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.