Paul Soglin: Waxing America

The Importance of Being Prudent

In the 1970s, Madison played a vital role in the creation of Wisconsin’s Tax Increment Financing (TIF) law. Our city applied for a grant from the Department of Development to study the model used in other states and construct a bill to bring the tool to Wisconsin.

 Our original idea was simple: we sought to encourage the redevelopment of blighted urban sites by leveling the playing field between the cost of urban development and greenfield sites.

 TIF is a creative financing tool that allows municipalities to borrow against potential future tax revenue gains in order to make investments and ensure those gains are actually realized. Used properly, it’s a critical economic development tool. Too often, however, TIF is misused, creating economic problems in both the community that abuses TIF and those that compete with the abusive TIFers.

 Warrens, Wisconsin, with a population of 360, took on more than $18 million of debt assisting the Three Bears water park-hotel-condo development. That’s $50,000 for every person in Warrens. When the hotel and water park closed and property values plummeted, Warrens found itself unable to retire its debt without a change in the TIF law.  Repeatedly, communities fail to use TIF prudently and then run to the legislature to ask for special treatment.

The legislature should encourage, not discourage, prudent municipal TIF policy. Forcing municipalities to take a cautious approach ensures that taxpayers won’t have to bail out troubled Tax Increment Districts. In Madison, we conservatively estimate the increased tax base we expect a project to generate. We discount future revenues at a rate much steeper than our cost of borrowing, and we typically provide only a portion of the increased tax base that a project generates.

When communities fail to employ good practices like these, two things happen. First, they risk overextending themselves and requiring a bailout either from their own taxpayers or from the state. Second, and perhaps more perniciously, they create bad incentives. When a municipality competes with an overly aggressive player, the prudent municipality is pressured to go farther in providing TIF than they find justifiable. This arms race mentality serves neither municipality.

Bidding up the price of landing a company or a development transfers public resources to private interests with no commensurate increase in the public good. Worse, it encourages other companies to seek ever greater incentives, regardless of whether they actually need them. After all, it’s not one-time funding, but the quality of life, skilled workforce, great schools, and urban vitality that makes companies successful and prosperous in the long run. Madison is blessed with these enduring factors. And when we compete to offer better schools, a cleaner environment, vibrant neighborhoods, well-trained workers, and low crime, and a great quality of life, everybody wins.

Madison's Pitch for the WIAA Basketball Tournaments

There have been multiple news stories regarding the wooing of the WIAA Tournaments and frankly I have seen a lot of misinformation.  I thought I would share some information.  Let's call it Myth vs. Reality.

MYTH                                                                 

#1. The tournaments can't be held in the Kohl Center.

REALITY

 The University has resolved this issue. The Kohl Center will not be a Big Ten  Hockey Tournament location. UW Athletic Department officials lead the charge to make sure that happened. In the event of other scheduling conflicts with UW, on-campus and area venues have been secured

 MYTH

#2. Madison hotels require a two night minimum.

REALITY 

 Madison hotels are abundant and affordable.  The vast majority of hotels have not, and do not require a minimum stay. There are 25 hotels that are participating in a Fan Package that begins in 2012, offering great rates and no minimum stays. The Greater Madison Convention and Visitors Bureau has offered to assist in developing fan hotel packages in the past and is delighted that WIAA agreed to pursue that option. 

 MYTH

#3 Parking costs in Madison are high. 

REALITY                        

 Event parking rates at City of Madison and UW-Madison campus parking ramps will be in effect.  Parking in city ramps near the Kohl Center will be only $4. The University is guaranteeing their rates until 2020.  There will be free shuttles from other locations to help offset parking costs

MYTH 

#4 Moving the event will revitalize the games.                

REALITY

That was a lesson learned from moving Badger State Summer Games to a new location in an effort to revitalize attendance.  The result was the demise of the events, as well as the organization that managed them. Madison has a proven fan base that looks forward to, and annually attends the WIAA Basketball tournaments

 MYTH

#5 Madison doesn’t care about the WIAA                 

REALITY

 Financial assistance and support from the University, City of Madison, Dane County, Greater Madison Convention & Visitors Bureau as well as the hotel and restaurant community are included in current proposal.  There has been an incredible collaborative effort to put together the proposal.  Madison has a long history, and continues to host many other WIAA state tournaments throughout the year.  We welcome our high school athletes and their families and fans from around the state year-round.

Regardless of the decision by the WIAA, I am proud to have been involved in developing Madison's proposal to keep the tournaments here. It has been a great effort and I thank the GMCVB for its leadership.

 

More Discussion on TIF

The issue of TIF or Tax Incremental Financing is a complicated one, but it's important and it's a vital tool that municipalities utilize for development in a particular area, or TIF District.

TIF is a financing tool where the distribution of taxes from property in a defined geographic area is frozen for a period of 27 years.  While the value of property in that area increases, the amount of money distributed to the city, county and school district remains the same.  Any increased property taxes are then used to fund capitol improvements and assist developers. 

 At Tuesday’s meeting of the Madison Common Council I spoke about the challenges facing our City’s economic development.  Among the factors I listed was the use of TIF by other communities.  I expressed concern that other municipalities are looking beyond the traditional factors in an effort to lure a specific business.  On Wednesday morning, I discovered that Assembly Bill 536 which would allow the City of Middleton to extend its TIF district another 10 years was introduced.  This is precisely the problem to which I was referring.

Changing the rules of TIF financing to allow a company to move from one community to another provides no net benefit.  The property tax base in one community is decreased by an amount that it is increased in another.  The jobs that are being “created” in one community are not new jobs.  They are simply being moved to a new community.  This is a zero-sum game, and the state should not change the rules to facilitate it.

Supporters point out that these types of changes have been done before.  Whether this has been done before is irrelevant.  Changing the playing field where the law must be uniform statewide is neither healthy for the economy, nor fair to the communities involved.  Instead of passing piecemeal legislation to help the one community at the expense of another, the Legislature should conduct a comprehensive examination of the TIF law.