Tax Incremental Financing (TIF)

TIF is the most significant economic development tool available to local governments in Wisconsin. By establishing TIF districts, municipalities can capture the net incremental property tax revenues resulting from new development or redevelopment projects. That revenue can then be dedicated to funding certain permitted activities that support the development or redevelopment project, in accordance with an approved TIF plan.

The value of TIF districts in Two Rivers is about 10% higher than projected. TIF Districts 6, 7, and 8 have assisted in the redevelopment of formerly tax-exempt properties, which today have a combined taxable value of $11 million and growing

Industrial Development

Three of the seven existing TIF districts have assisted industrial development.

TIF District No. 3, established in 1992, assisted with the retention and expansion of Metal Ware.

TIF District No. 5, created in 1999, helped fund extension of utilities and roads to Phase 2 of the Woodland Industrial Park, on the south side of highway 310.

TIF District No. 9, created in 2003, is assisting with the financing of land, utilities, and other eligible costs associated with the new Eggers Industries plant.

Redevelopment

Four of the seven existing TIF districts have assisted in the redevelopment of blighted or obsolete properties.

TIF District No. 4, created in 1994, assisted in developing the Lakeshore Park Apartments at the site of the former Harvey Concrete batch plant, next to Lakeshore Park.

TIF District No. 6, created in 2000, assisted MetroPlains Development in the adaptive re-use of the former St. Luke's School as 32 units of affordable senior housing. Known today as Marquette Manor, this $3.1 million project was an outstanding historic preservation project, as well.

TIF District No. 7,created in 2001, is assisting Rice Health Care of Appleton in its $5 million conversion of the former Two Rivers Community Hospital complex into senior assisted living apartments.

TIF District No. 8, created in 2002, paid for demolition and other costs at the old Washington High School site, assisting the developers in redeveloping that site as the Washington Highlands, where a new residential neighborhood is taking shape.

How a TIF Works

To create a tax incremental district (TID), a Wisconsin City or Village must designates a contiguous geographic area and develop a written TID project plan. Various procedures and approvals are required, including a public hearing and approval by the Plan Commission, approval by the Common Council or Village Board, and approval by a Joint Review Board that includes representatives of the County, the Adult Education District, the School District, and the City or Village in which the TID is located, plus one public member. Various findings are also required, including a finding by the Common Council or Village Board that at least 50 percent of the TID area is a blighted area, is in need or rehabilitation or conservation work, or is suitable for industrial sites (and has been zoned for industrial use).

After creating a TID, the municipality may spend costs on land assembly, demolition, environmental remediation, infrastructure improvements, and related professional service and administrative costs. The goal of these expenditures is to stimulate private, taxable development within the TID, thereby increasing the property tax base for all overlying taxing jurisdictions. For the life of the TID, local property tax revenues on the increased property values in the TID are not split among the overlying taxing jurisdictions as they normally would be; instead, they are paid entirely to the City or Village so that it may reimburse itself for (or pay debt service on) its initial, up-front expenditures. (Property tax revenues on the original property values continue to be split among the overlying taxing jurisdictions, as they normally would be.)

The size of a TID can vary greatly - for example, a larger area (with many parcels) targeted for redevelopment or a business park, or a single parcel targeted for a specific project. Very often, the City or Village will enter into a development agreement or other arrangement with a developer, company, or other party, whereby the parties agree upon the use of TIF for a specific project - for example, the relocation or expansion of a manufacturing plant, the remediation of a contaminated brownfield, or the development of a business park.

Eligible TIF Costs

Generally, expenditures that are eligible for TIF funding must be costs of public works or improvements, or incidental costs. Wisconsin's TIF statute, § 66.1105, identifies the following as eligible TIF costs:

Capital costs, including, but not limited to, the actual costs of the construction of public works or improvements, new buildings, structures, and fixtures; the demolition, alteration, remodeling, repair or reconstruction of existing buildings, structures and fixtures other than the demolition of listed properties as defined in § 44.31 (4); the acquisition of equipment to service the district; the removal or containment of, or the restoration of soil or groundwater affected by, environmental pollution; and the clearing and grading of land.

Financing costs, including, but not limited to, all interest paid to holders of evidences of indebtedness issued to pay for project costs and any premium paid over the principal amount of the obligations because of the redemption of the obligations prior to maturity.

Real property assembly costs, meaning any deficit incurred resulting from the sale or lease as lessor by the City or Village of real or personal property within a TID for consideration which is less than its cost to the City or Village. Note: Under this provision, the cost of purchasing land is not itself the eligible TIF project cost. Rather, it is the shortfall or write-down between (i) the cost of land and (ii) the sale or lease of the land at a lower cost.

