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Somers’ Foxconn-related TIFs push boundaries of development playbook

Foxconn Technology Group’s massive Mount Pleasant factory — and the development expected to follow it — could drive a nearby village to become the poster child for the use of a form of tax incentive that’s becoming ever more common in Wisconsin.

The village of Somers, population 9,500, recently established a whopping nine new Tax Increment Financing districts as part of an effort to welcome development expected to follow the technology giant’s construction of a massive manufacturing campus next door. TIF districts let municipalities take property taxes generated by new development or increasing property values and put the money aside for infrastructure projects in the same area.

The village’s TIF districts come as something of an anticipatory strike. State law prevents municipalities from having more than 12 percent of their taxable value wrapped up in TIF districts. Village officials were concerned that Foxconn-related developments could cause them to bump up against that limit. So they were eager to take advantage of their ability to set  up TIF districts while they still had it.

“We were aware that our ability to do additional TIDs was probably going to be limited,” said Karl Ostby, a Somers village trustee. “Rather than waiting to get the final numbers we decided to create several TID districts. There’s a tremendous amount of interest.”

Ostby said the village plans to use its TIF districts like “bookmarks” for future development, and will cautiously pursue quality developments. The village, he said, has fielded a series of informal development proposals, some of which proposed projects that could take shape in coming months.

With a rash of development expected to follow the Foxconn project, Somers’ “rare” step of establishing TIF districts in advance, and without specific proposals, is an example of how many local officials believe they need TIF to compete with other places, said Mike Harrigan, senior municipal advisor and board chairman at Ehlers.

“It probably shouldn’t be interpreted as an indication that they are going to willy-nilly offer (incentives),” Herrigan said. “Had they not done that they would not have been a player in that market.”

In all, Somers’ districts could allow the village to finance more than $160 million worth of infrastructure work, including sewers and water and roads projects. About $745 million worth of new taxable value could be generated on the more than 3,200 acres encompassed within the TIF districts, officials expect.

Somers’ use of TIF comes as places throughout the state feel pressure to deploy such incentives amid the development boom of recent years. But although project developers are eager to ask for help, municipalities are supposed to deploy TIFs only in instances in which a particular development wouldn’t have happened without the assistance, Herrigan said.

To be sure developers really need TIF, prudent municipalities should evaluate their internal financial reports and other documents to gauge a project’s risk, he said.

“I do think that it is the case that every developer that comes through the door these days seems to ask for tax incremental financing,” Herrigan said. “Every community I know is being very careful with that.”

It’s a trend local governments have seen before. Along with the state of Wisconsin’s economy, the use of TIF districts has ebbed and flowed.

In good economic years, more local governments deployed the incentive. The annual number of TIF districts established in Wisconsin peaked in 2005, when municipalities throughout the state established 105 TIF districts, according to a report released in 2017 by the nonpartisan Legislative Fiscal Bureau. The report analyzed TIF use from 2015 to 1976, the first year the district could be used in Wisconsin.

But the recession of 2008 brought with it a years-long slowdown in the use of TIF districts. Every year between 2009 and 2014, fewer than 50 TIF districts were set up in municipalities throughout the state. Just as happened with all property values, the recession pushed down the value of property in TIFs.

The current use of TIF in good times has caused some to question why government should get involved when the market is already strong for development. Russ Kashian, director of the Fiscal and Economic Research Center at the University of Wisconsin-Whitewater, said it’s “reasonable” for local governments to question the viability of projects seeking TIF support.

Laws guiding the use of TIF may also pit nearby communities against each other as they try to bring in developers, Kashian said.

“Is this competition between communities to attract business of any regional benefit?” Kashian said. “So it doesn’t go to Sommers but it goes to Bristol. There are not barbed wire and barking dogs. What is the regional benefit of offering incentives?”

About Nate Beck, nbeck@dailyreporter.com

Nate Beck is The Daily Reporter's construction staff writer. He can be reached at (414) 225-1814 (office) or 414-388-5635 (mobile).

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