By the 1970s, central cities were in the second decade of a steep decline. Suburban shopping malls were sucking the life out of downtown and neighborhood retail centers. White flight was in full swing. And soon even manufacturing jobs would start to bleed away.
One policy wonk’s answer to fight the trend was called tax incremental financing. It was first used in California in the 1950s and adopted in Wisconsin in 1975.
The basic idea was simple. A city would borrow money to fix up a blighted urban neighborhood. Maybe they’d put in new streetlights and sidewalks, repave the streets or add new trees or amenities like public benches. When these kinds of infrastructure improvements resulted in new businesses and homes coming into the area, the tax base would go up. And the city could use the extra revenue to pay back the borrowing.
Pretty slick idea and for the most part it has worked great. Especially here in Madison, TIF has been phenomenally successful. It has been used at one time or another in most of the central city and in many neighborhoods farther away from the downtown. We’ve used it to rebuild State Street, the Capitol Square and East Washington Avenue. Right now the city’s largest TIF project in history is moving ahead (in fits and starts) at Judge Doyle Square.
But this is not 1975. Cities are now in the second decade or more of a renaissance and the Madison real estate market is hot.
And there’s a downside to TIF. The city’s general fund, the local school district and the county all have to wait until the borrowing is paid off until they can enjoy the new tax revenue and that can take as long as a couple of decades. The argument is that it’s worth the wait because if it hadn’t been for TIF the new investment wouldn’t have happened in the first place.
But what if that isn’t true? What if private developers would have made those investments without TIF? Then we’ve essentially just taken resources from other city needs, from the public schools and from the county for no good reason.
That’s why Madison has always had a rigorous TIF application process so that developers have to prove they needed the TIF subsidy they were asking for. Over the years TIF morphed from municipal investments in infrastructure to also include direct subsidies to developers. In Madison, the most common developer request for TIF is for constructing very expensive underground parking to serve their projects.
But in 2014 the city created a jobs TIF program under which businesses were exempted from that rigorous process if they promised to create jobs in the city. In my view, that was a step in the wrong direction because it opened the city up to businesses and developers playing one community off against another to get the biggest taxpayer subsidy. And, in fact, there’s now a move to broaden that policy even further. Rather than loosening the rules for TIF, I wonder if we shouldn’t go in just the opposite direction.
So, here are my questions. In a city as successful as Madison, do we still need TIF? Weren’t we successful before the 1970s without it? Haven’t conditions improved enough in the last 50 years so that it’s no longer needed? And if we stopped using TIF wouldn’t that be to the benefit of other city programs, our schools and the county that would no longer have to wait for new tax revenues?
I posed those questions to Madison mayoral candidates competing in the Feb. 19 primary. Candidate Nick Hart and write-in candidate Toriana Pettaway did not respond.
Here’s my specific question followed by the candidates’ verbatim answers.
Tax incremental financing was conceived in the 1970s as a means of reinvesting in blighted urban areas. That tool has been very successful, especially in Madison. But now cities everywhere are experiencing a renaissance and Madison in particular has a very strong real estate market and development scene. The downside of TIF is that it makes the city general fund and the school district and county wait several years to experience the benefits of added value. In addition, free market purists would identify it as a market distortion in which developers will always try to make a case for TIF even if they don’t need it. Given that the conditions of the 1970s no longer exist, is it time to end TIF in Madison?
Paul Soglin: The premise is wrong. Parts of Madison's real estate market may be strong but there are still blighted areas in need of improvement. (2) We now have job TIFs such as the Exact Science TIF which guarantees hundreds of jobs at $15/hr with pensions and health insurance. (3) Now we can use the last year of an extended TIF for affordable housing making tens of millions of dollars available for the homeless and workforce housing. (4) The premise is wrong. The improvements and increased tax revenues for property improvement that would not have been built more than make up for the several year delay to make up for the added value. Even with delay, school district, city and county revenues are much higher than without TIF.
Mo Cheeks: I believe it is important for the city to use its power to ensure that as our community grows, that it develops in a way that represents the will of the people. In the first year that I was on the city council, we established new a new TIF policy for our city, which represents the values of our community. Our policy clearly states that our goals for TIF are growing the property tax base, fostering the creation and retention of family-supporting jobs, and promoting urban infill. I believe we are set up well to use TIF as a legitimate method of channeling city resources to the benefit of our residents, especially in areas of the city where they otherwise would not have. Furthermore, Madison takes advantage of state law that lets us keep TIF districts open an extra year to invest in affordable housing. With the introduction of new federal economic development programs like Opportunity Zones, I expect to see TIF being used differently or possibly used less. It is critical that we bring a fresh eye to how TIF, or any other city, state, or federal funds that are at our disposal. In the case of TIF, I don’t expect it is going away anytime soon.
Satya Rhodes-Conway: It is time to be much more strategic in the use of TIF, and target it to areas of the city where we need to spark development, focusing on transit oriented development, neighborhood business districts, and workforce housing. We should explore ways to use TIF for smaller projects, like Milwaukee does, or smaller employers, since smaller businesses are more likely to generate jobs. We need to make sure that any project funded with public dollars, including TIF, provides benefits to the community — through affordable housing, energy efficiency, green stormwater management, living wage jobs or more.
Raj Shukla: Madison must make room for everyone and TIF is one tool that can help advance our social, public health, and quality of life objectives. As part of my Green Growth Agenda (https://www.rajshukla.com/greengrowth/), I propose to retain TIF and use it more aggressively to achieve environmental and social objectives. We can use this financing tool to incentivize green development to reduce the risk of flooding, expand clean energy sources, and improve transportation options. I will also explore a “small cap” TIF program to make TIF available to smaller businesses that seek to expand.
