Featured Article: TIF Legislation Could Stymie Development Momentum
The state of Wisconsin continues to capture significant investment from global business leaders. Economic wins in the past 12 months alone include companies such as Milwaukee Electric Tool, Oshkosh Corporation and Leonardo DRS. All have committed to constructing and occupying significant new corporate headquarter facilities in Wisconsin. By themselves, it is estimated these three developments will create or retain over 2,500 jobs and add $75 million in local assessed property value. And what is turning out to be the economic success story of southeast Wisconsin, Milwaukee Electric Tool just announced another massive campus in Menomonee Falls that could produce an additional 770 jobs in the area. We are experiencing a generational wave of long-term corporate investment throughout the state.
In a globally competitive marketplace with increasing construction costs, financing projects of this magnitude can become quite complex. While communities are becoming more and more concerned about the potential abuse of incentive programs used to lure economic development, Wisconsin does not live in a bubble. When a company like Milwaukee Electric Tool looks to invest in a long-term expansion they can choose to locate anywhere. Overall cost of real estate occupancy is a major consideration when site selection decisions are being made. The incentive conversation typically comes into play and Wisconsin is already behind the curve on incentive options as compared to our neighboring midwestern states. Illinois, Iowa, Minnesota and Indiana can offer up a buffet of incentives such as property tax abatement, sales tax incentives and payroll tax incentives. Wisconsin cannot 1.
The tool that we do have at our disposal is the powerful public/private financing tool known as Tax Incremental Financing or TIF. All three of the projects mentioned above utilized TIF to get their project across the finish line. Not every TIF project is going to work out according to plan, but taken as a whole, TIF has unquestionably been the most catalytic economic development tool that the state of Wisconsin can leverage. For every $1 of TIF investment, an additional $4.66 of tax base is created 2.
However, some are concerned that the use of TIF needs to be reined in. In particular, opponents of TIF have zeroed in on the ever-expanding use of upfront cash grants that are being utilized outside of the traditional scope of eligible TIF costs such as public infrastructure. As an example, cash grants are being provided to businesses and developers for site acquisition, environmental remediation, parking structures and property tax rebates. Although the term “cash grant” is attention grabbing, the practice has arguably improved accountability and responsibility when TIF is utilized for a project. When a cash grant is issued, a project agreement must be entered into between the community and the recipient which outlines the specific project deliverables and how cash grants will be funded. The practice is commonly referred to as “pay-as-you-go” or “PAYGO”, which reimburses recipients with cash grants when they deliver upon their development promises, they are reimbursed with cash grants. A great example of PAYGO is the Oshkosh Corporation agreement. The City of Oshkosh issued a $6 million-dollar grant in exchange for Oshkosh Corporation guaranteeing the construction of a 150,000 SF corporate headquarter building valued at $19 million dollars.
A bipartisan coalition of legislators has proposed a change in TIF law known as SB 560. Supporters of the bill are looking to fundamentally change the way that local communities utilize TIF. Specific areas that would be changed through the legislation include restrictions on up-front cash grants that communities can provide and the need for unanimous consent amongst local TIF boards to amend territory and financing timelines for existing districts.
The impacts of this legislation could be chilling on corporate site selection. Both the Milwaukee Electric Tool and Oshkosh Corporation projects would not have been eligible for TIF assistance had SB 560 been law. TIF is the most powerful economic development tool that Wisconsin has at its disposal. Changes being discussed in SB 560 could dramatically impact the $370 million 3 of local economic development fire power that the program can deliver on an annual basis. As Wisconsin businesses look to expand, lawmakers should not be looking to place limitations and restrictions on what has proven to be the most successful, and responsible, economic development tool that we have in the toolbox.
Jeff Hoffman is Co-Chair of the NAIOP Public Policy committee and a Principal with Cushman & Wakefield | Boerke
Sources 1,2,3 – NAIOP/WRA/CARW – Baker Tilly 2019 TIF Study