Many states allow local governments to use tax increment financing (TIF) as an economic development tool to encourage growth within their communities. While the basics of TIF are common across states, there are specifics to Wisconsin that should be understood when considering TIF as a financing tool.
How does TIF work?
A municipality has the ability to designate a specific land area as a tax incremental district (TID). This sets a base value of the properties within the district at that point in time. When the property values within the TID increase, the property taxes paid on the value above the original base value can be used by the municipality to fund economic development projects within the district. These funds can often be used to provide financial incentives to private businesses.
How long will it take to create a new district?
The TID creation process generally lasts several months. The process must be done with public notice and gain the approval of impacted taxing bodies, the Planning Commission (or Development/Redevelopment Authority) and City Council or Village Board.
How long will a TID last?
Currently Wisconsin statutes allow TIDs to have a maximum life of between twenty and twenty-seven years, depending on the type of TID.
I am considering a project in a TID with only a few years left. What can be done to extend the life?
A new TID may be created with boundaries overlapping an existing TID. When this is done, all additional TIF revenue is allocated to the new overlapping TID. Deploying this strategy allows a municipality to capture tax increment from a planned development for the full life of the new district while still maintaining the revenue from the existing district.
What does it mean when a city tells me they have exceeded the twelve percent limit?
State statutes limit the property value within all the TIDs in a municipality to twelve percent of the overall property value within the whole municipality. A municipality that has exceeded the twelve percent limit may not create another TID or add territory to an existing TID until their TID value falls below twelve percent.
How do I satisfy the “but for” in my request for incentives?
The premise behind “but for” is that the project would not proceed as proposed “but for” the creation of a TID and the assistance from TIF. This litmus test is required to be proven to the legislative body approving the TID. The “but for” test can be interpreted to be broad or narrow based on the project or the legislative body’s previous experience using TIF.
I am considering a project in a distressed TID. Can I still receive an incentive?
Some TIDs in Wisconsin have been declared as “distressed” or “severely distressed” due to projected revenue received falling below projected expenses. Amongst other limitations, distressed and severely distressed districts are no longer allowed to make additional expenditures.
For more information on using TIF as a financing tool, or to learn how Baker Tilly specialists can help, contact our team.