On a national level, politicians can’t seem to hammer out a deal on anything right now. Divided government is making it difficult to accomplish even the things that everyone agrees needs to be done, like funding projects to fix the country’s crumbling infrastructure.
That failure in Washington makes it even more important that, at the lower levels of government, we work together and accomplish things.
As NAIOP members from across our state gather in Madison on Wednesday for our annual Day at the Capitol, we’ll be promoting an important program that brings state and local officials together to work toward common goals. Tax incremental financing (TIF) generates tax revenue to be used toward funding particular infrastructure and development programs. The program was originally created to address blighted areas, but is now used to deliver industrial development and support mixed-use projects as well.
TIF fills a specific need. For example, it can be used only for development projects that officials wouldn’t be able to make happen without such financing. That’s called the “but-for” test.
Once a project passes that test, a municipality sets up a Tax Incremental District (TID) and issues bonds to pay for development. When that development increases the taxable value of the land, taxes on the increase are used to pay off the bonds. Usually, the increase in value is so great that the bonds can be retired long before they would actually be due, and the entire property becomes taxable at a higher rate.
For example, at one project in Sturtevant, the original property was valued at $4 million. The community used a TIF-funded bond to pay for the roads, sewer pipes and electrical lines needed to build a business park. Now, the debt has been retired, and the property is being taxed at a value of more than $220 million.
Not every TIF is going to generate returns that are that high, but a recent report examined seven TIDs around the state, and its findings were positive. “Each TID contributes at least $1 million in additional state income taxes annually, with some contributing substantially more, providing net benefits to the state beyond additional property tax revenue.” In short, TIFs are working.
TIF allows Wisconsin municipalities to work collaboratively with the state’s economic developers to grow the state’s economy. It’s such a good idea, it’s now being used in states and by localities across the country.
But it’s especially effective here in Wisconsin. For example:
- For every $1 of investment within a Wisconsin TIF district, an average of $4.66 of additional tax base is created.
- Without TIF the state would need to spend almost 5 times more tax money than it currently does to support the same number of local economic development projects.
- Between 2009 and 2016, TIF districts that closed had been open for, on average, 16.37 years, which is 4 to 11 years shorter than the maximum allowed by law. It’s in the interests of a taxing district to close a TIF, since then all tax revenue generated there goes back to the taxing jurisdiction.
Maintaining and enhancing the flexibility currently afforded under the state TIF statute will allow Wisconsin to compete for investment and jobs regionally, nationally, and internationally.
Unfortunately, Governor Tony Evers proposed a budget this year that would have defunded TIF. His fellow Democrats in Madison say they’ll strike that item. But it’s clear that some of our leaders are taking aim at this important program.
Policymakers often think that crafting positive public policies means working to enact new legislation. But in this case, it simply means protecting policies that are already working well.
The governor’s budget aimed to undo years of bipartisan work to create the most important, and really the only tool Wisconsin municipalities have to spur economic development and create jobs. Any changes to Tax Incremental Financing (TIF) would have serious negative consequences on real estate and economic development in Wisconsin.
Jim Villa is the chief executive officer of NAIOP Wisconsin, the Commercial Real Estate Development Association. NAIOP is an leading organization for developers, owners, investors and related professionals in office, industrial, mixed-use and retail real estate.
