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TIFs carry varied risks for Milwaukee

Sean Ryan
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Milwaukee would get a guarantee from a developer to protect the city’s investment in a $2 million Menomonee Valley tax-incremental financing district, but not on the much larger Tower Automotive project.

The risk of things going bad on the proposed $15.6 million TIF district (PDF) for the former Tower Automotive site is even greater, and the city must absorb all of it. City aldermen on Monday will consider both districts.

In strict dollars and cents, the Milwaukee plan to redevelop the former Tower site does not make sense, said Mike Daun, Milwaukee deputy comptroller. But, he said, city leaders must consider the social effects of the project when calculating cost and benefit (PDF).

“I don’t think anybody really knows whether this will be roundly successful or not,” Daun said. “But we know that to do nothing, it’s really not going to be status quo. It’s going to be continued decline.”

To create a TIF district, cities borrow money to support development and use taxes generated by increased property values to pay off the debt. But if the new developments don’t occur as planned — which is a risk identified in both districts the city is proposing — taxpayers get stuck paying off the debt.

The proposed Menomonee Valley TIF district (PDF) would have the city spend $2 million to build new streets through the former Wisconsin Gas Light Co. property on the north shore of the Menomonee River between 16th and 27th streets. The project would support developer Giuffre VIII LLC’s plans to redevelop the property and renovate a building into offices for Zimmerman Architectural Studios Inc., Wauwatosa.

To protect itself from falling short on new debt payments for the TIF, the city will require Giuffre, Milwaukee, to pay off the debt if the plans to bring businesses or retail into the rest of the property don’t pan out.

“I think it would be an important development, but there is no question it does involve the city and the city is taking on some risk (PDF),” Daun said. “But there’s always risk in this sort of thing.”

On the former Tower property, the potential for loss is even greater if plans to attract new businesses do not become reality, and the city has no developer with which to share risk. But Milwaukee Alderman Ashanti Hamilton, who represents a portion of the Tower area, said doing nothing is not an option.

“One of the major things we need to look at is what will be the cost of the city if we do nothing,” he said.

“That’s only going to get worse if we do nothing. There are consequences to that, too.”
The city plans to demolish buildings on the former Tower property, remove environmental contamination, and resell the land to industrial companies.

The high up-front cost of tearing down buildings and removing contamination for the former Tower property means the city must spend $7 million of its 2009 budget and $3 million of its 2010 budget on top of the TIF money. In order to generate enough money to pay for the TIF borrowing, the city made the district cover 300 acres, instead of the 84 in the former Tower site that need redevelopment. That decision means the city is diverting additional property taxes from surrounding houses away from its annual budgets and into the TIF debt, Daun said.

“I think from the get-go what we were trying to say is if, as councilmen, you are trying to draw the risk versus reward here, you have to look at the number of family-supporting jobs as the significant criteria here,” he said.

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