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.

Is there an optimal rate for municipalities to use tax increment financing?

Tax incremental financing (TIF) is the most widely used economic development tool of local governments in Wisconsin. TIF uses future property tax revenue to provide up-front assistance for real estate developments. Notable projects such as Grand Avenue Mall and the recent redevelopment of Bayshore Mall relied heavily on TIF assistance. TIF plays an integral role in our region’s economic development.

While TIF use is growing throughout the state, its benefits and the extent to which communities should use TIF are still hotly debated.

The work of the Forum’s 2008-2009 Norman N. Gill fellow, John Kovari, has resulted in a research brief Too Much or Not Enough?: A Statistical Analysis of TIF in Wisconsin, which adds to the debate and takes a closer look at TIF and its economic benefits.

Specifically, the report explores the relationship between TIF and property values at the local and regional level using economic data from all Wisconsin municipalities between 1990 and 2006. Economic, statistical modeling provides an estimate of the average impact of TIF on property values in a way that might be useful for local officials in making economic development decisions.

The report’s key findings:

* TIF Growth. TIF utilization in Wisconsin municipalities has grown considerably (400%) since 1990, especially in the southern and central areas of the state. More than one quarter of the municipalities using TIF are now over the statutory TIF value limit.

* Who Uses TIF? Medium-sized municipalities (under 50,000 residents) and those with growing property tax bases are using TIF more often than those with lower rates of property value growth, including Wisconsin’s biggest cities. Although TIF was originally intended to spur economic development in struggling areas, TIF is being used more frequently by communities that are experiencing economic growth.

* TIF Benefits. TIF has the potential to be a useful economic development tool for villages and cities in redeveloping “blighted” properties and raising property values. On average, for every $1 increase of TIF value, total property value is estimated to increase by $6.

* Differences Across Communities. Differences in TIF use exist between Wisconsin’s largest metropolitan cities and outlying municipalities. On average, outlying localities are at risk of over-utilizing TIF. Statistical modeling estimates that if the average Wisconsin suburb were to increase its TIF amount by 10% (keeping all other factors constant), then its total property value would likely decrease by 0.2%. Meanwhile, Wisconsin’s largest cities appear to under-utilize TIF: the model indicates that a 10% increase in TIF value would likely increase property values by 2%.

* Regional TIF Effects. Within Wisconsin’s metropolitan regions, greater TIF investment in suburban communities may impair property value growth in the corresponding central city (i.e. Wisconsin’s largest cities). According to the model, a 10% increase in suburban increment value would likely result in an estimated 1.1% decrease in central city property value.

Overall, using historical data to model estimated TIF impacts suggests that excessive TIF use has the potential to negatively impact the economies of individual communities as well as Wisconsin’s largest cities. In other words, excessive TIF use (especially in outlying municipalities) may potentially create a scenario in which property value growth in the state is impaired.

At the same time, TIF can be a successful tool in redeveloping areas in Wisconsin’s largest cities. The model suggests that these cities (those over 50,000 residents) have not utilized TIF at the ideal rate to maximize property values.

Local and state officials are encouraged to look at TIF in a way that asks whether their communities are using TIF “Too Much or Not Enough.”

Special thanks to the Gill family for their generous support of this project through the Norman N. Gill Fellowship.

Dreaming of Milwaukee's next big thing

My move back to Wisconsin from California in 2001 was largely fueled by my desire to live in Milwaukee - a community that simultaneously embraced the construction of the daring Calatrava addition to the Milwaukee Art Museum and the destruction of the divisive Park East freeway spur. It seemed to me that such forward thinking, risk-taking endeavors surely revealed a city on the brink of an urban renaissance. I moved to a city on its way up.

Now, in 2008, I'm left wondering what will be Milwaukee's next big thing. Of course, I'm under no illusion that it will be a quick fix to our deeply entrenched economic and social woes. But, I do harbor a hopefulness that bold new ideas can fuel a resurgence of civic pride and national attention that can only help our great city.

Bold ideas. We need more of them to sustainably grow the economies of the upper Midwest. In an age where the Midwest's cities have been left to address the gaps left by decades of federal indifference, urban economic development will require bold ideas from visionary public sector leaders at the local level.

