To TIF or not to TIF
Grafton now considering special tax financing district

By Melanie Boyung - News Graphic Staff

Jan. 16, 2018

OZAUKEE COUNTY — Tax incremental financing has become a prevalent development tool in the area, though how often and how the special tax districts are used is not always the same.

A TIF district is a designated area within a municipality that the city or village uses taxes to invest in, to encourage development. At the time the district is created, a base value is determined for taxes; the taxes paid on that amount continue to go to whatever taxing jurisdictions have authority, such as village or city, school district, technical school or county.

After the district is created, the municipality may borrow money for development infrastructure, which is then paid off by additional taxes from the TIF after private development increases its value, and therefore taxes.

Whoever owns property in the TIF district pays the same amount in taxes as they would without the district, but taxes from new development go back into the district’s development rather than to the normal taxing jurisdictions.

“Why, as a developer, wouldn’t you take that deal?” wondered Grafton Town chairman Lester Bartel, who was speaking during a brief discussion about TIF districts and annexation at this month’s Town Board meeting.

The village of Grafton and the cities of Cedarburg and Mequon all have TIF districts currently in use. Grafton has four TIF districts active; Mequon has four as well; and Cedarburg has one active, another that has been approved but not yet filed – the Amcast property – and a potential third scheduled for discussion later this month.

According to the Wisconsin Department of Revenue TIF Manual, “Wisconsin adopted legislation in 1975 in response to the challenges of eliminating blighted areas in depressed urban areas.” The manual explains that blighted areas have additional costs for demolition, rehabilitation and environmental remediation which make it difficult to develop for either municipality or private firm alone.

 The chart shows the tax growth and distribution over time within a tax incremental financing district. The base value and taxes are determined at the time a TIF is formed and remain the same, with each tax jurisdiction receiving that amount for the duration of the TIF. The value and tax growth from development within the district funds the district until it is closed, after which the property's new value is added to the tax roll, increasing tax values for the community.
Chart courtesy of the Wisconsin Department of Revenue

The manual further explains that TIF law has been changed and expanded over the 43 years since its passage, allowing for TIF districting in a wider array of situations.

“It is pretty much the only thing we have to incentivize construction in the city. This is one option that’s available,” Cedarburg City Administrator Christy Mertes said.

Mertes said Cedarburg’s Amcast TIF district and the already active district downtown, where there was previously a Chevy dealership, are attached to environmental blight issues. The properties in question for both uses of tax incremental financing require rehabilitation and remediation to be developed again. The costs of such development would be both a burden to the city without development, and a deterrent for developers without municipal aid.

According to state TIF law, a municipality creating a TIF district requires the development considered pass the “but for” test: the development would not occur “but for” the existence of tax incremental being available.

The potential TIF district in Cedarburg would be on the south end of downtown, at the site of the former St. Francis Borgia school. The developer for the Arrabelle project, which was downsized significantly against community opposition, has now approached the city for financial assistance.

Legislator Sen. Duey Stroebel, R-Cedarburg, agreed with the original purpose of TIF districting for blighted properties. Properties that had legitimate and significant problems could remain vacant for decades, because no developer wanted to shoulder the costs of remediation and of development. The TIF law was implemented to help get those properties in use again, so 20 or 27 years later, depending on the TIF, the property could return to the tax roll as an addition to communities’ values.

“But really, they’ve (TIFs) morphed well beyond that, and now we’re seeing a lot of abuse of TIF law,” Stroebel said.

Stroebel said he has nothing against the Arrabelle project itself, and thinks it is a fine development in a prime location in Cedarburg.

“What I do see a problem with is the taxpayers being asked to subsidize it to the tune of $2 million,” Stroebel said.

“If you have to have a TIF to develop in a great place like Cedarburg, in a fantastic location, where don’t you need a TIF?” Stroebel added.

In Mequon, TIF districts are used somewhat differently. Two of the city’s four active TIFs involved taxpayer funded improvements, one district supporting an industrial park and another where the Towne Center is. Mequon Finance Director Tom Watson said the Towne Center TIF was created in 2007, in part because the site did have remediation needs, and also to help kickstart new development and incentivize businesses to grow in Mequon at a time when the economy was beginning to fall. That had a municipal election investment of approximately $6.95 million.

The other two TIF districts, however, were funded differently.

“The two TIFs on the Port Washington (Road) corridor are pay-as-you-go … they city doesn’t have any financial investment,” Watson said.

Watson said Mequon did not invest in infrastructure or construction for the two TIF districts on Port Washington Road. Rather, the developers in those districts can obtain tax incentives as development is built; if the developers do not add value to the properties, they receive no financial benefit.

