Briggs & Stratton secures county loan for project

By Ralph Chapoco

July 18, 2018

To attract commercial enterprises to the area, Washington County officials arranged to subsidize a potential development project in Germantown, negotiating an agreement with representatives from Briggs & Stratton, Zilber Property Group and village leaders.

The arrangement, approved by members of the County Board of Supervisors after a private meeting on July 11, is an intergovernmental agreement between officials from the county and the village of Germantown.

The covenant permits county officials to underwrite a loan for $1 million develop a business park within the village. The low-interest loan will be offered to Briggs & Stratton executives, to generate the construction of a building they will use.

Parties are still negotiating the final terms, but staff from Economic Development Washington County have proposed a 15year term with an interest rate that is about 0.75 percent of the prime rate published by the Wall Street Journal, which would be about 3.75 percent. However, the actual rate will be determined by the perceived risks of providing the company with money.

As part of the agreement, staff and board members from EDWC will provide the loan payment to company officers, who will use the dollars to make lease payments to representatives from Zilber as repayment for constructing the 700,000 square-foot warehouse and distribution center that Briggs & Stratton staff will occupy.

“The company would use the space as a distribution center for its engines and products and would be in addition to its existing service and parts distribution center in Menomonee Falls,” said Lauren Vagnini, the corporate communications manager from Briggs & Stratton Corp.

EDWC will offer the loan to the company instead of the developer.

“One of our outstanding principles is that we don’t incentivize prospective development, we incentivize the end users who are creating the jobs,” said Christian Tscheschlok, executive director of Economic Development Washington County. “In this case it is Briggs & Stratton.”

Company representatives will be responsible for the loan until they satisfy requirements laid out in an agreement that has yet to be finalized between themselves and county officials. Once the requirements have been completed, repayment of the loan will come from the tax incremental finance district that is managed by village leaders, so they will be making the formal payment to county officials from property taxes derived from the district.

“What I want to point out is, where is the money for the tax incremental financing district coming from?” Tscheschlok said. “It is coming from Briggs and the developer because Briggs is paying Zilber who is paying into the tax incremental financing district. It is that tax incremental financing district that is being funded through property taxes by this development that is making the payment on this note.”

According to previous reporting by the Daily News, village officials had been discussing the proposed development on the 150-acre property for several months. The site is east of Interstate 41, west of Goldendale Road, north of Holy Hill Road and south of Rockfield Road.

“Zilber came in and said, ‘we would like to develop a business park in this Holy Hill area, but in order to make that happen we need access to sewer and water,’” village of Germantown Administrator Steve Kreklow said. “This was in the village’s long-term plans to have this type of development up there, so we saw this as an opportunity to finance the extension of sewer and water to that area.”

Kreklow said they will also make improvements to Holy Hill Road. Total expenses for the improvements will cost village leaders about $7.8 million. They plan to subsidize the cost of those improvements from additional property tax revenue they will receive from the creation of the financing district — their eighth.

Financing districts are development tools that municipal officials can use. They will pay for the upfront cost of developing an area from the incremental property tax money collected because of increased land values.

When a financing district is created, the land is valued at a specific amount known as the base value. Property taxes generated from the base value are shared among the various taxing jurisdictions, from the county to the school district.

However, as developers enhance the location, such as constructing buildings for commercial space, the value of the land will increase. Theoretically, the increasing land values should generate additional property tax revenues. It is those revenues, the increment, that village officials will use to pay for improvements they made since those dollars are not disbursed to the other taxing jurisdictions.

Kreklow said they have modeled the future value of the district, along with the incremental taxes they expect to collect — supposing that development continues as planned.

In the 20-year life of the district, officials estimate an $88 million increase in the value of the properties, which they expect to generate an additional $22 million in future tax revenues.

The risk is that village officials, along with their financial consultants, miscalculated the amount of development that will occur at the site, potentially reducing the land value and the corresponding taxes that could be collected. In that case, the incremental taxes may not be sufficient to repay the loan and the associated interest.

“Normally that would be the risk but what we were able to negotiate into the developer’s agreement with Zilber, is they are guaranteeing enough of the incremental development to pay for the debt service,” Kreklow said.

Of the $88 million increase in property values, Zilber representatives are promising to construct two buildings that will add about $33 million of additional value to the district, generating enough in taxes to repay the loan.

According to the development assumptions from the project plan, an additional building will enhance the district by more than $10 million and future development comprises the rest to reach the $88 million-mark.

Given the project’s potential impact, all parties believed the potential advantages outweighed the potential threats.

“It is right in line with all of the revolving loan funds that we administer and execute,” County Administrator Joshua Schoemann said.

The loan from the county was the catalyst needed to begin the chain reaction that would create synergies for everyone involved with the project. The loan was enough to entice Briggs & Stratton executives to locate to Germantown. That decision would generate the lease payments to Zilber to make developing the area a profitable venture. That choice was sufficient reason for village officials to make improvements, which opens the possibility for other development in the future.

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