Madison leaders want to encourage more development while protecting taxpayers’ money.
As a result, the Madison Common Council is seeking new ways to determine which projects qualify for tax-incremental financing assistance from the city.
Getting financing for development is a difficult needle to thread in a weakened economy, said Chris Laurent, vice president of operations for residential developer MSP Real Estate Inc.’s Monona office. And with lenders requiring larger upfront investments in projects, developers find themselves more likely to ask cities for help.
“The reality of the marketplace right now is you might need extra help to create opportunities,” Laurent said. “Even if you have some financial backing right now, it’s still hard to get projects approved.”
The immediate solution, Laurent said, is access to more TIF money. The problem in Madison is the city’s strict policy for determining TIF assistance.
TIF districts let municipalities borrow money to subsidize developments and pay for utility and street work that serves projects. Communities then use new taxes generated by the projects to pay off the debt.
State law requires municipalities using TIF money for projects show why those projects would not exist without TIF. But Madison takes it one step further and measures the amount of money a developer can get for a project against the amount needed to determine how much TIF to provide.
“It’s how the city has always done business, and it’s the way the city is always certain it never loses TIF money,” said Tripp Widder, a Madison real estate attorney and chairman of the city’s last TIF policy committee. “You’re working with a defined number, and you can also use all the incremental taxes in the district to satisfy that amount.”
But Widder said the policy limits Madison’s ability to use TIF. Meanwhile, other cities, such as Middleton and Verona, are taking more risks and attracting more development.
Bruce Sylvester, director of Verona’s Department of Planning and Development, said Verona has four active TIF districts and no firm policy for determining where and how to spend TIF money. Verona follows a similar model to Madison’s in measuring the difference between how much a developer can get and how much is needed for a project, but Verona has no written policy.
“Sometimes we don’t know if we’ll get burnt in giving money to a company or project,” Sylvester said, “but we have faith we’ll get that money back.”
Faith cannot be sold to Madison taxpayers, said Alderman Michael Schumacher.
“One of the most important aspects of our TIF policy is clearly knowing the financial impacts of a project,” he said. “We should not look at getting rid of or weakening that policy.”
Still, the city wants to create an ad hoc TIF policy committee to investigate options the financing difference policy.
Alderwoman Judy Compton said considering options does not mean the city will start handing out money with no control. She said Madison needs to explore ways to measure a company’s financial security in determining its ability to pay off a TIF.
Laurent said it’s good for the city to discuss alternate means of providing TIF because Madison’s hands are tied by its policy. But he said the tradeoff is losing the hard numbers in the current policy.
“The caution is making sure the city isn’t putting in too much,” he said. “It becomes a lot more difficult to find the difference between more and too much.”