fact, a past Forum report, Too Much or Not Enough?, revealed that as of 2008, there were nearly 1,000 active TIF districts in Wisconsin with a total assessed value of over $15 billion.

IF was originally created to facilitate redevelopment efforts in blighted urban areas, but in 2003, state law was broadened to allow TIF to be used for nearly any type of development project deemed impossible to realize without public assistance. The bill approved by the Wisconsin Assembly makes TIF even more flexible. In addition to allowing TIF districts to cross municipal borders, the multi-jurisdictional districts would also be exempt from a state law restricting municipalities from creating new TIF districts if 12% of their total property value already falls within existing TIFs.

Past Forum research has revealed that the City of Milwaukee utilizes TIF at a far lower rate than many smaller cities in the metro area and many large cities in the Midwest. According to the Wisconsin Department of Revenue, the City of Milwaukee’s current TIF utilization rate is 3.9%, which falls below the state average and far below the state’s limit. Allowing the City to team up with its neighbors could help to boost Milwaukee’s TIF utilization rate and property values, provided there are promising and fiscally sound projects at the city’s edges. The same may be true for other large municipalities in the Milwaukee metro area. The Forum’s economic modeling has suggested a 10% increase in TIF utilization by Wisconsin cities with populations over 50,000 could result in a 2% increase in their total property values.

However, Too Much or Not Enough? also suggested TIF utilization rates at the municipal level have regional economic impacts. Exempting shared districts from the 12% state limit could result in over-utilization in suburban and rural communities on the metro edge. Our economic modeling indicated a 10% increase in TIF use by an average Wisconsin suburb could result in a 0.2% decrease in property values for that community and a 1.1% decrease in the property values of the central city. All of the communities in the Milwaukee metro area that currently have TIF utilization rates in excess of the state limit are smaller suburbs, so new shared TIF districts in those places should be analyzed carefully to avoid detrimental regional effects.

There are also several practical hurdles potential cross-municipal TIF districts will have to overcome. First, all of the taxing jurisdictions within which the project is located would need to sign off on the project. For example, a hypothetical new TIF district on the border between West Allis and Brookfield would have to get the approval of two cities, two counties, two school districts, and two technical college districts. In addition, under current Wisconsin law each municipality is allowed to use its own set of criteria to determine whether a project qualifies for TIF, so potential projects would have to meet the standards on both sides of the municipal border.

With TIF districts crossing borders and having regional economic impacts, it may be more useful than ever to develop uniform TIF standards for the metro area that facilitate the development of this new type of district while helping municipalities to choose new TIF districts that are beneficial not only for their own property values, but for the Milwaukee region as a whole.

Racine school district holding itself accountable to goals, but academic achievement still lags peer districts

Racine Unified School District (RUSD) implemented a district-wide vision for improvement in March 2009. Called the North Star vision, it is intended to specify "the path to successful completion of high school for all RUSD students with an ultimate goal of every graduate being ready for a career and/or college.” It includes performance targets at each grade level to be used in creating school improvement plans and in setting school-level learning targets.

The vision is the result of a collaborative effort by the school board, district administrators, the teachers and administrators unions, and the support staff union. A simple graphic illustrating the measures of focus at each grade level has been widely distributed to parents, teachers, and district stakeholders.

 In this year's version of our annual report comparing RUSD and its ten peer districts across the state, we highlight RUSD’s visions and targets for each grade level, starting with the most advanced grades. For each measure, we present several years of trend data, starting with the 2008-09 school year as a baseline in most cases. We note where RUSD met or exceeded its 2010-11 target, as well as where it has fallen short, and we analyze the goals for 2011-12.

