Super TIF option for new Bradley Center has risks

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A potential financing structure to contribute public money to a new Milwaukee arena comes with the risk of reduced local control.

The pending sale of the Milwaukee Bucks includes a $200 million combined commitment from current owner Herb Kohl and prospective owners Marc Lasry and Wesley Edens. The National Basketball Association Board of Governors must approve the sale.

The $200 million should cover about half the cost of a new arena, Edens said Wednesday. Kohl added that some public assistance still will be necessary.

A taskforce created by the Milwaukee Metropolitan Association of Commerce is exploring possible sources for that public contribution. Those options include a super TIF, an expanded version of a traditional tax increment financing district.

In a traditional TIF, a municipality pays for infrastructure or other improvements in a designated area to lure development or retain existing businesses. Within the district, property tax rates for other taxing jurisdictions, such as the local school district or county, are frozen and the municipality then reaps the initial tax benefit of TIF-related development. Once those additional taxes reimburse the city for its investment, the base rate is unfrozen and all taxing jurisdictions benefit from higher property values.

In a super TIF, state taxes, such as those on payroll, income or sales, could also be captured from within the district to help pay off an investment. Missouri, Pennsylvania and Minnesota have approved super TIFs or similar state-assistance programs.

Timothy Sheehy, MMAC president, said a super TIF could make sense in Milwaukee because the new arena, like the BMO Harris Bradley Center, probably will be exempt from property taxes. If a super TIF then captured state payroll taxes, for example, that would be a way for the building to repay public investment.

Brookfield-based Hammes Co. LLC, which the MMAC has retained as a consultant, helped craft a financing model similar to a super TIF in Rochester, Minn., to spur development around the Mayo Clinic.

The original proposal would have captured state taxes and used the money to improve the area around the clinic. In exchange, the Mayo Clinic committed to spending billions of dollars to improve and expand its campus.

However, the Minnesota Legislature altered that proposal and instead reached an agreement to provide state money after $200 million from other sources has been spent on improvements, said Stevan Kvenvold, Rochester’s city administrator.

The city alone must spend $128 million on projects, he said, and probably will have to increase its sales tax to come up with the money. No projects have yet been approved. An economic development agency created by the Mayo Clinic, a development corporation and the Rochester Common Council will collaborate on a development plan.

But that oversight trio, Kvenvold said, limits city officials’ ability to include projects in that development plan.

“The city cannot establish those projects by themselves,” he said.

While the city must approve the development plan, the eight-member corporation is tasked with creating it. The corporation has one county and two city representatives, a Mayo Clinic member and four state appointees, according to its articles of incorporation.

“This eight-member body is a fairly influential and powerful group,” Kvenvold said, “so it’s like a mini City Council established in your town.”

Todd Berry, president of the nonprofit Wisconsin Taxpayers Alliance, said a super TIF in Milwaukee likely would come with a similar oversight structure.

“I think it’s safe to say the Legislature would be rather cautious,” he said, “and would want a say in the decision making.”

Furthermore, he said, convincing the Wisconsin Legislature to allow the creation of a super TIF could be difficult.

But the MMAC is not looking to exactly replicate the Rochester model in Milwaukee, Sheehy said, and concerns about constraining local control could be raised with any public financing options.

“That applies to almost any tax source,” he said, “unless it were financed 100 percent by the city.”

Sheehy said he doubts that will happen.

A Milwaukee super TIF, at this point, is purely speculation, he said. For him to endorse the idea, he would need to be assured that it would result in a long-term increase in property values around the new arena. That assurance could come through commitments from businesses to move to the area.

Before the MMAC recommends anything, he said, the board of directors wants to discuss possibilities with Lasry and Edens after the sale is confirmed.

“We don’t even know,” he said, “if the concept’s going to pencil out.” Follow @bkevit