What ideas qualify as such? One example is the idea hatched by the City of Atlanta to use tax increment financing (TIF) to fund its ambitious BeltLine project. From the Forum's recent Research Brief:

The City of Atlanta has long been known for its dynamic business environment and explosive growth. Unfortunately, it is also known for sprawl, air pollution, lack of greenspace and traffic congestion. In an effort to address these “quality of life” issues and reassert the region’s competitive position, the City of Atlanta recently approved the creation of a TIF for its “BeltLine” project. The BeltLine is currently the largest redevelopment project in the United States and will encompass 8% of the city’s total land area and generate $1.7 billion dollars in revenue. The project will transform a ring of blighted and underutilized land encircling the city to multi-use trails, parks, transit improvements, affordable workforce housing and Atlanta Public Schools projects. In what promises to be the most ambitious use of TIF in the country, after 25 years the BeltLine TIF will contain over $20 billion of increment value—larger than the sum total of all TIF districts in the state of Wisconsin. Atlanta’s Beltline TIF is not only big, it’s also innovative and is continually cited as a model for transparency and accountability.

Let's be clear, a developer didn't walk up to Atlanta's city hall one afternoon and request a $1.7 billion TIF. The BeltLine is a public sector led project at its core.

In Milwaukee, TIF has been used to fund bold public-sector driven initiatives like the construction of the downtown riverwalk, the demolition of the Park East freeway, the clean-up of the Menomonee Valley, and the revitalized 30th St. Industrial Corridor. What other opportunities might there be?

I can think of two:

• A modern transit system—Use TIF to finance station and land development costs associated with transit upgrades (express buses, KRM, high-speed rail)
• Slow employment and income growth—Use TIF to finance growth in emerging regional industry clusters (financial services, water technology, advanced manufacturing) as identified in the M7 Strategic Framework.

The partnership between TIF and bold new ideas may be the currency of 21st century Milwaukee. What are your ideas?

Just released: Tax Increment Financing in Southeastern Wisconsin

The following is from the Public Policy Forum’s new report, "Tax Increment Financing in Southeastern Wisconsin." Research was funded by Briggs & Stratton, Ehlers and Associates, Irgens Development Partners, and Reinhart Boerner Van Deuren S.C.

Tax Increment Financing (TIF) is southeastern Wisconsin’s largest economic development tool. With 176 TIF districts and $8.4 billion in property value, the collective tax base devoted to TIF districts in our region ranks behind only the city of Milwaukee among our region’s largest tax bases.

Despite the impressive scale of TIF in the seven-county area, the tool is used less here than in the rest of the state. Whether that’s due to reluctance or lack of need is unclear. What is clear is that if the region decides that it can become more aggressive with TIF, it has ample capacity to do that. It’s critical that we know where this capacity exists and how best TIF can be deployed to shape the region’s future growth. After all, economic development needs finance.

The use of TIF is growing in our region. There were 56 municipalities using it in southeastern Wisconsin in 2007 - up from 51 in 2000. Today, a quarter of the 56 municipalities are “TIF’d out” - communities that can no longer approve new TIF districts because the value in their existing districts exceeds the state limit.

TIF use in the city of Milwaukee has increased in tandem with the rest of the state and region despite the successful retirement of three large TIF districts in 2006. While the city’s use of the tool continues to trail regional and state averages, Milwaukee has increased TIF expenditures under Mayor Tom Barrett’s administration.

As TIF use increases in Wisconsin, so too will the public’s scrutiny of this popular development tool. Municipalities in our region could benefit from implementing the following “best practices” aimed at ensuring the strategic, accountable, and efficient use of TIF:

• Use TIF to build community partnerships - More can be done to educate and engage the public during the TIF approval process.


• Establish developer need, not want - Strong due diligence of incoming TIF proposals is needed to ensure their efficient use.


• Align TIF use with community goals - Municipalities should use TIF to fulfill goals within an economic development plan.


• Monitor and report TIF performance - The accomplishments (and failures) of the region’s 174 TIF districts should be readily available to the public.


• Use TIF to compete globally - TIF could play a central role in strengthening the region’s competitive position.

To succeed in the new global economy, our region must utilize every tool at its disposal. In Wisconsin, TIF emerges as one of the most important instruments that can grow our economy and improve our quality of life.

Much work is needed to ensure the strategic, accountable, and efficient use of TIF in our region, but if we can learn to better use TIF can we also learn to use it more often?

