Just How Much TIF is Enough?

Municipalities large and small utilize Tax Incremental Financing (TIF) as a tool to encourage economic development within their borders.  It allows future property tax revenues, from new construction, to act as equity in project.  This arrangement is used to cover a gap in the projects financing, or more commonly to fund public improvements related to the new development.

A debate that comes up often within City Hall is just how much TIF is enough, and should more projects receive TIF funding.  Recent examples of this debate involved RSC & Associates’ Park East Square proposal, Gatehouse Capital’s Palomar proposal, and more recently New Land Enterprises’ proposal for the corner of Kilbourn Avenue and Van Buren St.  A recent report, Too Much or Not Enough? A Statistical Analysis of Tax Incremental Financing in Wisconsin, by John Kovari of the Public Policy Forum, helps shed light on the the question.  A key finding from the report was that on average across the state “for every $1 increase of TIF value, total property value is estimated to increase by $6.”  This might at first glance indicate that all municipalities should increase their utilization of TIF, but the report also indicated that there is a point of optimal return that once crossed detracts from property values.

In the City of Milwaukee’s case the report indicates that by increasing TIF use the city could see a significant long run increase to the tax base.  At first blush this may lead people to believe all of the formerly mentioned projects should have received TIF funds, but the report doesn’t actually weigh in on specific projects, or how to increase TIF use.  It shows that TIF use should be utilized to a larger extent by larger municipalities, but it certainly doesn’t argue against proper due diligence.

Assuming it is true that the City of Milwaukee could reap long term economic benefits by expanding TIF use, the next question is really “How?”  Clearly, the current practice has been practical, and safe, as the vast majority of TIF projects have performed well, some of them so well they have been paid back early, so setting aside the proper checks and balances currently in place is not necessarily the desirable route to take.

What the City of Milwaukee could do to increase TIF use is to become more proactive instead of reactive towards development.  Meaning, prior to a developer coming to the city for funding of a specific project, the city could create TIF districts that are associated with the catalytic projects that have been laid out in the area plans.  By tying expanded funding to community proposed projects these proposal could potentially receive quicker approvals, and in turn become realities in shorter time frames.  There are cases of the city making proactive use of TIF such as in the 30th Street Industrial Corridor, the RiverWalk system, Mitchell Street, and other projects, but this proactive method could be greatly expanded.  Further, the City of Milwaukee could promote TIF use for affordable apartments in targeted neighborhoods to insure the ability to live, work, and play throughout all our city’s great neighborhoods.

By expanding TIF use, while at the same time tying its expanded use to proactive catalytic projects, the City of Milwaukee could grow its tax base and improve its neighborhoods.