Wisconsin’s TIF policy needs changes

By - Apr 5th, 2011 09:30 pm
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A couple years back, I authored a report for the Public Policy Forum about tax incremental financing (TIF), and warned that communities can use TIF too much, or too little.

Now we learn – from solid reporting by Tom Daykin – that several communities with TIF districts are seeking a special “distressed” designation because the district can’t cover its debt. Approval of the distressed designation allows the community to extend the TIF district’s timeline and pay off its debt.

Is this the right thing to do? Yes and no.

Why is it right? Without extending the timeline, the municipality might default on the bond issue used in creating the TIF district. No one wants to see that happen, as it could negatively impact investors and the municipality itself.

But why is the “distressed” designation for TIFs so distressing? I’m reminded of a quote from historian/writer Lewis Mumford, who said, “Adding lanes to relieve traffic congestion is like loosening your belt to cure obesity.” Same principle applies here.

Allowing communities to take on risky TIF deals with greater ease is wrong, especially those smaller communities with fewer resources to correct bad deals. It hurts them, and it hurts Wisconsin’s biggest cities.

Protecting communities from these deals before they’re adopted should be as high a priority as it is in easing the fiscal stress of bad TIF deals.

So how do we protect communities from bad TIF deals? Well, it’s important to note that the “Great Recession” isn’t the only cause of distressed TIF districts; it’s also bad TIF policy.

Here are some brief recommendations from my report about how best to change Wisconsin’s out-of-date TIF policy (the first two being the most important):

  • Lower the maximum rate with which communities can use TIF
  • Properly define when communities can use TIF (i.e. concretely define “blight”)
  • Prioritize central city development
  • Improve regional oversight
  • Emphasize greater fiscal scrutiny by municipal governments

A quick highlight. TIF is supposed to be used for redeveloping “blighted” property. But Wisconsin’s statutory “blight” definition is so loose that communities are using TIF to develop prairies and other perfectly usable properties. In contrast, Minnesota’s TIF law clearly defines blight, and thus limits the risk associated with TIF.

Overall, it’s important to remember that while TIF can be extremely useful in redeveloping “blighted” properties, like all good things, it can also be used to excess.

Guest post by: John Kovari

John Kovari is a Ph.D. candidate in political science at the University of Wisconsin-Milwaukee and the 2008-2009 Norman N. Gill Fellow at the Public Policy Forum. Additionally, he has served as a legislative assistant to city of Milwaukee Alderman Michael Murphy.

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5 thoughts on “Wisconsin’s TIF policy needs changes”

  1. Great points. I’m wondering if you have any reaction to the recent legislation allowing the Town of Brookfield to create a TIF. I’ve got real issues with it. The first is the idea of townships forming TIFs at all, because I think Wisconsin has never properly dealt with urban townships from a public policy standpoint. My second concern is the idea of TIF for adding retail space into an already-distress commercial market with high vacancy rates. Your thoughts?

  2. Make that “distressed” — and a link to a story on the Town of Brookfield TIF legislation signing: http://www.jsonline.com/blogs/business/118581119.html

  3. JPK says:

    @Jim- Thanks for the comments/questions.

    I’m mixed about allowing towns to TIF. Towns may genuinely need to use it, and there may be some econ benefits for the town’s residents. On the other hand, towns are less static financially, and they risk lots with TIF-ing too much. These TIF districts are also highly suspect in terms of meeting the statutory “blight” and “but for” test. For those reasons, I would cap TIF use in towns at around maybe 4-5% of their total property value.

    I wish I could comment on your second idea, but I’ve never econometrically tested when TIF is used specifically for retail in markets with high vacancy rates. It would make a great research project. But here’s a general rule of law for TIFs: The economic impact of TIF is greater in larger, more populous communities (those over 50K residents) than in smaller communities.

  4. Bob Monnat says:

    Given the state of affairs in Wisconsin, I can’t think of a reason why you would limit TIF authorization. “Blight” certainly warrants review, however one could argue in rural areas that allowing growth to occur without municipal utilities (that are funded by TIF) and rather have that growth occur on a septic/well approach is not a constructive approach to growing our economy. Cities should have an incentive to use TIF where infrastructure already exists – the objective being to densify the urban fabric that already exists. Rather than imposing limits, incentives in the way of “bonus tax base”, “bonus expenditure horizons” and “bonus amortization” could create incentives for most Wisconsin communities to grow within their current urbanized areas rather than encourage greenfield development. I certainly agree that a “dud is a dud” – don’t give communities a free pass on distressed TIFs. Make sure that the lesson is well-learned by taxpayers lest they allow the same problem to be repeated.

  5. Dave Reid says:

    @Bob Well when I see TIF’s going to develop greenfields I do have an issue with that as really I’m not sure that is in the spirit of the law. Additionally, while TIF use in the City of Milwaukee has a return of something like $6 for every $1 of TIF use (which is great!), I believe Kovari’s report points out that TIF use in small municipalities often has a detrimental impact on neighboring small municipalities. i.e move that Walmart across to the next greenfield.

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