By Kim McDarison
The City of Fort Atkinson held a budget workshop Tuesday Oct. 12. A public hearing on the proposed 2022 budget is scheduled for Nov. 2.
Along with anticipated revenues and expenditures within the city’s general fund were budget items under consideration for the city’s three tax incremental financing districts (TIDs) Nos. 6, 7 and 8.
In 2022, the city is proposing to fund projects within each of its three TIDs with a portion of funds coming from the tax levy.
The draft budget summary, as presented during the workshop, shows total general fund resources estimated in 2022 at just under $9.45 million.
In 2022, the estimated tax levy, not including adjustments for the city’s three TIDs, is $7,635,912.
After adjusting for funds to be invested in TIDs, the full estimated levy in 2022 is $8,098,750, which shows a tax levy amount of $462,838 to be spent on projects in 2022 within the city’s three TIDs.
In 2021, the full estimated levy, including monies collected through the levy to be spent on operational expenses as well as within the city’s three TIDs, was $8,045,133. TID expenditures in 2021 were not itemized on the draft budget summary. The draft shows an increase of $53,617, or 0.67%, in total tax levy-generated funds, including those earmarked for operational expenditures and TID spending, in 2022 over 2021.
Without the proposed expenditure for the TIDs, the document shows, the city’s levy in 2022 would represent an increase of $18,266 or 0.24% over that of last year.
Projects within the three TIDs identified to receive tax levy funding in 2022 include: Klement Industrial Park, TID No. 6, $46,896; downtown economic development, TID No. 7, $147,733, and northwest corridor development, TID No. 8, $268,210.
The draft provides an estimated mill rate for city taxpayers of $8.75 per $1,000 of assessed property value, which, City Manager Rebecca Houseman LeMire noted in a recent memo to the Fort Atkinson City Council, is slightly up from last year’s mill rate of $8.64 per $1,000 of assessed property value. The mill rate, as presented by the city, represents funding to be appropriated from city taxpayers to fund the operations of the city and TID districts, and does not include levies from other taxing jurisdictions such as the state, county, technical college and school district.
An earlier story focusing on the city’s draft operating budget, including line items within the general fund, is here: https://fortatkinsononline.com/city-shares-2022-draft-budget/.
What is tax incremental financing?
According to an overview published by the Wisconsin Economic Development Association (WEDA), titled: “Tax Incremental Financing: An Analysis of Wisconsin’s Most Important Economic Development Tool,” the Wisconsin Legislature adopted tax incremental financing (TIF) statutes in 1975. The financial tool is meant to facilitate tax base expansion within municipalities, which, in turn, is meant to create revenues to fund projects to support economic and industrial development, job growth, urban renewal and tourism.
The process allows a municipality to establish a geographical area, called a tax incremental financing district, or TID. Once established, the assessed value of the geographical area is frozen. That frozen value is called the “base value” of the TID. During the process, the taxing jurisdictions, which receive tax revenues from the TID, agree to receive tax revenues on the base value only for a set period of time. As the TID’s assessed value increases, by virtue of growth through investment over the base value, those revenues, called an “increment,” are placed in a separate fund, with those dollars used to fund investment projects over the life of the TID. When the TID closes, or sunsets, tax revenues created from the full assessed value of the TID, including the base and increment, are returned to the original taxing jurisdictions. When the TID closes, the value of the taxable property within the TID is meant to be higher than the taxable value of the property at the time that it was frozen. A goal of tax incremental financing is that the increment created within the TID will fund investment and increase the value of the property within the TID. TIDs, depending on their purpose, typically have a life of between 23 and 27 years.
Included within the process of forming a TID is the establishment of a municipal Joint Review Board. Its purpose is to approve the creation of the TID and, in so doing, determine that, “but for” the public investment afforded by TID expenditures, sufficient development or improvements within the TID would not occur.
The Joint Review Board’s voting members include representatives from the host municipality and taxing jurisdictions whose revenues will be affected by the TID, including the county and school district.
