The Wisconsin Supreme Court found on Wednesday that local governments are within their rights to encourage projects by providing developers with direct cash incentives, a decision that upholds a financing method used throughout the state.
The ruling resulted from a legal challenge involving the $85 million Confluence Arts Center in downtown Eau Claire. Local officials had used tax-increment financing to provide $6 million worth of incentives to the project’s developer.
That use of public money prompted the Wisconsin Institute of Law and Liberty, a conservative law firm, to file a lawsuit on the behalf of a local group, Voters with Facts, arguing that Eau Claire had violated a state constitutional provision calling for property taxes to be levied uniformly.
The case could have greatly changed how TIF districts are used throughout the state. Local governments often rely on TIFs to spur economic development.
Beyond Eau Claire’s Confluence project, tax-increment financing is contributing to the incentives offered by both the state and local governments to encourage the Taiwanese company Foxconn Technology Group to build a $10 billion manufacturing campus in the village of Mount Pleasant. Village and Racine County officials have committed $764 million to that project.
With the Supreme Court’s decision on Wednesday, local officials will no longer have to worry that TIF payments could be deemed unfair distributions of property taxes. The case now heads back to Eau Claire County, where a judge will be asked to decide if local officials there were acting within their rights when they had site of the Confluence project declared blighted before drawing up their TIF plans.
It’s a question that Eau Claire City Assistant City Attorney Doug Hoffer contends isn’t likely to upend the project. The state’s legal standard for review calls for presuming the city’s decisions were correct.
Hoffer praised the Supreme Court’s decision, saying it preserve local governments’ right to encourage development that might not otherwise happen.
“Having the flexibility to (use TIF) is vitally important, especially in urban areas,” Hoffer said.
Wednesday’s 5-2 decision cut across ideological lines on the Wisconsin Supreme Court. Justice Annette Ziegler wrote the opinion and was joined by her fellow conservatives, Chief Justice Patience Roggensack and Justice Michael Gableman, and the court’s two liberal members, Justices Shirley Abrahamson and Ann Walsh Bradley. Two other conservative justices, Rebecca Bradley and Daniel Kelly, dissented.
Before the Supreme Court took the case, both an Eau Claire County judge and the state court of appeals court had ruled in favor of the city of Eau Claire.
The public-private Confluence Project development consists of an arts center and a mixed-use complex with apartments for college students. Its name derives from its location near the confluence of the Eau Claire and Chippewa Rivers in the city’s downtown. Work on the mixed-use Haymarket Landing building wrapped up in 2016, and the arts center is scheduled to be completed late this summer.
The confluence project, Hoffer said, has helped encourage other developments in the city, including a $50 million renovation of a downtown hotel.
In challenging the Confluence project, Voters with Facts have used not only the courts and but also city- and county-wide voter referendums. The referendums, which could have threatened the project if they failed, passed in 2014.
“This lawsuit targeting tax increment financing is their latest attempt to stop the project,” Hoffer said. “Voters with Facts does have objections to the project. We think those objections are better remedied in the legislature. These aren’t issues that the courts should be asked to review.”
Rick Esenberg, president of the Wisconsin Institute for Law and Liberty, said in a statement that the court’s decision should compel the Wisconsin Legislature to change the state’s TIF laws. Wisconsin’s TIF laws, he said, are often abused to allow local governments to funnel taxpayers money to developers.
“We will continue to closely monitor the use of TIFs by local governments and will not hesitate to challenge those that violate the law,” Esenberg said. “But given the decision of the court, it may be up to the legislature to reform TIF laws to protect the taxpayer and ensure this abuse ends.”
The Associated Press also contributed to this report.