This presentation provides a history of tax incremental financing in Wisconsin, tax incremental financing basics, recent law changes, best practices in using TIF for community development and Examples of Projects.

1. f i i i i i i
vision to reality
League of Wisconsin Municipalities
119th Annual Conference
“Tax Incremental Financing”
K t R M h
Tax Incremental Financing
Kurt R. Muchow
Community Development Consultant

2. Session Agendag
• Tax Incremental Financing History
• Tax Incremental Financing Basics
• Recent TIF Law Changesg
• Best Practices
• Project ExamplesProject Examples

3. • Planning & Civil Engineering Firm
• Office Locations:
- Reedsburg
- Madison
- Milwaukee Metro
- Prairie du Chien
• Vierbicher Website
www vierbicher comwww.vierbicher.com

4. Tax Incremental Financing History

5. History of Tax Incremental Financingg
• TIF = Tax Increment Financing
• TID = Tax Increment District
• First Authorized in1975, Wis. 66.1105,
• TIF Law has been amended many timesTIF Law has been amended many times
over the years

6. What is TIF?
A municipal financing tool to accomplish
specific community development objectives:
• promote industrial development
• promote mixed-use development
• eliminate blighted areas
• rehabilitate deteriorating areasg

7. What is TIF?
Public / Private Partnership
• Partnership of taxing entities to promotePartnership of taxing entities to promote
development
• Public and private sectors work together to
stimulate economic growthg

8. Why TIF Was Created
• Federal funding decreased for
community development programs
All iti & ill t k ith i t• Allows cities & villages to work with private
sector to stimulate economic growth
• Eliminated inequitable situation that
discouraged developmentg p
* Cities & villages bore the cost of development,
but all taxing entities shared the benefit.

9. Purpose of TIF
“Promote the orderly development of the city”
ss 66.1105(4)(f)

10. Summary of TID Creations in Wisconsiny

11. Summary of TIF Districts in Wisconsin
• Currently 1,238 active TIDs in Wisconsin in
y
425 communities (June 1, 2017)
• 2,052 TIDs created since 1976
• 822 TIDs terminated since 1976
• Average life of TIDs = 16.3 years

12. Summary of Districts in Wisconsiny
• 307 Mixed-use districts
• 301 Industrial districts301 Industrial districts
• 295 Blight elimination districts
• 156 Created before 1995 (no district type)156 Created before 1995 (no district type)
• 149 Rehab and conservation districts
• 16 Environmental remediation• 16 Environmental remediation
• 4 Town districts
• 86 Distressed districts
18 S l di t d di t i t• 18 Severely distressed district

13. Tax Incremental Financing Basics

14. TIF Basics
Important TIF Definitions
• Base Value: The equalized value of real and
personal property in a TID when created.
• Increment: The difference between the base
value and the current valuevalue and the current value.
• Tax Increment: Taxes levied by the overlying• Tax Increment: Taxes levied by the overlying
taxing jurisdictions on the value between the
base value and the current value in the TID.

15. TIF Basics

16. TIF Basics

17. TIF Basics

18. TIF Basics - Structure
Tax Increment
eTID
Tax Increment
Investment in the TID &
within 1/2 mile
• Capital Improvements
alueinthe
Capital Improvements
• Infrastructure
• Site Development
• Land Acquisition & Assembly
• Development Incentives
• Administrative &
PropertyVa
Organizational Costs
P

19. Types of TIDs
• Industrial Developmentp
• Mixed-Use
• Blight Elimination• Blight Elimination
• Rehabilitation / Conservation
• Environmental Remediation
• Town TIDs

20. Type of Tax Increment Districts
Industrial Development TID
50% f d t b it bl f d• 50% of area needs to be suitable for and
zoned for industrial development
Expenditure Period 15 Years• Expenditure Period = 15 Years
• Maximum Life = 20 years
M i Lif With E t i 23• Maximum Life With Extension = 23 years

21. Type of Tax Increment Districts
Mixed-Use TID
• Must Have at Least Two Land Use
(Commercial/Residential/Industrial)
• No More Than 35% can be newly platted residential
• TID expenditures may be made for residential if one of the
following applies:
 Density at least 3 units per acre
 Housing located in a conservation subdivision
 Housing located in a traditional neighborhood development
• Expenditure Period = 15 Yearsp
• Maximum Life = 20 years
• Maximum Life With extension = 23 years

22. Type of Tax Increment Districts
Blight Elimination TID
• T picall Older Neighborhoods• Typically Older Neighborhoods
• 50% of Area Must be Declared Blighted
• Requires Formal Designation of BlightRequires Formal Designation of Blight
• Letter’s Must be sent to Landowners
• Expenditure Period = 22 Yearsp
• Maximum Life = 27 Years
• Maximum Life With
Extension = 30 years

