COVER FEATURE

TIF considerations

Marathon County is tied with Washington County for the most distressed TIF districts in the state. This is what is going on with them.

There are about as many opinions on Tax

Increment Finance districts (otherwise known as TIF Districts or TIDs) as there are people. But one thing that should alarm everyone: Marathon County is leading the way in distressed districts.

First, a primer: TIF Districts are districts created to help ease blight. The point of them is to help provide incentives to developers to develop projects in places they might not otherwise touch. Municipal leaders will tell you they’re one of the few tools available to help redevelop these troubled areas.

In fact, that’s exactly what they’re supposed to be used for. A project in a TIF District needs to pass the “but for” test; in other words “But for this extra money, the project would not happen.” Or put less in lawyer speak, without the money from TIF, no way the project would or could happen.

But what does that actually mean? Talk to ten people and you’ll get ten interpretations. You’ll see signs in empty tracts of land advertising that tax incentives are available. Shouldn’t that be exactly what developers want? Talk to them long enough, and you learn they love bare land. Already existing buildings are challenging and more limiting. The mall site is being cleared before a project is declared for it, for exactly that reason. (What developers call “pad ready.”)

It can be more than an old, dilapidated building on the site. Environmental remediation can qualify. That cleanup can get expensive.

TIF is a mechanism that can pay for itself. (Kind of, as we will see later.) The idea is that you form this district, and money over the set amount the date the district was created goes to the district to pay off its debt instead of the municipality, the school district, etc. The fancy new project brings up all the property values, increasing revenue from taxes, the district gets paid off, it closes, and kaboom: it’s a win-win-win, as Pete Weinschenck put it in a recent story.

What happens when that doesn’t work out? It’s not working out in six distressed districts in Marathon County, according to the State Department of Revenue, which tracks TIF districts. That’s tied for the most of any county in the state. The other is Washington County; five of its distressed TIFs are in West Bend.

What happens when a district is declared distressed? Districts can be extended. That gives more time to develop increment and pay off the debt.

But after that? Taxpayers will foot the bill. Are taxpayers in municipalities with these six districts in danger of that?

The worst TIF choice

Before we get to those six districts, let’s highlight one of the most dangerous gambles with TIF in recent years in the area. Stevens Point used TIF financing to help pay for the demolition and redevelopment of the CenterPoint MarketPlace mall. In its place, a technical college.

Now that we know how TIF districts work, can you see a problem with this already? Technical schools don’t pay taxes. And generating new property tax revenue is the key to paying back a TIF. Having a non-profit as a very expensive centerpiece project is a major gamble. The municipality is counting on the land value increases from existing properties plus new development in the district to help pay the costs back. Considering it cost almost $9 million when all said and done, well, that’s a tall order.

And remember, that’s only the new increment. In other words, if a property is worth $10 at the time a district opens, and it goes up to $11, you get the tax revenue from the $1.

Finance people at the time told me they thought it was crazy. They were right. Another district was designated as a donor district to help fund the otherwise underwater (ie, losing money) district.

And that means the donor district also can’t close. It means any gains from those properties in that district are going to the TIF, and not to city coffers to provide taxpayers some relief. Not to mention the school district, technical college, county and state.

Kronenwetter

Since Kronenwetter has two of them, let’s start with them.

The village’s community development director, Randy Fifrick, told me when the village incorporated in 20022003, the main reason was so that the city could develop TIFs, since at the time towns couldn’t.

The village created four TIFs with the idea they would spark economic development. There were some projects, and some like Woods Equipment Manufacturing Company and M&J Marine are doing well, but overall not nearly enough development has happened in TIF 1 and 4, which have been labeled distressed by the state. That qualifies them for an extension.

Neither of them right now is close to payback by that extended date.

What happened? They paid for expensive projects such as the Kowalski Road renovation. And neither of them had an extensive enough project attached to them that would generate the increment to pay back the borrowing on the TIF.

It’s a similar gamble to what Stevens Point did with its mall. Because the central project resulting from the TIF borrowing was a technical college that, by its nature, doesn’t pay taxes, they had to hope development pops up to cover it.

One thing different with Kronenwetter, however, is that at least Stevens Point had city-owned land it could market to developers. Fifrick says the land inside the TIF is all privately owned. That gives the village little control over what happens on those parcels.

Both districts have pretty stark debts compared to their fund balances: District one is in the hole $7,846,208.00; TIF 4 is a little better at $1,735,099. To be fair, TIF 4 has until 2044 to recover (TIFs always start out in the hole) and TIF 4 has until 2034. But neither as it stands, neither are on track to break even.

Schofield

Schofield’s distressed TIF, TIF No. 3, predates Clerk/Treasurer Lisa Quinn. Quinn says that TIF 3 was, to the best of her knowledge, created to address water sewer issues on Grand Avenue.

