What You Need to Know about TIF 1. NAIOP- Wisconsin We are the champion for creating thriving communities in Wisconsin through successful commercial real.

What You Need to Know about TIF

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NAIOP- WisconsinWe are the champion for creating thriving

communities in Wisconsin through successful commercial real estate development.

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Our Panelists

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Mike HarriganEhlers & Associates Inc.

Nancy Leary HaggertyMichael, Best & Friedrich, LLP

Mike MooneyMLG Commercial

Richard LincolnMandel Group

(Retired)

Tax Incremental Financing

Mike Harrigan, Senior Financial Advisor / Chairman– Ehlers

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10/29/2015

TIF in Wisconsin

• Since 1976 has been THE most powerful economic development tool available to local government– Intent

• Counteract economic downturn (mid 70’s recession)

• Address lack of incentives and financial resources

• Promote economic development

• Promote cooperation between public and private sectors

• Spread costs of economic development to all taxing jurisdictions that benefit

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How does TIF Work?

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Mill Rate Mill RateLocal 6.50 TID 20.00County 4.00School 7.50VTAE 2.00

Total 20.00 Total 20.00

North Street

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South Street

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The TID receives taxes on the increment value at the combined rate of all taxing entities

All taxing jursidictions continue to receive their share of the tax levy on the base value of the TID

Eas

t A

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5 6 7

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

4,500,000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Pro

pe

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Va

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Time

Increment Growth

Increment Base Value

Increment

Base Value

The “But For” Test

• Key underpinning of the TIF program is referred to as the “but for” test. But for” the use of TIF, the proposed development would not occur:– as proposed– within the same time frame– with the same level of value

– Property– Jobs– Amenities

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Other Qualifications & Types of Districts

• Maximum base value = 12% of total E.V.

• At least 50% of land in proposed TID is:

1. Blighted or in need of Rehabilitation/conservation.

2. Suitable and zoned for Industrial use.

3. Suitable for Mixed Use Development. Any combination of Industrial, Commercial, Residential (newly platted maximum of 35%)

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More on Mixed Use District

• Mixed Use District – 35% of area newly platted residential and must one of 3 standards:

– Density at least 3 units per acre

– Conservation subdivision as defined in §.66.1027(1)(a) -- compact lots & common open space, natural features of land are maintained.

– Traditional neighborhood development as defined in §.66.1027(1)(c) -- compact, mixed-use neighborhood where residential, commercial and civic buildings are within close proximity to each other

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Maximum Life

• A District may remain open until the earliest of the following occurrences :

– The District’s maximum life is reached, which varies by type of District and when it was created

– When total tax increments collected are sufficient to pay all of the District’s project obligations

– When the Governing Body passes a resolution to close the District (any unreimbursed project costs become a general liability of the municipality)

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Maximum Life

TID Creation Date > 10-1-2004 or later

Blight Elimination 27 Years (+3)*

Conservation or Rehabilitation

27 Years (+3)*

Industrial 20 Years (+3)*

Mixed Use 20 Years (+3)*

Town Exp. Period + 11 years (16 Years Max)

TID Creation Date > 10-1-2006 or later

Environmental Remediation 23 Years

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* District eligible to receive an extension to maximum life

Eligible Project Costs

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• Public works & improvements

• Financing costs• Real property assembly

costs (land write-down)• Professional service costs• Administrative costs

• Relocation costs• Organizational costs• Pro-rated costs of utility

infrastructure• Cash grants / Incentives

(requires developer agreement)

• Environmental remediation• Projects with ½ mile of

district

Prohibited Project Costs

• Costs of constructing or expanding administrative, police, fire, community, recreational, library and school buildings

• Costs of constructing or expanding facilities if similar facilities are normally financed with utility user fees

• General government expenses unrelated to the TIF district• Costs associated with newly platted residential development

(except in Mixed Use districts where the density test has been met)

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Expenditure PeriodsTID Creation Date 10-1-2004 or later

