A tax group is sounding the alarm that municipalities are overextending themselves with tax-incremental financing.
State legislators, meanwhile are searching for ways to expand municipal authority for the development tools.
As TIF use increases, so does the number of red flags that the development districts create problems for municipalities, said Dale Knapp, research director for the Wisconsin Taxpayers Alliance. The observation echoes a similar warning from the Public Policy Forum Inc. in Milwaukee this month.
Municipalities with a lot of land in TIF districts run the risk of not having enough money for services such as police, fire or garbage collection because too much money is dedicated to paying for debt generated by the districts, Knapp said.
“What we’ve done over time with TIF is really, both at the legislative level and the municipal level, we’ve really expanded what we are using it for,” he said. “And I think we need to really review what TIF is used for.
Do we need to go the other way?”
Municipalities create TIF districts by designating a certain area for development. The government can borrow money to promote development in the area by building streets and utilities, cleaning environmental contamination or giving grants to private projects. The municipality then has up to 27 years to use increased property taxes generated by new development in the district to pay for the debt. Once the debt is paid, the increased taxes can pay for other city services.
Municipalities are struggling to pay for services for a variety of reasons, said Ed Huck, executive director of the Wisconsin Alliance of Cities. But current economic problems are no reason to scale back the state’s TIF laws, he said.
“People start to get a little bit testy about where your money is put when they don’t get (services) they want,” Huck said.
Wisconsin had 1,006 districts in 2008, compared to 485 in 1990, according to the Taxpayers Alliance TIF study released Tuesday. The study found that 104 of the 385 municipalities with open districts in 2008 exceeded the state threshold that only 12 percent of their overall property value can be in a TIF district.
State Rep. Louis Molepske Jr., D-Stevens Point, said he does not think municipalities are too aggressive with TIFs.
“While I would rather see blighted areas, areas with low performance, be the first areas where the (districts) are used instead of green land, pasture land,” he said, “ultimately, it’s up to those council members.”
However, Molepske said, decreasing property values are making some TIF districts fall behind on tax generation to the point where they may not meet the deadline to pay off debt. He said he plans to introduce a bill next month that would give municipalities more flexibility to deal with ailing districts.
Sen. Jim Sullivan, D-Wauwatosa, will introduce a similar bill in the state Senate.
Molepske’s bill would let failing districts remain open for up to 40 years.
The bill also would loosen the state law that lets only TIF districts created around environmentally blighted properties receive money from other districts to cover shortfalls. According to the proposed bill, any failing TIF district that qualifies for the 40-year deadline could borrow money from other districts, he said.
Knapp said that might only add to the problem.
“There might be a worry that if you extend that legal life to 40 years instead of 27, communities might be getting more aggressive about the amount of public improvements that they put in because they have more time to pay it off,” he said. “There’s a greater chance of over-TIFing.”
Molepske said the bill would prevent abuse by requiring municipalities to get approvals from the state and a local joint review board of local school district, technical college and county officials.
They’re not going to see their additional revenue until this (district) expires,” he said. “That’s why the board of review is involved in this.”