23. Type of Tax Increment Districts
Rehabilitation/Conservation TID
C l R f d t R it li ti TID• Commonly Referred to as Revitalization TID
• At least 50% of the property must be
suitable for rehabilitation or conservationsuitable for rehabilitation or conservation
• Letter’s Must be sent to Landowners
E dit P i d 22 Y• Expenditure Period = 22 Years
• Maximum Life = 27 Years
• Maximum Life With Extension
= 30 years

24. Type of Tax Increment Districts
Environmental Remediation
• Eligible Costs: Remediation, property
acquisition, demolition, asbestos removal,
underground tank removal and financingunderground tank removal and financing.
• Expenditure Period = 15 years
• Maximum Life = 23 years ( t i ll d)• Maximum Life = 23 years (no extensions allowed)

25. Type of Tax Increment Districts
Town TIDs
• Act 231: Tourism, Agriculture & Forestry TIDs
• Act 13: Towns with Cooperative Boundaryp y
Agreements
• Act 193: Provides certain Towns full TIF authority
with minimum population & valuation
requirements, plus sewer service
agreementagreement

26. Eligible TIF Projectsg j
• Eligible TIF projects can be located within the
TID, or within one-half mile radius.
• Eligible projects must benefit TID
• Eligible projects include:g p j
- Infrastructure
- Land acquisition / demolition
- Environmental clean-up
- Site development
l t i ti- Development incentives
- Marketing & promotion
Organization & administration- Organization & administration
• Extension for Affordable Housing

27. Affordable Housing Extensiong
City may extend life of TID one year:
• Adopt a resolution extending life
• Resolution identifies how funds to be used
• 75% must be used for affordable housing
• Remaining funds used to improve housing stock
Aff d bl H i D fi itiAffordable Housing Definition:
• Housing cost no more than 30% of
h h ld thl ihousehold gross monthly income.

28. TID Creation/Amendment Process
• Typically takes +/- 90 days to create a TID
• Governing Body Authorizes TID Creation Process
• Plan Commission (Or CDA/RDA for Blight)( g )
 Identify District Boundary
 Prepares a Project Plan
 Holds Public Hearing
 Recommends Approval
J i t R i B d O i ti l M ti• Joint Review Board - Organizational Meeting
• Governing Body Resolution
• Joint Review Board Adoption

29. Base Year Dates
Resolution Adoption Date Base Year
October 1, 2017 to September 30, 2018 January 1, 2018
October 1, 2018 to September 30, 2019 January 1, 2019, p , y ,

30. Joint Review Board (JRB)( )
• Five Member Board Representing:
Cit City
 County
 School District School District
 Vocational School
 Member at Largeg
• Authority to Approve or Deny TID
• Meeting #1: Before Public HearingMeeting #1: Before Public Hearing
• Meeting #2: After Council Resolution
• Standing JRBsStanding JRBs
• Required to Hold Annual Meeting

31. TID Required Findingsq g
• “But - For” Test - The development described in the
Project Plan would not occur without the creation of TIDProject Plan would not occur without the creation of TID.
• “12% Rule” - The equalized value of the TID plus the
increment in existing TIDs does not exceed 12% of theincrement in existing TIDs does not exceed 12% of the
total equalized value of the Community.
• The District is contiguous and contains only whole units
of parcels.
• Planned improvements will enhance the value of
property in the TID and will directly serve the purpose ofproperty in the TID and will directly serve the purpose of
the TID.
• Improvements to the District are likely to encourage and
promote conformity with the City's planning existing
plans and policies.

32. TIF 12% Rule: Industrial, Blight, Rehab & Mixed-Use TIDs
• §66.1105(5)(d) states that the equalized base
l f t i TID l th i tvalue of property in a new TID, plus the increment
value of existing TIDs cannot exceed 12 % of the
total equalized value of the community.q y
• Once the 12% rule is exceeded, community may
t t TID dd t it t i ti TIDnot create new TID or add territory to an existing TID.
• However the community is able to amend the• However, the community is able to amend the
Project Plan to add new projects and allow transfer
of funds between TIDs.