Blight Elimination 22 Years

Conservation or Rehabilitation

22 Years

Industrial 15 Years

Mixed Use 15 Years

Town 5 Years

TID Creation Date 10-1-2006 or later

Environmental Remediation 15 Years

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Statutory Procedures

• Plan Commission prepares Project Plan• Convene Joint Review Board

– Each taxing body represented– One member of the public appointed

• Public Hearing by Plan Commission• Plan Commission approval• Village Board approval• Joint Review Board approval• State approval as to procedural matters

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Amendments

• Boundary Amendment– Limit of 4 allowed during life of district– May add and/or subtract property– Must be in compliance with 12% test to add territory to a district

Project Plan Amendment– No limit to number allowed (except maximum expenditure period)– Used to amend list of TIF-eligible projects to be undertaken

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TIF Funding Options & Risk Management

• TIF projects can be funded by:– Municipal Cash.– Municipal Debt

• General Obligation• Revenue Debt

– Developer Funding with PAYGO note back to Developer.

• Risk Management :– Developer Agreement with Guarantees.

• Special Assessment• Letter of Credit• Personal Guarantees

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Frequently Asked TIF Questions

• Is TIF a tax break?

– Properties within a TIF District pay the same tax rate as properties outside the district. The difference is how the tax revenue is distributed.

• Is TIF only for blight elimination?

– The original TIF law permitted both Industrial Districts and Blight / Rehabilitation Districts, in 2004 the law was expanded to permit mixed use districts.

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Frequently Asked TIF Questions

• Does the TID change the zoning for property?– No. The TID does not change existing zoning already in place.

• Does the TID make it easier for the municipality to use eminent domain?– No. The process identified within State Statutes for eminent domain is the same whether

a property is within a TID or outside a TID.

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Applying What We Learned

• TID is needed now more than ever to help stimulate development that would not otherwise occur

• Key to successful TID use has always been understanding risk and mitigating it

• Communities must also recognize and understand realities of the market

• Values can go DOWN as well as up

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What We Have Learned

• Fewer developers today than 7 years ago

• Lenders lending, but seek greater equity participation and lower loan to value ratios

• Lenders generally more willing to accept assignment of PAYGO Notes or Bonds than they were.

• PAYGO is used most often when the developer uses cash flow rather than assigning it to a bank

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What We have Learned

• It is no longer sufficient to allow guarantees to lapse when valuation targets are met

• Personal guarantees, while still important can be very difficult to collect from

• Letters of Credit or Special Assessment Guarantees are viable options

• When values Drop and TID can no longer cover, General Fund Impacts can be significant

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262-796-6165

mharrigan@ehlers-inc.com

Mike Harrigan

Senior Financial Advisor/

Chairman

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Tax Incremental Financing (TIF)

J. Michael Mooney Chairman MLG Development

League of Wisconsin Municipalities Annual Conference

October 29, 2015

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Setting the context: MLG- 28 Years of Land Development (“Dirt” Guys)

• 3,500 Acres – 18 Business Parks • 3,500 Acres – 43 Subdivisions

Business Parks• 16 have been Public/Private Partnerships• A collective municipal investment of $125,000,000

through Tax Incremental Financing

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MLG Business Park Impact:Tax Base• Currently $900,000,000 +/-• When complete $1,250,000,000 +/-• Property tax revenue $22,500,000 +/-

Employment • Currently – 25,000 to 30,000• Payrolls - $1.0 +/- Billion • Payroll multiplier effect- 4 times

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Economic Impact:• Payroll Multiplier - $4,000,000,000• Property Taxes - $22,500,000• Total $4,022,500,000• Timeline – year after year, after year

When projects are completed:• 30-40% more $$ in payrolls, tax base and property taxes• 30-40% more in employment

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Proportional Financial Impact: • $125 Million initial municipal investment • 20 Year Return = $85,000,000,000• Not counting rest of business park growth

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Geographical Impact:• 15 invested communities contribute to benefit:

• Tens of thousands of families • Dozens of other communities • All the counties in the region • The entire state

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Other Essential Contributing Factors:• Public/Private-A genuine partnership

