Property taxes in the tiny central Wisconsin village of Warrens soared by 40 percent last year and things don’t look much better for this year.
Warrens is a victim of a development district that’s in distress and the community’s experience could be a warning sign for municipalities that have used public dollars to spur economic development.
“It’s hard to talk to residents about it,” Jolene Rhea, Warrens village clerk, said of the village’s problems with its tax-incremental financing district. “They’re upset about it. We’re all upset about it.”
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.
The state has more than 1,000 TIF districts.
School districts, the county and others that get a slice of the property tax pie continue to collect value of the pre-development tax bill so, in theory, they are not harmed. The additional revenue from the development pays off the TIF debt, usually within 27 years.
But when businesses within a TIF district don’t live up to their expectations, and when most property values decline, as they did this year, communities can suffer.
“We are no longer able to make our increment payments,” Rhea said. “We filed with the state asking that they declare us to be an extremely distressed TIF.”
If the state agrees, Warrens will be allowed to stretch out repayment of its TIF debt of more than $51.5 million. The debt represents more than 75 percent of the equalized value of all the property in the community of 300 people.
When Warrens formed its TIF district in 1998, it looked like a safe bet. Located in cranberry country, tourism is its prime industry. The TIF district encouraged development of the Three Bear Resort, the Jellystone Park and Campground as well as a number of upscale vacation homes.
“Everything went great until 2008,” Rhea said. “But that’s when the developer went bankrupt and the resort was closed.”
The resort has since reopened but the indoor water park has not.
Although less severe than the Warrens situation, the Milwaukee suburb of Glendale is also having some TIF difficulties.
Few communities in the state have been more aggressive in using TIF than Glendale.
Over the past decade, Glendale has had a dramatic facelift: A dying industrial area was converted to a prosperous technical park and a flagging commercial area along Silver Spring Drive was redeveloped. The crown jewel was the redevelopment of the Bayshore shopping center — now known as the Bayshore Town Center.
While Bayshore’s success has exceeded expectations — its equalized value was recently placed at more than $330 million by the state, a 2 percent increase over last year — at least one other district did not fare so well.
Glendale’s TIF No. 7 covers an area on the south side of the city that runs along Port Washington Road and includes one of the city’s biggest taxpayers, the Columbia St. Mary’s Hospital Inc. headquarters. The value of the TIF has dropped 16 percent to about $92 million, according to state assessors. That has Glendale gravely concerned.
“We are appealing the state’s assessment,” said Glendale City Administrator Richard Maslowski. “If that trend (of declining value) were to continue we would not have sufficient revenue to cover the increment.”
Maslowski said Glendale had entered into agreements with developers of properties in TIF districts requiring the owners to make up any difference if an assessed value should decline.
Maslowski said Glendale also structured its loans so that the public debt would be repaid more quickly than the 27-year limit that generally applies to such loans.
Glendale’s TIF districts account for about 19 percent of the city’s equalized value. The state limits TIF debt to 12 percent but that only applies to a community when a district is being formed.
A spokeswoman for the Wisconsin Department of Revenue said the increased value of the development within a TIF district could be the reason the value exceeds 12 percent.
Alan Marcuvitz, a real estate lawyer who has represented a number of communities forming TIF districts, said the state is careful about adhering to the 12 percent cap when a district is formed but questions how careful they are in watching districts after inception.
Marcuvitz said most communities, like Glendale, have agreements with developers to protect against declining values.
“Some older TIFs may not have that protection,” Marcuvitz said. “I’m sure there are some that may be in trouble.”
That trouble could spill over into neighboring communities.
“If one of these fails, then the bondsmen are going to say they don’t want to do business in Wisconsin because the bonds aren’t safe,” he said. “All it takes is for one to fail.”
In the village of Warrens, there’s not much relief in site for the failing TIF.
“It’s getting worse,” Rhea said. “We’re trying to restructure but I don’t know what’s going to happen.”