33. 12% Rule: Smaller Town TIDs & ER TIDs
• Tourism, Agriculture & Forestry TIDs
 Equalized value of proposed TID plus equalized
value of existing TIDs may not exceed 7%.
OROR
 Equalized value of proposed TID plus value
increment of existing TIDs may not exceed 5%increment of existing TIDs may not exceed 5%.
• Environmental Remediation TIDs• Environmental Remediation TIDs
 No equalized value limitations

34. TID Project Plan Amendmentsj
• Process is similar to creation process
• No limit on the number of amendments
• Not subject to 12% Rule• Not subject to 12% Rule
• Types of amendments:
Additional Project Costs (In TID + ½ mile radius) Additional Project Costs (In TID + ½ mile radius)
 Allocation Amendment ( transfer funds to other
TIDs))
 TID Life Extension
 Decrement Amendment
 Act 145: Tech Collage Tax Rate Extension

35. TID Boundary Amendment
• Process is similar to creation process
• Allow up to four boundary amendments
• May add or subtract territory• May add or subtract territory
• Subtractions may not make TID
tinon-contiguous
• May be done any time during life of TID
• Expenditure period remains the same

36. Recent TIF Law Changes

37. TIF Law Changes – Oldies But Goodiesg
• Extension of Expenditure Period
• Sharing Revenue Between Districts
• ½ Mile Radius• ½ Mile Radius
• 1 Year Extension For Affordable Housing
T TIF TAF• Town TIF – TAF
• Town TIF – Cooperative Boundary
• Multi-Jurisdictional TID

38. Recent TIF Law Changesg
• Act 145: Effective March 24, 2014
 Shifted a portion of funding for tech
colleges from property taxes to state aid.
 Reduced tech college tax rate by
$0.89/$1000
 Caused a reduction in tax increment
• Act 254: Effective March 3, 2016
 Allows municipalities to amend Project
plan to request 3 year extension to TIDs
life if tax increments are impacted by
Act 145 (above).

39. Recent TIF Law Changesg
• Act 255: Effective October 1, 2015
 For TIDs created or amended after
October 1, 2015:
* Removed 25% vacant land restriction.
* Revised TID base value calculation to exclude
exempt city owned landexempt city owned land.
• Act 256: Effective March 3, 2016
Ch d J i t R i B d l Changed Joint Review Board approval
from 30 to 45 days to approve resolution.
Changed Plan Commission notice from Changed Plan Commission notice from
Class 2 to Class 1for TID amendments.

40. Recent TIF Law Changesg
• Act 257: Effective October 1, 2016
 Requires annual report be submitted to DOR
and overlying taxing jurisdiction by July 1.
 Requires standing Joint Review Board.
 Requires Joint Review Board to meet
annually to review TIF annual report.
 May disband following termination of all
TIDs.

41. Recent TIF Law Changesg
• Act 15: Effective January 1, 2018
 Changed deadline for terminations from
May 15 to April 15.
 Sets maximum penalty of $6,000 for reports
not filed timely. (Penalty remains $100 / day
beginning 60 days after report is past due)beginning 60 days after report is past due).
 DOR reduces shared revenue payment if
penalty is unpaidpenalty is unpaid.

42. Proposed TIF Law Changeg
• AB179 & SB173: Environmental TIDs
 Public Hearing held on 10/10/17
 New ER TIDs created like regular TIDs
 Maximum life increased to 27 years

43. Best Practices

44. Implementation: Issues to Keep In Mind
• Need - Public Benefit vs. Private Windfall
• Appropriate Payback Period
• Broader Fiscal Impact Including Overlyingp g y g
Taxing Jurisdictions (Housing & Schools)
• Development Impacts – Traffic, Jobs,p p
Environmental, Public Services
• Quality of Development
• Consistency with Other Plans

45. Implementation: Manage Cash Flow
• To the extent possible, defer expendituresp p
until increment is guaranteed
• Match-up expenses to revenueMatch up expenses to revenue
• Build in a cash flow cushion
Be conser ati e ith TIF projections• Be conservative with TIF projections
• Prepare annual TIF financial analysis
• Annual review with governing board
• Share revenue between TIDsShare revenue between TIDs
• Use your Municipal Financial Advisor!

46. New Project TIF Analysis - Revenuej
• Conservative
AssumptionsAssumptions
• Increment
EstimateEstimate
• Personal Property
• Delay in Revenue
• Recommend
Revenue
Guarantee in
DevelopmentDevelopment
Agreement

47. New Project TIF Analysis – Debt Servicej
• Use a Municipal
Financial Advisor
• Capitalize Interestp
to
Bridge Revenue
LagLag
• Structure Debt
Service Payments
to Fit Revenue

48. New Project TIF Analysis - Cashflowj
• Structure to
Achieve
Positive
CashflowCas o
• Adequate
Debt ServiceDebt Service
Ratio
• Annual “Pay-Annual Pay
As You-Go”
Payments

