TIFs should benefit taxpayers, not special interests

State Sen. Duey Stroebel is a Republican from Cedarburg.

In the world of government, there are many acronyms, and more and more we are hearing the acronym “TIF.”

Standing for tax increment financing, TIF was designed many years ago to promote economic development. When successful, TIF generally works in the following manner:

A specific area is first designated a TIF district. A municipality then makes infrastructure improvements or provides developers with incentives that have the express purpose of subsidizing new development in the district.

Many times the subsidy comes from money borrowed using bonds. The increased property tax revenues that are generated from new development in the district are then put toward paying off the financial subsidy. Therefore, while the district lasts — which is often as long as 27 years — none of the additional tax revenue flows in the normal manner to the surrounding municipality, county, school district or technical-college district.

I am not opposed to TIF. It’s a valuable means of promoting economic development. My concern is that its current overuse and abuse will give TIF a black eye.

In the state Legislature’s previous session, I was chairman of the Assembly’s State and Local Finance Committee and learned of numerous TIF districts whose failure had risen to the level of requiring special help from the state.

Every time I encountered one, I wondered what the decision-makers who were responsible for these messes were thinking. An unneeded public subsidy is crony capitalism, letting the government pick winners and losers. It should be the free market that instead determines the ultimate viability of a real estate development.

Initially, TIF districts were used as a mechanism to redevelop blighted or environmentally tainted places. Many of the properties within TIF districts had a negative value before being redeveloped, so they generated little, if any, property-tax revenue.

To provide help to these properties, municipalities borrowed money for projects meant to eliminate blight. Relying on TIF required developers to pass the so-called but for test. In other words, they had to prove that “but for” the proposed TIF district, the development of the property would not be possible.

TIF allowed these properties to return to the tax rolls, oftentimes encouraging more economic development and, most importantly, benefiting all taxpayers affected by the district.

Fast forward to today. In the current environment, it is often difficult to find new real estate developments that do not include a TIF subsidy.

Encouraged by the beneficiaries of TIF — such as property owners, developers, eager financial consultants and accommodating bond houses — municipalities are subsidizing private developments that in many cases are unnecessarily lining the pockets of the aforementioned stakeholders. All this comes at the expense of the taxpayers whom the policy is intended to benefit. The disturbing trend is the proliferation of TIF beyond the limits set by the “but for” test.

Today’s levy limits further complicate this troubling trend. A desire to control Wisconsin’s high property taxes has led to the setting of levy limits on municipalities throughout the state.

Virtually the only way to increase local tax revenues is through new construction. Unfortunately and frequently, new development is encouraged to occur in TIF districts, where all revenues are diverted from local government coffers. The problem is self-evident — there are no increases in revenues to offset the inevitable demands that new development within TIF districts ultimately places on local governments.

As someone with experience in real estate development, I understand the benefit of TIF districts and agree with the original intent behind them. The districts were clearly meant to benefit local taxpayers.

Unfortunately, manipulations of various sorts, even in successful TIF districts, often forestall or even destroy the promised benefit. Instead of quickly paying off the underlying debt of a TIF district, TIF revenues are too often directed toward supporting additional expenditures. At other times, the revenue is used subsidize a separate, railing TIF district.

Those who would defend the public’s interest should set their sights on curtailing the reliance on unnecessary TIF districts, increasing the viability of appropriate TIF districts and ensuring TIF districts benefit all taxpayers, not just special interests.