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Wisconsin's Proposed Senate Bill Can Have Far-Reaching Implications for Wisconsin Municipalities Creating Tax Incremental Financing Districts

What is a Tax Incremental Financing District?

Tax Incremental Financing Districts (TIDs) are one tool that cities and villages have utilized to spur economic development. TIDs provide an alternative to municipal financing for funding public works projects, transfer the financial risk for development to developers, and provide developers financial incentives to construct projects that would not be economically feasible without the TID.

Wisconsin Statute § 66.1105 governs TIDs and allows communities to create a defined tax district whose taxes, among other uses, can fund cash grants to developers of land within the district by either distributing funds to the developer at the outset of a project or distributing funds annually by the "pay-as-you-go" approach.

The "pay-as-you-go" approach, which is increasingly utilized by Wisconsin cities and villages, operates on the assumption that development will add taxable value to a district. An initial base value of the property in the district is established at the commencement of the TID. The taxes generated from property after the development is undertaken minus the base value taxes yields the net incremental revenue ("NIR"). The NIR is the amount available to repay the city or village and developer for certain initial project costs for or directly related to development within the TID. To avoid financial short falls, development agreements often have a developer guaranty of increased value that obligates the developer to pay the shortfall between the actual NIR and projected NIR.

What Are The Proposed Changes?

While there are many advantages to TIDs, there is concern that TIDs increase the tax burden on citizens within the community. Governor Tony Evers' proposed budget, introduced as 2019 Senate Bill 59 on March 1, 2019, attempts to address this concern by proposing three changes to future TIDs. Those changes are:

  1. Capping the developer allocation to 20% of the NIR (currently, there is no statutory limit to the amount of NIR that can be allocated to a developer),

  2. Requiring TID project plans to include "stress tests" to test the "TID's finances and feasibility under different economic situations, including a slower pace of development and lower rate of property value growth than expected in the TID," and

  3. Allowing cities and villages to transfer TID money to its general fund if the "city or village erroneously report a higher value increment for its TID by an aggregate amount of at least $50 million."

What Are The Implications to Municipalities?

  • Existing TIDs would not be affected, but future TIDs would be subject to the new Senate Bill.

  • If passed, the 20% cap on developer allocation may make some smaller project-specific TIDs unfeasible for the developer and require a shift from the trend of cities and villages creating smaller project-specific TIDs to establishment of larger TIDs in which the 20% amount payable to a developer would still be sufficient incentive to attract some developer's participation in a TID.

  • The new "stress test" requirement will add administrative processing time in requiring evaluation of the TID under less favorable economic conditions during the planning phase.

Municipalities should be aware of these potential changes for TIDs currently under consideration.

©2019 von Briesen & Roper, s.c

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About this Author

Alan Marcuvitz Eminent Domain Attorney
Attorney

Alan Marcuvitz is a Shareholder in the Milwaukee office of von Briesen & Roper, s.c. He is recognized as one of Wisconsin’s preeminent attorneys in the fields of eminent domain and real property taxation, based on his extensive experience in both trial and appellate courts. Many of his Wisconsin Supreme Court cases are cited with the following representative cases being cited frequently:

  • Warehouse II, LLC v. State Dept. of Transp., 2006 WI 62, 291 Wis. 2d 80, 715 N.W.2d 213
  • Metropolitan Holding Company vs. Board of Review of the City of Milwaukee...
414-287-1401
Smitha Chintamaneni, Von Briesen Roper Law Firm, Milwaukee, Real Estate, Construction and Tax Law Attorney

Smitha Chintamaneni is a Shareholder and represents businesses in contractual, construction, real estate, eminent domain, taxation, insurance coverage, and probate issues. Smitha also provides insurance analysis on specialty policies such as commercial liability, professional liability, directors and officers and excess to insureds and insurers.

Her experience includes pre-litigation strategy, motion practice, discovery, and trials of eminent domain, real estate and construction, estate, and contractual disputes in state and federal courts and private arbitration forums.

Smitha serves as counsel for numerous corporations and closely-held businesses in both state and federal courts.

Smitha is an Affiliate Member of Owners’ Counsel of America (OCA). She is licensed to practice in Wisconsin and Illinois and has been consistently nominated by her peers as a Wisconsin Rising StarSM in the area of General Litigation since 2009.

Smitha chairs the firm’s Summer Associate Program and Recruiting Committee. She is a member of the Milwaukee Bar Association (Co-chair, Real Property Section), the Chicago Bar Association, and the Illinois Bar Association.

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Jessican Lothman Real Estate Attorney
Attorney

Jessica Lothman is a member of the Real Estate, Property Tax Assessment and Labor and Employment Sections. During law school, Jessica served as a Staff Editor for Marquette Social Welfare and Benefits Law Review, was a quarter-finalist in the Evan A. Evans Constitutional Law Moot Court Competition, and worked as a Legal Intern for Catholic Charities. She received a Certificate in Alternative Dispute Resolution and was the Second Place Mediator at the International Bar Association-Vienna International Arbitral Center (IBA-VIAC) Consensual Dispute Resolution Competition.

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