There’s no easy way to explain TIF districts.
Or at least if there is, I haven’t stumbled upon it. So far, the best approximation I’ve found to an easy explanation is to use an analogy.
So when I heard of the latest TIF proposal to come out of the state legislature, contained in Senate Bill 252 and Assembly 289, I started trying to think of a simple way to make sense of it all. Particularly, I was trying to understand how the bills could result in “robbing Peter to pay Paul,” as one professor I spoke to put it.
Here’s what I came up with. Imagine for a moment that I am Paul and you, dear reader, are Peter. The two of us own a cabin together in northern Wisconsin.
One day I decide the cabin should have a pool, and I want you to help pay for it.
I say, “Look, I’ll take out the loan for the pool, and then you can help me pay it off over time. But to make this easy, don’t worry about giving me anything you’re making now. Just hand over your future raises. That way, buying this pool won’t eat into your current income.”
You think about it a bit and say, “Well, I now make $50,000 a year. So all I have to do is give you any of my raises above that amount? Sounds fair to me.”
We shake hands on the deal. Yet, instead of getting a raise this year, as you have for the past 10 years, you lose your job amid a sudden recession.
Now I have to pay for the pool all by myself, which is costing far more than I had expected.
Time goes by and you find another job. This one, though, only pays $30,000 a year. Making ends meet on the reduced salary isn’t easy, but you stick it out and, lo and behold, within a year you are offered a raise.
I get wind of this immediately and come to you with outstretched palm, saying you promised me all your raises. But you say, “Wait a minute, that was when I was making $50,000. At this rate, it’s going to take me years to get back to making that much money. And you still want me to pay for the pool?”
In this little story, I’m a city that issued bonds that were to be paid off with money from a TIF district. You are a county, school or any other entity that has agreed to forgo future tax relief for your taxpayers so new tax revenue can go to paying off the TIF bonds.
The $50,000 you made in your first job corresponds to the property value TIF districts had contained when they were formed. The $30,000 corresponds to the value TIF districts contain after the recession, in which most property lost value.
And my insistence on taking the raises from your new, lower-paying job corresponds to what governments with failing TIF districts on their hands could do to their neighbors under Assembly Bill 289 and Senate Bill 252 (it’s scheduled to receive a hearing before the Senate Committee on Workforce Development, Forestry, Mining, and Revenue at 9:30 a.m. Wednesday in Room 400 Southeast of the state Capitol).
The bills would allow the property value at which a failing TIF district collects money to be lowered, which would make it easier to collect money in the TIF but would come at the cost of future tax relief for taxpayers.
The only trouble with this resetting is that any money that goes into the TIF is money that doesn’t go to local governments, schools and other entities that are supported by property taxes.
Who gets to make up the difference? Taxpayers. And that’s where you come in, Peter.