Two state legislators are preparing a bill to modify Wisconsin’s tax increment financing (TIF) law that will likely limit the use of TIF for retail development projects.
“I am concerned about the inappropriate use of TIF districts to subsidize two kinds of development. The first is development that would have occurred anyway. The other is big box retail development,” says Rep. Peter Bock (D-Milwaukee).
Bock and Rep. Michael Lehman (R-Hartford) are drafting a bill based on recommendations issued last year by the Governor’s Working Group on TIF. The task force was appointed by Governor Tommy Thompson in response to growing criticism of the state’s TIF laws.
Under TIF, a city may designate an area in need of redevelopment and freeze the tax assessment on properties within the designated district. The city then pays for infrastructure improvements to attract new businesses. The subsequent increase in the tax base (the “increment”) is used to pay off the bonds, after which the full value of the land and property returns to the tax roles. In Wisconsin, the process can take as long as 23 years. Many states employ some form of TIF.
TIF was intended to help redevelop blighted or neglected properties in urban areas. Critics contend, however, that cities are increasingly using TIF to subsidize the development of open space on the edges of cities and towns.
In a 1999 report, 1000 Friends of Wisconsin found that nearly half of the 661 active TIF districts in the state involved development of open space. Many TIF districts were being used to subsidize big box retail stores. In Baraboo, for example, city officials turned a cornfield and an old apple orchard into a TIF district in order to finance a Wal-Mart. The town of Oconomowoc spent nearly $20 million under TIF helping Target build a distribution center.
Subsidizing retail development is a particularly poor use of tax dollars. Unlike other kinds of development, new retail stores do not generate new wealth. They simply shift consumer spending from one part of town to another. For every job and tax dollar gained from the new development, there will be a job and tax dollar lost at existing businesses.
According to the 1000 Friends report, ten small to medium-sized grocery stores closed in Madison after the city used TIF to subsidize the construction of a new warehouse food chain.
The legislation being drafted by Reps. Bock and Lehman would incorporate two policy changes recommended by the Governor’s task force. One would prohibit the use of TIF for projects that are predominantly retail. The other would restrict the use of TIF for developing open space.
The reforms are supported by 1000 Friends and the Wisconsin Towns Association, which represents more than 1,200 of the state’s towns. Wisconsin’s other municipal association, the League of Municipalities, which represents 190 cities and 378 villages, has sided with real estate developers in opposing the changes.