49. Risk Managementg
• Speculative TIDsp
• TIDs with “Bird-In-Hand”
• Risk is Always ThereRisk is Always There
• Understand and Manage Risk
 Timing and Phasing of ExpendituresTiming and Phasing of Expenditures
Relative to Expected Increment
 Development Agreementsp g
* Commitments of Community
* Commitments of Business
* G t* Guarantees

50. Risk Managementg
• Methods to Reduce Risk Through
Development Agreements
 Don’t give away the farm!
 Be conservative. Build in a cushion.
 1st Mortgage on Property. Subordinate as
project is constructedproject is constructed
 Developer Guarantee of Tax Increment
Insurance for property damage Insurance for property damage
 Performance bond or Letter of Credit
 Developer financed Developer financed
 “Pay-as-you-go” vs “Up-front”

51. Risk Managementg
What happens when a project goes bad?
• If real estate taxes are not paid, community
still gets the TIF revenue. County pays.
• If County sells property due to back taxes,
property is generally sold at reduced price.
A d l d TIF d dAssessed value and TIF revenue are reduced.
• If bank forecloses, property is generally sold at
a reduced price Assessed value and TIFa reduced price. Assessed value and TIF
revenue are reduced.
• If community has adequate security (Letter of• If community has adequate security (Letter of
Credit) community is made whole.

52. Risk Managementg
Why TIDs Fail or Have Cashflow Shortfalls?
• Blight elimination & Rehabilitation TIDs tend
to perform worse than Industrial & Mixed-
UUse.
• Small TIDs dependant upon 1 or 2 projects.
• Recession negatively impacts tax
increment.
E i d l ti• Expenses incurred on speculation.
• Too optimistic assumptions.
• Change in state taxation laws.

53. Project Examples

54. DeForest 2016 North Business Park
P j t S• Project Summary
 Business Park Expansion
 APC – 171,000 sf BuildingAPC 171,000 sf Building
 PLC – 133,000 sf Building
 Creation of 189 jobs
• Project Scope
 Streets & Utilities
St W t M t Storm Water Management
 Site Development
 Pedestrian / Bicycle Trail/ y
• Infra. Cost = $3,650,000
• Funding Summaryg y
 DOT-TEA Grant = $945,000
 TIF = $2,705,000

55. Edgar Business Parkg
• Project Summary
 Expansion of Existing Business
 Village Infrastructure Extension
New tax base = $2 297 000 New tax base = $2,297,000
 Creation of 11 jobs
• Total Village Cost $668 841• Total Village Cost = $668,841
• Funding Summary
 $240 565 CDBG-PFED Grant $240,565 CDBG-PFED Grant
 $428,276 TIF

56. Marathon “City Center” Project
• Downtown Redevelopment
• New Grocery Storey
• New Public Parking Lot
• Downtown Enhancements
• Total Cost $6.1M
– $340,000 CDBG-PFED Grant
– $250,000 WEDC-CDI Grant
– $935,000 TIF
– $4 575 000 Private Investment$4,575,000 Private Investment

57. Viroqua TIF Programg
• Four Existing TIDs
• Projected surplus revenue
• $1.5 million of new costs
• Amended TIDs to:
 Add additional project costs
Add d ½ il j t Added ½ mile projects
 Allocate funds to other TIDs

58. Viroqua Capital Improvements Plan

59. Darlington
TIF Program
• TID No. 6TID No. 6
 $5,270,000 Est. Surplus
• TID No. 7TID No. 7
 $350,000 Est. Deficit
• Amended TIDs to:
 Add project costs
 Add ½ mile projects
 Allocate funds from 6 to 7

60. Darlington TID Amendmentg

61. E i ti TID
City of Prairie du Chien
20 4 20 j t Existing TIDs
with Eligible
Projects
2014-2015 TIF Projects
Project Cost
Railroad
CrossingDowntown
R it li ti
Project Cost
• Lessard St. Extension = $578,000
• 22nd St. Extension = $1,615,000
• Woodridge Acres = $1,050,000
• Prairie Mason Redevelopment = $450,000
Safety
Improvements
Blackhawk Ave.
Revitalization• Godden Pit = $395,000
• Northgate Business Park = $1,132,000
• Marq. Road Sewer & Water = $1,300,000
Total = $6,600,000
USH 18 Bypass
Blackhawk Ave.
Enhancements
Marquette Road
Reconstruction
Funding Source
• $502,000 DNR SDWL
• $265,000 Sewer Bond
• $5,833,000 Surplus TIF Funds
USH 18 Bypass

62. Questions?
Kurt R. MuchowKurt R. Muchow
608/768-4817
www.vierbicher.com