 We find:

• Of the North Star goals, only in writing has the district surpassed its target for all students. There has been progress toward some of the other goals for some subgroups of students but, on the whole, large racial and socio-economic gaps in performance persist and entire grade levels are falling short in math and reading.
• The large and persistent achievement gaps are concerning because RUSD serves a lower-income, less-educated population than most of its peers and the state as a whole. RUSD ranks first among peer districts in student poverty, as measured by free or reduced-price lunch eligibility. In addition, 54% of RUSD students belong to minority racial or ethnic groups, ranking RUSD first among the peer districts in terms of minority enrollment.
• Long-term trends in math and reading continue to cause concern, although the 72% of RUSD 4th graders proficient or advanced in reading in 2010-2011 is up slightly from 2009-10, as is the 76% of RUSD 8th graders proficient or advanced in reading. However, the 52% of 10th graders proficient or advanced in reading is a slight decline over the previous year. Improvements in math scores were not seen in 2010-11 in 4th, 8th, or 10th grades.

We applaud RUSD for established the North Star vision and making impressive improvements in writing proficiency. Transparently holding itself accountable to these goals allows all stakeholders to envision the path to higher achievement, and the efforts that will be needed to get there. Click here to download a copy of the 14th Annual Comparative Analysis of Racine School District. The report was sponsored by Education Racine Inc. and the Johnson Foundation.

Maxmizing the local economic benefits of academic research

This afternoon the Public Policy Forum takes up the topic of the economic impact of academic research at our Viewpoint luncheon. One specific way in which research leads to job creation and business development is via technology transfer – the legal process in which new discoveries are patented, marketed, and licensed to commercial manufacturers. Southeast Wisconsin is home to several academic research institutions, each of which goes about technology transfer independently, for the most part. A new Forum report to be presented at the luncheon today examines whether greater collaboration among the region’s research institutions is needed to maximize the local economic impacts of technology transfer.

Our analysis finds that there are three models that might be considered by academic leaders to enhance collaboration in technology transfer and potentially augment the effectiveness of existing efforts:

• Joint Office of Technology Transfer
  A joint office of technology transfer could potentially result in greater expertise in economic development practice for the participating institutions, as well as economies of scale. However, a joint office may stretch the resources of technology transfer officers to the point that some institutions may experience reduced levels of service. Equitably funding a joint office to serve public and private institutions also would be challenging.
• Joint Infrastructure for Informal Technology Transfer Activities
  Currently, much of the technology transfer work performed by academic institutions is of the informal variety - building awareness of academic research projects by industrial researchers and investors through networking and partnering. At the federal level, this work is performed by a permanent consortium of the federal research labs. A similar consortium of local institutions could be created and charged with raising the profile of translational research for local industry. Each participating institution would have to trust, however, that its financial contributions to the consortium would eventually result in benefits for its researchers.
  
• Joint Economic Development Entity
  We found four different types of collaborative economic development agency models aimed at increasing the local economic impact of academic research. All are aimed at encouraging and supporting the transfer of technology to local industry and start-ups, but each does so a little differently. The biggest hurdle for this model is sustainability - a previous, state-funded, southeast Wisconsin economic development effort, TechStar, proved unsustainable.

In addition to considering the creation of a new full-fledged collaborative infrastructure based on one of the three models above, the region's research institutions could consider collaborating on more targeted strategies to ensure that their research positively impacts the local economy:

1. Expand the UWM-MCW First Look Forum to other research institutions—Offer more researchers the opportunity to participate in these events designed to connect academic researchers to investors and industry.
2. Jointly offer start-up support or an entrepreneur-in-residence program—Collaborate to ensure local researchers have the opportunity to be educated about commercializing technology through company formation, mentored through the technology development and venture formation process, and connected with outside resources that can provide services, advice, funding, and management expertise.
3. Jointly raise funds for pre-seed grants—Expand the UWM Catalyst Grant program to other research institutions by working together to raise additional funds from foundations and industry.
4. Utilize a joint tech transfer advisory committee—Maximize local resources by forming a joint advisory committee of investors and industry leaders to advise on patenting decisions, particularly those arising from research projects conducted collaboratively by two or more CTSI institutions.
5. Create a local industry database—Provide researchers at all local institutions with data about industry needs and interests, as well as contacts, by jointly creating and managing a local industry database.
6. Host clinician informant panels—Increase awareness among researchers who are not also clinicians by jointly hosting opportunities for discussion of clinical problems in need of solutions.

