Wisconsin’s lawmakers have spent nearly 40 years repeatedly twisting the tax increment financing law to accommodate local officials’ whims.
Government, both local and state, treats TIFs as if they are found money. The reasoning is that a city, for instance, issues bonds to pay for streets, sewers or whatever else will make a property attractive to a business. The business moves in, the property value goes up, and the city uses the increase in property taxes to pay off the bonds.
Theoretically, the city’s other taxpayers do not pay an extra dime, and when the bonds are paid off, everyone benefits from the increased tax base. It is a flawed theory because it does not take into account the increased costs for additional city services — fire, police, education — required when a new business moves in and brings with it, perhaps, hundreds of people.
Before the business arrived and before the TIF district was created, the city probably collected taxes from the owner of the land. But when the TIF increases the property value, those additional tax collections go toward the bonds, leaving the rest of the city’s residents and businesses to cover the costs of more city services.
Still, it is easy to picture the local government official who signed off on the first TIF wondering how it could be so easy, requiring no more effort or risk than bending over to pick up a $100 bill from the sidewalk. It is that type of official who eventually says, “Let’s do more of these.”
And the state obliges.
Russ Kashian, a University of Wisconsin-Whitewater economics professor, and Mark Skidmore, a Michigan State University professor of state and local government finance and policy, found that Wisconsin enacted 73 TIF laws between 1975 and 2011. Those laws mostly loosened the rules governing who can use TIFs, how they can be used and how long it takes to pay back the bonds.
But who cares, right? Why not loosen things up if no one gets hurt and tax bases keep escalating?
Former Federal Reserve Chairman Alan Greenspan might call that irrational exuberance. The state has been blinded by the false prospect of easy money and has altered TIF to the point that it no longer resembles the original law, which targeted only blighted properties within cities.
Every time the state bent the law, the risk to taxpayers became greater. It was folly to assume there would be no fallout, and now the managers of 100 TIF districts in Wisconsin know that to be true.
Those TIFs are failing. Everything went according to plan, except when the businesses moved in, the property values of the TIFs went down. But the bond payments remained, and someone has to pay the bills.
In steps the Legislature with a predictably reckless solution. Lawmakers have proposed letting local governments reset a TIF’s base value to whatever it has dropped to.
That means if a TIF district originally set at $1 million has fallen to $700,000, a city could reset to the current number and begin directing taxes to pay off the bonds as soon as the value goes up. Theoretically, it would relieve taxpayers from shouldering the full burden of the bond payment.
Again, it is a flawed theory, a superficial fix that gives local governments another rationalization to abandon their self-control with TIFs. There is no relief, just shared pain.
The city that is responsible for bond payments is not the only taxing authority affected by a TIF. Those others, a county, for instance, have taxpayers who do not live in that city.
If the city resets the TIF’s base at $300,000 less to more quickly direct money to pay off the bonds, the county loses its tax collections on that value. The county has to cover that loss somehow, and its taxpayers, including people who live in the city, are an easy target.
But there is an alternative.
The state should do nothing. Do not pass the bill. Do not solve the problem.
Let the TIFs fail.
Taxpayers would suffer. But comfort is no motivation for change, and angry constituents might be the only obstacles preventing government from further warping what once was a useful tool.