The district will not close underwater, but that’s because TIF District No. 2 will serve as a donor district to help pay it back.\

Marathon County distressed districts

Athens 1

Date started: 9/25/1995 Supposed to close: 9/22/2022 Extended close: 9/25/2032

Kronenwetter 4

Date started: 11/3/2004 Supposed to end: 11/3/2024 Extended date: 11/3/2034

Edgar 3

Date started: 10/11/2004 Supposed to close: 10/11/2024 Extended date: 10/11/2034

Kronenwetter 1

Date started: 11/3/2004 Supposed to end: 11/3/2024 Extended date:11/3/2044

Maine 1

Date started: 9/29/1997 Supposed to end: 9/29/2020 Extended date: 9/29/2030

Schofield 3

Date started: 9/22/1997 Supposed to end: 9/22/2024 Extended to: 9/22/2034

Maine (or, Brokaw?)

There’s a very good reason Maine became a village, even if there was a little bit of backlash against the plan. Had it not, the village of Brokaw, nestled between the towns of Maine and Texas, would have dissolved. That would have saddled Maine and Texas with its debts, which was substantial.

So in absorbing Brokaw into the new village, Maine took on its TIF District, which is distressed. It was started in 1997 as a way to develop the area west of the Wisconsin River, says Maine Administrator Keith Rusch. Rusch says the district will close in 2034 (the DOR’s report says 2030) and will not be underwater when it closes.

District 1 is Maine’s only district, and the village has no intention to form any others.

Rusch says the combination of the mill closing (the whole reason Brokaw collapsed) and Brokaw overborrowing on the district, by much more than they should have been allowed, led to the financial troubles with the district.

Analyzing mill rate data is a little more challenging with Brokaw/Maine because of the unusual situation having a town become a village and absorbing another village. Rusch says Brokaw residents were paying $45 per $1,000 in total mill rate (including all the taxing entities) versus now when, as Maine residents, they’re paying $21 per $1,000. Maine’s taxes have decreased in the few years it has been a village.

Athens

Athens Clerk/Treasurer Lisa Czech says that Athen’s District 1 was created in 1995 when the village created its industrial park. The district fell behind because infrastructure ended up costing more than expected.

The district is currently in a deficit, but Czech says village leaders are hopeful the district will break even by the time it closes at the extended date of 2032.

Edgar

Edgar’s District No. 3 was formed to clean up the former whey plant and other blight in that area, according to Village Administrator Jennifer Lopez.

Demands for the kind of property in that district, including industrial, commercial and residential; along

with reductions in land value and difficulties in obtaining industrial; and difficulty securing commercial loans all contributed to the district falling short of its projections, the village wrote in its extension application. Between 2007 and 2011 — during the peak of the Great Recession — land values in the district only grew from $1.2 million to $1.6 million. The village is using a donor district to assist TIF No. 3, so it will be fully paid off by the time the district closes in 2027.

Increasing amounts of TIF locked in districts

The Department of Revenue’s data visualization tool compares two charts: total mill rate for a municipality (including state, county, school, etc) overlayed with data from total equalized value and equalized value not in a TIF. In other words, as the two lines overlap, you can see how much value is locked in TIF Districts over time.

There are more similarities between districts than there are differences. Two stark things really stand out.

The amount of value locked in TIF districts have been increasing lately. Almost universally. Especially in the last five years, municipalities have turned to TIF more and more.

There appears to be an inverse correlation between increasing equalized value and tax rates. As value increases, mill rates decrease, and vice versa.

Although it’s outside our coverage area, Stevens Point presents an interesting example. Stevens Point’s mill rates were falling as its equalized values rose in recent years, but that changed around 2017: in ‘18 and ‘19, the amount of value locked in TIFs dramatically rose. It went from $106 million locked in TIF in 2017 to $230 million locked up in 2019. As that changed, mill rates rose instead of fell, a strange anomaly as equalized value still rose.

That’s not the case with Wausau. Wausau’s mill rates have fallen almost perfectly inverse with the rise of equalized value, and vice versa. Wausau’s also look different than Point in that Point had years in the mid-2000s where it had almost no value locked in TIFs; Wausau’s have been steadily growing. Wausau went from $256 million locked in TIF in 2017 to $359 million. It seems like a big jump and it is, but looking more long-term it’s a more steady rise.

How about for Kronenwetter? Much more boring. The amount locked in TIF stayed pretty steady over the years since around 2010, and mill rates have dropped as value has risen.

Schofield’s is also a pretty similar story, with mill rates dropping as value increases. Schofield is more similar to Stevens Point and Wausau in that the amount locked in TIF has changed quite a bit. TIF-locked $21.7 million in 2017 grew to $31 million in 2019.

Lessons learned

None of the distressed districts are quite as reckless as Stevens Point’s downtown mall project TIF, but it’s interesting that most of the distressed TIF districts in the county were the result of general TIFs, versus those created for a very specific project.

The most successful districts seem to at least center on one specific project, though others might be added over the district’s life. Wausau’s River District is a good example — it will fund a series of developments along the Wisconsin River, bringing housing, commercial and retail to an area that had been an industrial wasteland.

Debates will continue about TIF Districts — some use them without a thought, others take a hard line against ever using them, and plenty others are somewhere in between those two extremes. TIF is like any tool — there is probably more than one right way to use it, but also plenty of wrong ways.

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