• P/P/P Teamwork• Leadership• Problem Solving • Financial Expertise • Flexibility • Lots, lots More

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“Greenfield” Biz Parks:

Two Types

• Traditional Style Parks • Community managed development • MLG-Type managed development

• Speculator-Style Parks• Builder/Developer managed parks

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Traditional Style:

• Subdivide an appropriate site• Add infrastructure • Market & fill it up • Generally slower growth • Building construction starts once buyers

are secured

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Speculator Parks:

• Park’s/Builder Developer builds speculative space• Dependent upon its confidence in leasing space• Construction commitment up to developer itself not

future buyers of sites• Less likelihood of local engagement

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Pay as you go:

• Easier for the builder/developers, they are building at their choice

• Far more risky for the traditional style parks, dependent on securing buyers who then build

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End Result:• Traditional-Style

• Slower infill (especially community-managed) • Primarily owner-occupied buildings • More local engagement • Steadier growth • Less variable employment levels

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End Result • Speculator-Parks

• Possibly faster increment growth• Primarily tenant-occupied buildings • More variability in employment as tenants

come and go• Less likely local engagement

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Local/Regional-Grown Companies

• A mix of local, regional and national companies• Primarily locally owned firms, glued to the

community, generating leaders in local government, schools, churches, non-profits and the like

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Summing it up:• TIF is greatly under-appreciated, unfairly maligned, and power folly

effective economic tool. • Its impact upon the economic sustainability of communities,

companies and families is completely out of proportion to the scale of dollars invested.

• Communities having the guts to make this huge difference deserve our thanks

• Finally, business parks that succeed in attracting community connected companies touch my heart, and they should touch yours.

Thank you.

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Nancy Leary Haggerty Slides

Working with TIF on redevelopment and infill sites

Harrigan chart showed that TIF allows a municipality to “harness” future taxes from increment, to cause development

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Nancy Leary Haggerty Slides

Cities have responsibilities to their citizens:

Install roads, water and sewer systems, drainage systems, traffic controls

In the past, federal government collected high income taxes and made grants to cities to carry out these jobs

These state and federal sources of money are rare

Very few tools left to municipalities to create these improvements so now require private developers to do so with promise of partial reimbursement through TIF

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Nancy Leary Haggerty Slides

If you think of each parcel of land in a municipality as a “field” from which the municipality must secure “crop of taxes” then it becomes important that the development of each parcel be maximized

Parcels that are underutilized, because they are too large, too small, environmentally contaminated, buildings that are too old or poorly configured, or have no public water or sewer service, need help to maximize value

City requires developer to make these improvements with developer’s funds, and then share increased taxes from the development

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Nancy Leary Haggerty Slides

Not “corporate welfare” because developer is providing something to municipality in its development agreement

Most communities use “pay as you go” mechanisms, so developer is not paid unless and until the tax increment is actually produced

Most communities use able financial advisors to evaluate projects, and insert mechanisms into the development agreement to control outcomes

WDOR website shows many TIF success stories

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Nancy Leary Haggerty Slides

Caution to fit the TIF plan and development agreement into the real estate deal

Can protect the municipality so tightly that buyer, user and lender of buyer can’t make the deal happen

Be aware of requirements that will hamper lending for construction or hinder sale of lots

Use the concept of the end-user’s Parcel Development Agreement to keep title clean, and completion certificates

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TIF LEGISLATIVE UPDATE

• Joint Legislative Council Study Committee on the Review of Tax Incremental Financing• Six Legislators• Twelve “Citizen” Members• Chair – Senator Rick Gudex (R-Fond du Lac)• Vice Chair – Rep. Amy Loudenbeck (R-Clinton)

• Met Throughout 2014• Final Report – March 2015

• Recommended Eight Separate Bills Making Changes to Current TIF Law

• Goal Was to Increase Flexibility, but Not to Make Wholesale Changes to Current Law

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TIF LEGISLATIVE UPDATE

• SB 50 // AB 131

• Makes Various Technical Changes Related to:• Industrial Zoning for Mixed Use TIDS• Standardized Tax Increment Collection Cycles• Standardizes Certain Deadlines for TIDS• Specifies Class 1 Notice for Plan Commission