Professional service costs, including, but not limited to, those costs incurred for architectural, planning, engineering, and legal advice and services.

Imputed administrative costs including, but not limited to, reasonable charges for the time spent by City employees in connection with the implementation of a project plan.

Relocation costs, including, but not limited to, those relocation payments made following condemnation under § 32.19 and 32.195.

Organizational costs, including, but not limited to, the costs of conducting environmental impact and other studies and the costs of informing the public with respect to the creation of TIDs and the implementation of project plans. The amount of any contributions made under s. 66.1333 (13) in connection with the implementation of the project plan. Note: § 66.1333 (13) authorizes a City or Village (or any other public body) to lend or contribute funds, to assist any redevelopment project located in an area in which a Redevelopment Authority (RDA) or Community Development Authority (CDA) is authorized to act. Generally, this requires that the project area be designated a "blighted property" or a "blighted area" under § 66.1333. The City or Village may lend or contribute funds to parties other than the RDA or CDA itself.

Payments made, in the discretion of the local legislative body, which are found to be necessary or convenient to the creation of TIDs or the implementation of project plans.That portion of costs related to the construction or alteration of sewerage treatment plants, water treatment plants or other environmental protection devices, storm or sanitary sewer lines, water lines, or amenities on streets or the rebuilding or expansion of streets, the construction, alteration, rebuilding or expansion of which is necessitated by the project plan for a TID and is within the TID.

That portion of costs related to the construction or alteration of sewerage treatment plants, water treatment plants or other environmental protection devices, storm or sanitary sewer lines, water lines, or amenities on streets outside the TID if the construction, alteration, rebuilding or expansion is necessitated by the project plan for a TID, and if at the time the construction, alteration, rebuilding or expansion begins there are improvements of the kinds named in this subdivision on the land outside the TID in respect to which the costs are to be incurred.

Costs for the removal, or containment, of lead contamination in buildings or infrastructure if the City or Village declares that such lead contamination is a public health concern.

Exclusions from Eligible TIF Costs

The TIF statute also identifies the following costs as not eligible for TIF funding:

The cost of constructing or expanding administrative buildings, police and fire buildings, libraries, community and recreational buildings and school buildings, unless the administrative buildings, police and fire buildings, libraries and community and recreational buildings were damaged or destroyed before January 1, 1997, by a natural disaster.
The cost of constructing or expanding any facility, if the City or Village generally finances similar facilities only with utility user fees.
General government operating expenses, unrelated to the planning or development of a TID.
Cash grants made by the City or Village to owners, lessees, or developers of land that is located within the TID unless the grant recipient has signed a development agreement with the City or Village, a copy of which shall be sent to the appropriate Joint Review Board or, if that Joint Review Board has been dissolved, retained by the City or Village in the official records for that TID.
In addition, the statute provides generally that other project revenues (i.e., non-TIF revenues) received or reasonably expected to be received by the City or Village must be used to offset the TIF funding. These might include special assessments, land sale proceeds, or other project income or revenue.

Newly Platted Residential Development

TIF project costs may include any expenditures made or estimated to be made or monetary obligations incurred or estimated to be incurred by the City or Village for newly platted residential development only for a TID for which a project plan was approved before September 30, 1995, or for a mixed-use development TID to which one of the following applies:

The density of the residential housing is at least 3 units per acre.
The residential housing is located in a conservation subdivision, as defined in § 66.1027 (1) (a).
The residential housing is located in a traditional neighborhood development, as defined in § 66.1027 (1) (c).
Lands proposed for newly platted residential use, as shown in the TID project plan, may not exceed 35%, by area, of the real property within the TID.
Note: "Newly platted residential development" is not defined.

Statutory Tests and Requirements

A TID must be a contiguous geographic area, comprising (1) whole units of property as are assessed for general property tax purposes, and (2) railroad rights-of-way, rivers, or highways continuously bounded on either side, or on both sides, by whole units of property as are assessed for general property tax purposes that are in the TID.

50% test: Not less than 50% by area of the real property within the TID must be at least one of the following:

A blighted area.
In need of rehabilitation or conservation work, as defined in § 66.1337 (2m) (b).
Suitable for industrial sites within the meaning of 66.1101 and zoned for industrial use.
Suitable for mixed-use development.
Caveat: Sites purchased for industrial development under § 66.1101 or any other authority may be developed by the City or Village by the installation of utilities and roadways but not by the construction of buildings or structures. The sites may be sold or leased for industrial purposes but only for a fair consideration to be determined by the governing body.

Vacant-land test: Property standing vacant for an entire 7-year period immediately preceding adoption of the resolution creating the TID may not comprise more than 25% of the TID area, unless the TID is an industrial TID.