TIF: A primer

Recently, there was an article in the Milwaukee Journal Sentinel which reported questions being raised about a public assistance package for a proposed downtown hotel in Waukesha. In the article, the proposed Tax Increment Financing (TIF) package for the Clarke Hotel and Black Trumpet restaurant was called into question by a member of the Waukesha's Joint Review Board (JRB).

TIF projects can only be approved if signed off by all the effected underlying governments in the form of a JRB. In fact, a municipality's JRB has the power of final approval of every TIF request in the State of Wisconsin. For example, the following is an explanation of the JRB's role in the City of Milwaukee's TIF approval process (see Milwaukee's TIF page for more details).

In the City of Milwaukee, a TIF project plan must be approved by several bodies. First, the project receives a hearing before the Joint Review Board, which is made up of five (5) representatives – one each from the City of Milwaukee, Milwaukee County, Milwaukee Public Schools (MPS), and the Milwaukee Technical School System – and a citizen representative. After an initial hearing before the Joint Review Board, the Redevelopment Authority of the City of Milwaukee (RACM) holds a public hearing on the TIF project and votes on the project. After RACM action, the Milwaukee Common Council’s Zoning & Neighborhood Development (ZND) Committee holds a hearing on the TIF project. Once adopted by the ZND Committee, the project is either approved or rejected by the full Common Council. Upon adoption by the Common Council, the Joint Review Board makes a final recommendation on the project and it is forwarded to the Mayor for his ultimate approval.

It is doubtful that a JRB meeting in the City of Milwaukee or elsewhere attracts regular public participation. In the absence of direct public scrutiny, it is up to the five members of the municipality's JRB to provide adequate oversight. Again, using the City of Milwaukee as an example, the members of the JRB are:

Mark Nicolini, City of Milwaukee
Robert Dennik, Milwaukee County
Michael Sargent, Milwaukee Area Technical College
Ron Vavric, Milwaukee Public Schools
Kathryn West, Citizen Member

According to the State of Wisconsin's JRB guidelines, JRBs in Wisconsin can "hold additional public hearings as part of their deliberation." If you have any concerns over a proposed TIF in your community, please note your municipality's TIF approval process, its JRB members, and when JRB meetings are scheduled to occur. It reasons that the more transparent and accountable the TIF approval process, the stronger the resulting TIF district.

Why would MPS care about TIF?

We seldom hear of the fiscal impact that tax increment financing (TIF) districts have on the budgets of governments other than municipal government. For example, how does the passage of a TIF district in the City of Milwaukee affect the budget of Milwaukee Public Schools (MPS)? Given the recent budget troubles at MPS, the use of TIF by the City of Milwaukee may become an increasingly important issue for the school board. In Kansas City, the fiscal impact of TIF usage on the local public school system currently is being scrutinized.

Why would MPS care about TIF? Tax base. After all, TIF captures tax base and sets it aside to pay for public improvements within a special district: Park East, Pabst Brewery, Third Ward, etc. Until the given TIF district has fully paid down its debt, the tax base growth in the district is not available for a governmental entity like MPS to tap. It takes an average of 13 years to pay down debt and close a TIF district in Wisconsin. That's a long time, but if the growth would not have otherwise occurred it's worth the wait.

If MPS can argue that the growth in a proposed district would occur without the TIF or that the proposed TIF is speculative and unlikely to be successful then it might be able to block a TIF. In Wisconsin, TIF projects only can only be approved if all affected governments agree to passage during a Joint Review Board (JRB) hearing.

The process in Milwaukee is as follows. First, the project receives a hearing before the JRB, which is made up of five (5) representatives – one each from the city, Milwaukee County, MPS, the Milwaukee Area Technical School (MATC), and a citizen representative. After an initial hearing, the Redevelopment Authority of the City of Milwaukee holds a public hearing and then votes on the project. Following that, the Milwaukee Common Council’s Zoning & Neighborhood Development (ZND) Committee holds a hearing. Once adopted by the ZND, the project is sent to the full Common Council for approval or rejection. If the council approves it, the JRB makes a final recommendation and it is then forwarded to the mayor for final approval.

As MPS and other governmental entities face structural deficits, TIF use (or non-use for that matter) in the City of Milwaukee may become a flash point of controversy.