Hearing• Changes to Levy Limits Upon Closure of TID

• Passed Senate May 6th

• Approved by Assembly Committee October 22nd

• Awaiting Assembly Floor Action

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TIF LEGISLATIVE UPDATE

• SB 51 // AB 132

• Makes Joint Review Board a Permanent Standing Committee

• Requires More Detailed Annual Reporting• July 31st Reporting Deadline• 60 Day Extension Possible

• Passed Senate May 6th

• Approved by Assembly Committee October 22nd

• Awaiting Assembly Floor Action

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TIF LEGISLATIVE UPDATE

• SB 52 // AB 133

• Allows Any Type of TID to Be a Recipient District• Currently Limited to Only

• Blighted Area TID• Conservation or Rehabilitation TID• Distressed or Severely Distressed TID

• Revises Restriction on Revenue Sharing Between TIDs with Overlapping Taxing Jurisdictions

• Passed Senate May 6th

• Approved by Assembly Committee October 22nd

• Awaiting Assembly Floor Action

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TIF LEGISLATIVE UPDATE

• SB 53 // AB 134

• Mitigates Negative Impacts to TID Cash Flows Caused by Legislative or Administrative Actions• Amend TID Boundary• Request Redetermination of TID Base Value• Request Extension of TID Life

• Passed Senate September 16th

• Awaiting Assembly Committee and Floor Action

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TIF LEGISLATIVE UPDATE

• SB 54 // AB 135

• Eliminates Current Limitation That No More Than 25% of a Blight or Rehabilitation TID Can Be Vacant Land

• Eliminates Requirement to Assign a Base Value to Municipally-Owned Tax Exempt Land

• Passed Senate May 6th

• Approved by Assembly Committee October 22nd

• Awaiting Assembly Floor Action

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TIF LEGISLATIVE UPDATE

• SB 55 // AB 136

• Increases from 12% to 15% the Limit on the Amount of Taxable Property Permitted to be Within All TIDs in a Municipality

• Approved by Senate Committee May 21st

• Awaiting Senate Floor Action• Approved by Assembly Committee October 22nd

• Awaiting Assembly Floor Action

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TIF LEGISLATIVE UPDATE

• SB 56 // AB 137

• Extends the Sunset Date for Declaring a TID to be Distressed or Severely Distressed from October 1, 2015 to October 1, 2020

• Passed Senate September 16th• Awaiting Assembly Committee and Floor Action

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TIF LEGISLATIVE UPDATE

• SB 57 // AB 138

• Currently, a TID in Decrement (10% Drop in Value for Two Consecutive Years) can Receive a Redetermination of It’s Base Value Only Once During the TID’s Life

• Under These Bills, for Blight, Conservation or Rehabilitation TIDs, Multiple Redeterminations Would be Permitted, and Two Year Requirement Would be Eliminated

• Passed Senate September 16th• Awaiting Assembly Committee and Floor Action

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TIF LEGISLATIVE UPDATE

• SB 263 // AB 349• Sponsors – Sen. Strobel & Rep. Craig & 9 Others• Any TID Created After October 1, 2015 Would Have

to Comply with One of These “Best Practices”• At Least 51% of Improvements Must be

Financed by Private Developer With a “Pay-As-You-Go” TIF

• All Project Costs Must be Projected to be Repaid Within 90% of the TID’s Remaining Life

• Unless Unanimously Approved by JRB, All Project Expenditures Must be Made in the First Half of the TID’s Life

• Public Hearings Held in the Senate (10/21) and Assembly (10/22)

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TIF LEGISLATIVE UPDATE

• Richard W. Lincoln• 414-750-5456• rlincoln@mandelgroup.com

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QUESTIONS

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What You Need to Know about TIF

Want to know more?

Contact us: 262-442-9730

Kirsten@naiop-wi.org

We are the champion for creating thriving communities in Wisconsin through successful commercial real estate development.

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