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The Northwoods River News | Rhinelander, Wisconsin

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June 16, 2019

10/14/2017 7:29:00 AM
Getting in a tiff over TIFs

As we report in today's edition, the city of Eau Claire and the Wisconsin Institute for Law & Liberty (WILL) have gotten themselves into a tiff over TIFs, or tax incremental financing districts.

It seems the city wants to redevelop its downtown, in part by demolishing history, as expressed in the form of historic buildings (a favorite pastime in Wisconsin) and in part by building a state-of-the-art arts center.

And they want to fork out a generous helping of tax dollars to a developer to do it. That's where the TIF comes in.

The city says any redevelopment costs will pay for themselves because property values will rise, property taxes will thus increase, and that increase will pay off the TIF investment; WILL says TIF districts are in many cases, including this one, just crony capitalist handouts.

The fight has landed in the state Supreme Court.

On most counts, a TIF district is a pretty straightforward enterprise. When a district is established in a municipality, the current value of its properties is calculated and the tax on that base continues to flow to various taxing entities, including the municipality, the county, and schools. But, during the life of the district, any taxes generated by the growth of property values over that base is allocated to pay for the infrastructure investment and other allowable development costs within the district.

Here's how it's supposed to work. The city hands out wads of tax cash to the developer, who demolishes the buildings and builds the art center and whatever else. The tax money isn't used for demolishing the buildings supposedly (that's a no-no) but for all sorts of infrastructure needs, as well as for various enhancements and construction projects.

Theoretically, the improvements spark development within the district that would not otherwise have occurred, and, at the end of the day, when the district ends and taxes flow back to the various taxing entities, everyone shares in a larger pie.

It so beautiful, it's enough to make a grown bureaucrat cry.

We have in the past called this free-love taxation, and many, many municipalities have been doing the dirty deed. As of this past May, there were 1,238 active TIF districts in the state, including six in Rhinelander, and that's up from 1,141 active districts in 2014, for an increase in just three years of about 8.5 percent.

Critics say TIF districts can be and are widely misused, and we agree. They were initially intended as a narrow tool through which municipalities could promote redevelopment in blighted areas and commercial development in economically stagnant industrial areas, but for some time they have been employed as a general economic development instrument.

And that has led to unintended consequences. First, when TIF districts are blatantly misused, they promote urban sprawl - and all its negative associations - rather than urban redevelopment.

Second, TIF use for general economic development has encouraged the giveaway of tax subsidies to favored businesses: Property taxes pay for the infrastructure improvements they need, rather than the corporation having to pay both its own property taxes and for improvements, as they normally would. That distorts markets and directly harms competitors.

Third, they are often created in areas where economic development would have happened anyway, thus depriving schools and other government entities of property taxes they would have received if the TIF district didn't exist.

That also hurts individual taxpayers. Increased development means the need for increased services, so when new tax revenue generated by the development is needlessly diverted - in effect returned to the corporation rather than paying for the service demands it spawned - taxes must be raised even more outside the TIF district to make up the difference.

Finally, many of the tax benefits often flow to non-local big businesses that don't need the tax incentive, often at the expense of local small businesses. That would have been the case if a proposed TIF district for a Kwik Trip in Rhinelander had come to pass several years ago, when the company eyed the current highway department location for a new store.

Kwik Trip is no stranger to TIF deals as it expands it stores and flexes its market muscle aggressively. There's nothing wrong with expansion and growth, but Kwik Trip should expand and compete using its own money, not taxpayer dollars, especially when that Kwik Trip would compete with existing convenience store retailers who are also taxpayers.

The Eau Claire case headed to the Supreme Court has raised interesting constitutional questions. Among them, should municipalities have to prove there is blight to create a TIF district, or merely declare that's the case, as so often happens and which WILL claims happened in Eau Claire?

Are TIF subsidies essentially a property tax rebate to specific and favored companies, thus violating the Uniformity Clause of the state constitution? As the Legislative Reference Bureau explains it, "the Wisconsin courts have determined that the uniformity clause was intended to prevent the legislature and local officials from granting preferential tax treatment to influential property owners and 'to protect the citizen against unequal, and consequently unjust taxation.'"

TIF districts smack of just such preferential treatment.

In addition, WILL asks whether a TIF district that does not in fact eliminate blight has any public purpose. That, too, is ripe for original adjudication.

Of course, there's no telling what the Supreme Court will do. Though the court ostensibly has a 5-2 conservative majority, its real-world members are actually a couple of unhinged liberals (sorry for the redundancy) and big-business Republicans (ditto).

Because liberals love to spend just about any kind of tax dollars, and because the big-business crowd loves it when big business gets those tax dollars, we wouldn't be surprised to see a 7-0 vote for the crony capitalists. We'll see.

In the meantime, if the court thing doesn't work out, advocates of responsible government should continue to press legislators to enact meaningful TIF reform to tighten the rules and definitions and prevent abuse. TIFs can be used effectively if they are used only for their originally intended purpose.

Vigilance is necessary on the local level, too. Here in the Northwoods, some county officials are still lusting after a new highway department, and we hear through the grapevine that Kwik Trip hasn't closed the doors completely on the current highway department property.

No doubt any rekindling of that romance would involve another TIF enticement. Only continued vigilance can prevent another free-love taxcapade at the Oneida County highway department - and across the state of Wisconsin.

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