City Closing Three TIF Districts

The City of Milwaukee is closing three tax incremental financing (TIF) districts used to spur real estate development, though only one has performed as expected.

The three districts to be closed include a 66-acre N. Teutonia Ave. district (#52) used to support the relocation of Sigma-Aldrich Corp (today’s MilliporeSigma). The district was created as a result of the Marquette Interchange reconstruction, which triggered the need for the company to move out of the interchange’s expanded footprint. The new factory complex opened in 2005.

The Sigma-Aldrich district is an example of what happens when things go according to plan. The city pledged to rebate up to $5 million, plus interest, over the life of the TIF district to the company to pay for site preparation costs. The money was only provided when incremental property tax revenue from the development exceeded the base value of the district, eliminating the risk to the city.

The district today has generated an incremental assessed value of approximately $17 million, which will now result in the underlying property taxing entities receiving approximately $500,000 annually (of which the city will receive approximately one third).

The other two districts are an example of what can go wrong.

District #58, 20th and Walnut, was created in 2005. It was used to fund approximately $2.5 million in site preparation work for the Walnut Circle subdivision, which involved demolishing a vacant Sentry grocery store. The money was borrowed upfront, placing the risk on the city. Then the housing market went sideways, eliminating any increment.

In fact, until 2020, the properties in the district were worth less than when the district was created. The city had to use an overperforming Historic Third Ward district (used to fund the riverwalk) in 2013 to bail out the district, and then the Sigma-Aldrich district was used as a donor in 2021 to close out the remaining debt. The district ended 2020 with an incremental value of $76,000.

A similar situation played out with the other district being closed (#65), 20th and Brown. It was created in 2006 to fund $3.58 million in site preparation work for the Josey Heights subdivision, but the housing market bust effectively halted new construction and devastated the values of the existing development in the district. The district ended 2020 with an incremental value of $1.02 million after spending more than a decade underwater. It too received donations in 2013 and 2021 from the Third Ward and Sigma-Aldrich districts to pay off its debt.

Things are turning around at Walnut Circle and Josey Heights today. Marketing is underway for new homes and a few have been constructed. But not enough to pay back the project debt.

The city could have chosen to leave the liabilities unpaid from the two housing TIF districts, as they had not yet reached the state-imposed maximum legal life of 30 years. But the Sigma-Aldrich TIF, with no obligations or debt remaining, would have to be closed under state law and the city would risk needing to pay off the underperforming districts from its general fund.

The Common Council voted unanimously to close all three districts on Tuesday.

Under state law, districts have a maximum legal life of 27 years with a three-year extension available for underperforming districts. Revenue from overperforming districts can donated to underperforming districts at any point, and, in their final year, be used for road paving projects within a half-mile of their borders and affordable housing efforts anywhere in the city. Overperforming districts (those scheduled to retire their obligations before their maximum legal life) can also be amended for public infrastructure projects, which is what the city recently did with four districts to fund street infrastructure improvements. The Sigma-Aldrich TIF was tapped this year for $450,000 to fund affordable housing.

Closure of a TIF district, all else being held equal, increases the amount of taxed property and thereby reduces property tax rates, but holding a district open for future use does not withhold revenue from property taxing entities under the state’s property tax cap system because a portion of the otherwise sequestered value can be added to the property tax levy.

MilliporeSigma Photos