Mayor Explains Why TIF Needs Fixing

Posted September 20th, 2012 @ 8:56 AM by

He spoke to the Economic Development Commission about why he thinks they need to review the policy.

The mayor was 10 minutes late and they moved on to other issues until he got there – they made it sound like it was tentative that he was going to show up – probably because the wanted to avoid putting him on the agenda. When the mayor shows up, they let him speak, then Aaron Olver does a 3 minute explanation of TIF. He then does a LONG powerpoint presentation that first compares Madison to DAne County and Wisconsin cities and then he outlines the issues he sees that he thinks they will want to talk about. The second part of this will be the subject of a post tomorrow. Meanwhile, here’s the Mayor framing the issue – it will be interesting to see if you think this is on the same page.

The Mayor says he appreciates them embracing this and taking it up.

HISTORY LESSON
As background he says that the City of Madison was the one that created the model legislation and did research behind the first state TIF statute. I was an urban renewal tool meant to work in older parts of cities. The concept was that you take a block make an investment through TIF, create an increment and the district would include the next block and the development in he first block would create economic incentive for nearby blocks. At that time we had a perfect example of how this would work- he says there were several portions on the triangle that had been developed and the rest were empty fields. In the 60s several private developers tried to do something but they didn’t make it work and when they looked back and they said if 5 or 10 years ago they had made an improvement that would have created a tax base that would have been paid for itself instead of sitting with empty land. The Legislature adopted the statute. Fauerbach was the first TIF they did, it was small, there was an argument not to do it but we decided to do it because we didn’t want the first one to be too big. It was a good test. Over the years TIFs changed, there were continual amendments made to the legislation, it got to the point where anyone could do a TIF just about anywhere, including green fields.

EQUITY PARTICIPATION
One of the guiding principles behind our TIF principles were that if the city entered into partnership with TIF and we took a risk, we should participate with an equity position since we had skin in the game. That has now become not a deal breaker, but it has become a major bone of contention with a number of developers when they compare us to other cities.

EXTERNALITIES
We also set standards on certain types of tif and what we expect. Block 89 did not return a significantly large increment, but in evaluating based on land use and looking at externalities, we saw opportunity for that project to provide for incentive for additional investment.

COMPETING WITH OTHER CITITES/RACE TO THE BOTTOM
Another factor is where is the tipping point in regards to competing with other communities for the location of businesses? Overall, in terms of significant tax breaks, the competing communities are generally losers, over time and with many opportunities the size of the breaks aren’t justified in terms of the return on investment. That hasn’t happened in metro areas, Madison has standards so that we don’t engage in competition with Middleton and Verona, but there has been a consequence, they have more development than would have been indicated in an earlier period. Should we start using their standards, will we lead in a race to the bottom in terms of return on investment.

ASKING FOR INPUT AND THINGS TO CONSIDER
He says he is good at outlining the issues and dilemma and doesn’t have the answers and that is where you come in, in weighing the competing values to give recommendations to city staff and common council. He does suggest that you look at externalities and all the consequences of the decisions. What does it do in terms of other developments, in terms of ability to encourage development without tif? They need to look at the residential commercial and retail impacts.

STATE STATUTES
He says the use of TIF is controlled by state stauatues, and we have to keep in mind that the legislature and governor work together to make recommendations and you might not think of just the impact on Madison but also maybe recommendation for changes on statewide basis, I would not hold out hope of it happening or spend a good deal of time on it, but if you do find situation that merit that attention – like in early to mid 1980s a City in Wis, West Allis used it to pay for a fire station. A legislator took exception to this and the statutes were amended and to this day there are restrictions on the kinds of buildings that can be constructed by a municipality for its own use and we see opportunities in TIF districts where we would love to be able to use part of the increment not just for streets snad sewers but for a fire station. That seems illogical, he can’t figure out why this legislator did it and why the rest went along with it.

QUESTIONS
Thanks them for their time and asks for questions.

What to work on?
Mark Clear asks if specific parts of the policy that he wants them to focus on?

The 50 percent rule, personal guarantees and the equity provision. By the way, he’s not sure how many of you saw this, yesterday we got our bids on bond offerings and the rates we got for 20 year borrowing for library and revenue bonds and general obligation notes all came in at appreciably lower than the record low rates we see in the market. A good part of that is because of the sound fiscal condition of the city, the raitos we look at. So in evaluating TIF, look at some of the externalities and what would this do t the financial future of the city – like the bond rating

Timing/Jobs
Joe Boucher asks about timing.

Mayor says that he doesn’t know that he has a time table because he doesn’t know how much time you need for presentations from city staff, it could take 2 or 3 meetings to get input, then hear from development community. One more thing, in response to Clear’s question, originally TIF was seen as land use development, but its not just real estate but job creation. One of the elements in here is job creation, he’s not sure if that is valid part of the discussion or not, traditionally that was only real estate.

Clarification
Julia Stone asked what standards he was referring to?

The Mayor says the standards we suse to evaluate the deal. Should we set standards on personal guarantees, which was major discussion with one developer years ago.

Other cities
Matt Yaeger asks about other cities that are dealings with this and what policies we could look at.

Mayor promises Aaron Olver will look into that.

Aaron says it is an unplumbed area of research, most don’t have written TIF policy and often times they copy us and it take as a lot of work to see how they do it.

Blight
Mark Clear asks if blight remediation is still important, is an “almost forgotten aspect”, should that come back in terms of importance or is it no longer important?

Mayor says it is important and as he looks at it there is a greater demand to work in older parts of city where infrastructure in place. Its hard to believe that when we do a project at Hilldale that is infill, that when we do a project between here and Woodman’s – which was a greenvifled and controversial at the time, blight and encouragement to build where infrastructure is in place has a value we should recognize. That is particularly important in terms of discsion at Nob hill, it is on the other side of the beltline and tremendous changes, developer want to make investments and increase density, but it is isolated and few services and instead if it was infill then everything from public transit to sewers to recreation facilities are in place and that is a value to be recognized.

I’m outta here
Thank you, have fun, he was up late last night, to the council members, sorry you are still here.


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