It is clear that the region’s academic research institutions have yet to capture the full economic development potential of their research. By collaborating more closely to identify local discoveries that fill gaps in the global market, and by working together to help create or grow local players in that market, academic leaders could take better advantage of their rapidly emerging research prowess.

Priority-setting at the Milwaukee County Courthouse

In the Public Policy Forum's annual review of the Milwaukee County Recommended Budget - released this morning - we commend the administration’s efforts to establish clear priorities and make difficult decisions, but emphasize there is “still much work to be done” to address the county’s structural imbalance.

Clearly, this is a budget that does not shy away from difficult spending cuts, ranging from elimination of support for the Emergency Medical Services (EMS) program and local arts groups, to substantial reductions in the Office of the Sheriff, to another sweeping call for health care savings from county workers. We caution that while the programmatic impacts and consequences of those decisions must be carefully deliberated, the county executive and his budget staff deserve credit for recognizing the need to cut somewhere.

Despite several positive strides in the budget to address the county’s structural problems, the report notes that significant challenges remain. It points out that the use of reprogrammed federal funds to avert substantial bus service reductions is a two-year solution at best, and that the county’s continued reliance on annual wage freezes and health care cuts as primary budget-balancing tools may not be sustainable.

In addition, the report cites the county’s glaring lack of reserves – an issue exacerbated by a recommendation to diminish its contingency fund – as giving pause to any notion that it has fully reconciled its fiscal shortcomings, or that 2012 will be the first year in recent memory devoid of the need to debate mid-year corrective actions to avoid running a deficit.

The report concludes by noting that debate is needed regarding the priorities and strategies selected in the recommended budget, as well as the “appropriate mix of revenue enhancements and spending cuts.” It says it is imperative, however, for the county board to follow the budget’s example of making difficult decisions and avoiding short-term gimmicks.

The full report can be accessed here. The Forum released a similar review of the 2012 City of Milwaukee budget on Friday.

The Calm before the Storm…

This morning, the Public Policy Forum released its annual evaluation of the mayor's proposed City of Milwaukee budget. The 2012 budget is the city's first since passage of the state budget repair bill that ends collective bargaining for most unions, and a new state budget that severely limits property tax increases and significantly reduces aids to local governments.

We find that the proposed budget manages to provide at least one more year of sustained city services, while also replacing certain areas of lost federal and state grants with reallocated property tax levy, and bolstering the city’s pension reserve fund. All this is accomplished with only a small increase in the property tax levy and relatively modest increases in city fees.

The key for 2012 is the state budget repair bill, which allows the city to reap the benefits of much larger employee contributions to the cost of their health care and pensions, and to engage in a substantial redesign of its health care offerings without the need for collective bargaining. A total of $36.8 million in savings results largely from this new flexibility, but also from changes the city would have pursued regardless. Taking into account the state aid reduction of roughly $13.4 million resulting from the recent state budget, the city was able to derive a net total savings of $23.4 million to put toward city services, build reserves and limit property tax levy growth.

In fact, despite the small increase in property taxes and the reduction in state aids, city departments collectively see expenditure growth similar to that seen in better economic times. General operating expenditures, net of fringe benefits, grow by $27.5 million in 2012, or 6.2%. An increase of that magnitude has not been seen since 2007. Such an occurrence would have been unlikely without employee benefit changes.

This good fortune may only be fleeting, however, as the opportunity for this magnitude of savings subsides and several cost spikes come on line. Beginning in 2013, the city expects to face several successive years of unprecedented pension payments ranging from $58 to $80 million annually, as well as an end to federal stimulus funds that now support 50 police officers. Tough decisions will be required, including whether to continue to balance growing fixed costs, stagnant revenues, and gradually declining reserves with additional reductions to employee compensation.

The 2012 City of Milwaukee Budget Brief can be accessed here. A similar report on Milwaukee County's 2012 budget will be released Monday.