"Vacant property" includes property where the fair market value or replacement cost value of structural improvements on the parcel is less than the fair market value of the land.
"Vacant property" does not include property acquired by the local legislative body under ch. 32 or property included within the abandoned Park East or Park West freeway corridors in Milwaukee County.
"Vacant property" does not include property that is contaminated by environmental pollution, as defined in § 66.1106 (1) (d).

12% test: The equalized value of taxable property of the proposed TID plus the "value increment" (i.e., increased value) of all existing TIDs does not exceed 12% of the total equalized value of taxable property within the City or Village.

Basic Financing Methods

General considerations. Keep in mind that TIF does not itself provide an up-front source of funds. Rather, it provides a revenue stream over time. Also, there will always be a one or two year delay before the initial TID revenues are received.

General obligations bonds or notes. A municipality may issue its general obligation (GO) bonds or notes to finance TID costs. The bonds or notes would count toward the municipality's debt limit and must be issued under proper procedures governing municipal indebtedness. The bonds or notes would be backed by the municipality's taxing power, which is generally the highest credit available to the municipality; the bonds or notes would thus receive the interest-rate benefit of this credit.

Over time, the municipality would be repaid from the revenues generated by the TID. Generally, the municipality assumes the risk that the TID revenues would not be sufficient, although the municipality may seek to mitigate this risk by requiring guarantees or other assurances from the applicable developer or company. The structure of these guarantees and assurances may adversely affect the tax-exempt status of the bonds or notes.

Generally, Wisconsin law limits the maturity of GO bonds to 20 years, and the maturity of GO notes to 10 years (refundable up to an additional 10 years).

Lease-revenue bonds or notes. A municipality may also finance TID costs through lease-revenue bonds or notes issued by its Redevelopment Authority (RDA) or Community Development Authority (CDA). These bonds or notes would not count toward the municipality's debt limit. They would not be backed by the municipality's taxing power and would thus not receive the corresponding interest-rate benefit; however, unlike GO bonds or notes, they are generally exempt from Wisconsin income tax and would thus receive a compensating interest-rate benefit.

As with GO bonds or notes, the municipality assumes the risk that TID revenues would not be sufficient, but again, the municipality may seek to mitigate this risk through guarantees or other assurances from the applicable developer or company. (Depending upon the type of lease, the municipality's risk may be a legal risk and/or a market risk.) Again, the structure of these guarantees and assurances may adversely affect the tax-exempt status of the bonds or notes.

Unlike GO bonds and notes, the maturity of RDA or CDA bonds and notes is not limited to 20 or 10 years but reflects the useful life of the project. This longer maturity is helpful where a TID has an expected life longer than 20 years.

Developer-financed grant or "pay as you go" financing. If a TIF project involves a developer, company, or other party who itself has available funds, then the parties can use a developer-financed grant (also known as "pay as you go" financing).

With a developer-financed grant, the developer or company would finance the TIF costs, but the municipality would agree to reimburse the developer or company for agreed-upon costs, with interest, if and when TID revenues are received over the life of the TID. The financing would not count toward the municipality's debt limit, and the developer or company, not the municipality, would assume the risk that TID revenues would not be sufficient.

Combinations or variations. These financing methods may be used in combination. For example, certain TID costs might be financed using GO or lease-revenue financing, and others might be financed using a developer-financed grant. Variations on these methods are also possible. For example, the developer or company might purchase the municipality's GO bond or note. Here, the developer or company would be providing the funds for the TID costs, but the municipality would retain the risk of insufficient TID revenues (subject to guarantees or other assurances from the developer or company).

Caveat: All of the foregoing methods would require careful analysis and documentation, specific to each TIF project. For example, guarantees, other assurances, or security provided by a developer or company may have an adverse effect on the tax-exempt status of the bonds or notes. A pledge of TID revenues may create unlawful debt. See City of Hartford v. Kirley, 172 Wis. 2d 191, 493 N.W. 2d 45 (1992). Thus,"TIF revenue bonds" described in § 66.1105 (9) (b) are not used.

Additional Considerations

Villages have TIF powers of Cities. Villages have all of the powers of Cities under the TIF statute (§ 66.1105) as well as the RDA and CDA statutes (§ 66.1333 and 66.1335).

Additional types of TIF. In addition to TIF described above (which is available to Cities and Villages):(1) Cities, Villages, Towns, and Counties may use environmental remediation tax incremental financing (ER-TIF) for costs of certain environmental remediation projects.(2) effective October 1, 2004, Towns may use TIF for costs of certain agricultural, forestry, manufacturing, and tourism projects.

As with TIF described above, each of these additional financing tools has its own requirements, procedures, and limits.

Additional limitations may apply.