Grafton has four active TIF districts, according to the village website. The oldest is the TIF used to develop the Grafton business park already built, where Kapco and the Village Hall are located on Badger Circle.

Grafton’s other three TIFs are in the downtown area, the south commercial district along the west side of Wisconsin Avenue from First Avenue north to the Interurban bike trail, according to a village TIF map, and the Grafton Commons development, off of Interstate 43 on the east end of the village.

Downtown and the south commercial district were areas the village targeted for infrastructure improvements in the hopes of encouraging redevelopment and improvements, according to village TIF documents and plans. Documents from the Grafton Commons TIF state the site had blight in need of removal, which TIF districting helped complete, along with encouraging development of Costco and other retail projects.

The village of Grafton also plans to discuss a new TIF for another business park off Ulao Road and Highway C. The land in question would have to be annexed from the town of Grafton into the village.

Village Administrator Jesse Thyes said discussing a TIF for that project was expected during Monday’s board meeting, after the News Graphic deadline, though how it would turn out is not yet certain. ”Based upon what value MLG (the developer) intends to bring in … we (the village) have to determine if a TIF district is feasible,” Thyes said.

TIF Funding: Cedarburg’s mayoral candidates weigh in

CEDARBURG — Local municipalities establish TID districts and offer TIF funding as a means to encourage development, but this tool is not without controversy.

On Jan. 25, Cedarburg’s Joint Review Board and Community Development Authority will discuss the proposed tax incremental financing district No. 5, which would be created as a redevelopment tool for the former St. Francis Borgia School site in downtown Cedarburg. That has been approved for development as the Arrabelle multi-family development by HSI Properties.

“The TIF funding is necessary to bring a project of this importance to Cedarburg into an acceptable size and scale for the area and to allow the developer to design the project in a manner much more representative of Cedarburg, in an area so close to our historic downtown,” said mayoral candidate Mike O’Keefe, who currently serves as an alderman for Cedarburg’s District 7.

His opponent strongly disagreed.

“A TIF for the Arrabelle project would represent $2 million-plus in welfare for luxury apartment developers offered at the eventual expense of our school systems and other city services that would otherwise benefit from the anticipated tax revenues this prime real estate would afford,” said mayoral candidate William Bujanovich. “In a Common Council meeting just last year, Alderman O’Keefe indicated that, ‘if we the city did not approve the HSI project, our taxes were sure to go up.’” The Arrabelle Apartment project consists of 60 high-end apartment buildings, a building with nine townhome-style units and a single-family home site.

The TIF proposal asks the city to spend a total of $1.981 million on the district, $1.925 million in developer incentive payments and $56,500 in administrative expenses. In return, the investment will create $8.4 million in land value and improvements for the city.

Bujanovich questions what should happen if the project move forward with TIF funding. “Where do we go for the lost revenue? This project was sold by HSI touting the tax benefits to the community and now the same says the project is not viable because of these anticipated expenses,” added Bujanovich.

“The city will not need to borrow any money; the funding is from the additional taxes which will not exist without the creation of this project, from a property owned by a non-profit from which we have not seen any tax revenue at all for decades,” said O’Keefe.

Bujanovich stated that he felt that neither the Spring Street residential lot or Hamilton Street parking lot, which are part of the proposed Arrabelle footprint, needed TIF funding for redevelopment.

“(These are) valuable development sites that don’t need taxpayer aid,” he said. “The proposed Washington Avenue apartment building is to be sited on currently vacant land. It doesn’t need taxpayer funds or special favors.”

As for the school site, Bujanovich did not think the property was “in distress or a blighted property.”

“If at all, this property suffers from lack of maintenance and if becomes derelict, the owner should be cited for abandonment,” he said. “This property is extremely well built and was done so as to stand the test to time. A developers lack of mathematics and understanding of such a cost to demolish it does not make the property blighted. Cash flow or investor portfolio changes making a project less viable do not qualify it for the establishment of a TIF District.”

O’Keefe favors the project for the impact it will have on citizens seeking housing as well as the economic impact they will have on downtown Cedarburg.

“Arrabelle will provide a Cedarburg alternative for citizens who have lived their lives here and are looking to downsize, other “empty-nesters” and those not ready to commit to full home ownership … These individuals will greatly benefit the health and vitality of our downtown district, a key to the continued growth and success of the city,” said O’Keefe. “The alternative is likely years of the blighted condition of the abandoned school and rectory at the gateway to our historic downtown.”