PORT WASHINGTON -- The real estate economy in Wisconsin is hot. So why are taxpayers paying the price? A FOX6 investigation finds it's all because of something called 'tax increment financing' -- or TIF for short.
"It's a taxpayer subsidy of a real estate development," said State Senator Duey Stroebel, a Saukville Republican who is a realtor by trade.
TIF-funded projects are helping cities, towns and villages across Wisconsin to re-invent themselves with new luxury apartments, town homes, condominiums, music venues, restaurants, shopping centers and more. That means taxpayers are fronting millions of dollars for private developments.
"Why?" Stroebel asked. "We are in a booming real estate economy... does the taxpayer really need to subsidize high-end apartments?"
TIFs were first created in Wisconsin in 1975 to help communities address the problem of urban blight.
"Environmentally contaminated sites that had a negative value," he explained. "Nobody wanted to develop a property with a negative value."
But in recent years, the senator says TIF use has exploded, even for projects built on valuable real estate.
"It just doesn't make sense."
Consider the recent transformation in Port Washington, about 30 miles north of Milwaukee. Once a bustling commercial fishing port, the city's downtown and
marina areas were languishing until 2010. That's when City Administrator Mark Grams says tax increment financing helped kick-start a turnaround.
"I think Port Washington's been discovered," Grams said.
In just the last two years, developers have sought incentives for a proposed music and entertainment venue, restaurants, apartments, town homes and condos all in the downtown area. In other parts of the city, they are considering proposals for a revitalized shopping center, senior housing complex, and a new neighborhood and vineyard -- all funded in part with TIF.
"We have used it as a development incentive," Grams said.
Port Washington resident Kim Haskell has been an outspoken critic of the TIF frenzy in her hometown.
"It sounds like Port is kind of going TIF crazy," said FOX6 Investigator Bryan Polcyn.
"Very much," Haskell replied, noting that not every development needs taxpayer assistance.
"The Smith town homes didn't take any incentives," she said, referring to the Lakepointe Townhomes project, currently under construction on Pier Street, near the marina.
When the project was originally approved in 2017, the developer -- Stephen Perry Smith Architects -- made no request for any TIF incentive. In early July, however, another apartment project started demolition on a property adjacent to Lakepointe. For that project, Port Washington-based Ansay Development Corporation is receiving $330,000 in taxpayer assistance to help clean-up potentially contaminated soil from an old chair factory. Now, Smith Architects are planning to go back to the Port Washington common council to ask for TIF assistance for their project, too.
Port Washington's new mayor had a colorful description for the sudden change of heart.
"Johnny got a piece of candy, why can't I get a piece of candy," said Becker, who was just elected in April and has mixed feelings on the subject of TIFs.
"TIF is a way of life," he said. "Everybody's going to ask for it. They're foolish if they don't."
Haskell's feelings are clear. She wants the city to slow down.
"Why is the city being asked to subsidize a developer's profit margin?" she said during public comment at a recent council meeting.
But it's not just Port Washington:
- Grafton recently gave $875-thousand dollars in TIF incentives for an apartment complex.
- Mequon ponied up $1-point-7 million for a mix of retail and residential known as Spur 16.
- Cedarburg kicked in $1-point-9 million for apartments on the site of the old St. Francis borgia school.
- The Milwaukee Bucks' new arena is financed with $12-million dollars in TIF incentives
- Foxconn will get more than $764-million in TIF financing.
All told, there are currently 1,261 active tax increment financing districts across the state.
"It's really become commonplace," Stroebel said.
So how does tax increment financing actually work? Think of it like the board game Monopoly. And imagine you have a piece of property, say, Boardwalk. When it is vacant, the rent is $50. Put a hotel on the property and the rent skyrockets to $2,000.
A similar thing happens with taxes. Vacant land is taxed at a low rate, but developed land is taxed at a much higher rate. With tax increment financing, the extra taxes (or 'tax increment') generated by the new development are used to pay back the developer's loan instead of paying for basic city services. And the city's general fund continues to receive the same amount of tax revenue as if nothing was ever built on the site.
"Does that put a burden on the rest of the community to service those properties with fire and police and sewer and water?" asked FOX6 Investigator Bryan
"I don't think it is," Grams said. "I know that's been an argument of some people. But, in reality, when you look at the new development, it's really not going to cost you that much more in services."
Grams says it's an investment in the future, because once the TIF debt is paid, all that extra tax revenue will start flowing the city's way. For many projects, that could be 20 years down the road, meaning a child born today would be in college before the development pays off.
And if the development fails to live up to expectations, there may not be enough new taxes to pay off the debt at all. In that case, taxpayers may have to pick up the shortfall.
"It's another whammy for the taxpayers," Stroebel said.
"We're mortgaging the kids' future," Haskell said. "Our city's future!"
The old adage says you have to spend money to make money. And municipalities across the state are hoping these investments will pay off.
"You've really got to look at your long-range growth and future for your downtown," Grams said.
Until then, taxpayers are on the hook.
In a traditional TIF, the municipality loans the developer money up front for things like soil remediation or road improvements. But some cities are using an alternative known as a 'pay-as-you-go' TIF. In those cases, the developer pays all of the costs up front, but still uses the extra tax revenue that's generated to pay off their debt. Port Washington is considering a couple of pay-as-you-go TIF proposals.