In Fort Atkinson’s case, that also includes the area technical school.
Once created, eligible TID costs, coming in the form of investments in the TID, are paid from property tax revenues generated as increment by increased taxable property values within the district.
“TIF is not a tax cut nor a tax increase, but an allocation method for incremental property taxes collected within the district,” The WEDA document states.
Additionally, the document states, state statutes outline the maximum life of a TID, how much of a community’s value can be in TIDs, reporting requirements for TIDs, the process for creating a TID, and what costs are eligible to be reimbursed or paid out.
When creating a TID, its purpose must be designated. Wisconsin statutes currently allow for blight remediation, conservation or rehabilitation, industrial, mixed-use, town, and environmental remediation.
The full document, produced by Baker Tilly Virchow Krause LLP in 2019, is here: http://www.weda.org/wp-content/uploads/2020/01/TIF-study.pdf.
Fort Atkinson’s three TIDs
Within information shared in July with the city’s Joint Review Board, LeMire wrote: “2015 Act 257 was enacted by the State of Wisconsin on March 1, 2016, and requires municipalities that have Tax Incremental Financing Districts (TIDs) to have a standing Joint Review Board (JRB) in existence for the entire time that any TID exists. It also requires that the standing JRB, which is made up of representatives from the overlying taxing jurisdictions, meet annually to review the TID report that describes the status of each TID located in that municipality.”
A report must be reviewed by the board annually on July 1, or as soon as an updated report becomes available, and must include “several financial metrics in order to demonstrate the TIDs’ performance over time, LeMire noted. The report must be filed with the Wisconsin Department of Revenue.
A detailed look at the city’s three TIDs, as outlined within LeMire’s memo, follows.
TID No. 6
TID No. 6 was opened in 2000 for the purpose of developing the city’s Klement Business Park, with 2018 being the last year that the TID could incur investment-related costs.
The TID was designated as “distressed” in 2011. The designation allowed the city to extent its life by 10 years to help recover the invested costs of improvements.
According to state statutes, a distressed TID is one that has shown its project costs and debt can not be paid within the normal life of the TID. The statute granted a distressed TID an extension up to 10 years past its original termination date to recover its costs. A designation of “severely distressed” allowed an extension up to 40 years past a TID’s original termination date to recover its costs.
Statutes further state that a municipality can no longer designate an active TID as distressed or severely distressed. This provision sunset on September 30, 2015.
Additionally, the designation allowed the city to designate its other two TIDs, Nos. 7 and 8, as donor TIDs to distressed TID No. 6, which allowed the city to move “excess increment” from the donor TIDs to the distressed TID, LeMire explained.
“In 2020, TID No. 7 allocated $177,000 and TID No. 8 allocated $400,000 to TID No. 6. This TID is required to close by 2033, however, it may be terminated early if/when all costs are recovered,” LeMire wrote.
According to the proposed 2022 draft budget, $46,896 is also being proposed for use within the TID, with those funds coming from the tax levy.
TID No. 7
TID No. 7 was created in 2000 for the purpose of blight elimination and consists of the city’s downtown area, with 2022 slated as the last year the TID can incur tax incremental finance-related investment costs.
The TID was scheduled to close in 2027, however, LeMire wrote, because it has been designated as a donor to distressed TID No. 6, its life can be extended to 2033. In 2020, TID No. 7 allocated $177,000 in increment to TID No. 6.
According to the proposed 2022 draft budget, $147,733 is also being proposed for use within the TID, with those funds coming from the tax levy.
According to LeMire, tentative future plans for the TID include possible streetscape and Riverwalk improvements in 2022.
Plans further call for closing the TID when costs are recovered and TID No. 6 is solvent, extending the life for an additional year to provide funds for affordable housing, and creating a new TID including any remaining blighted land within the current TID.
TID No. 8
TID No. 8 was created in 2009 as a mixed use TID and includes the newly developed area along Madison Street and the Highway 26 bypass, LeMire wrote.
The TID was opened in 2009 and 2024 is the last year in which in can incur TIF-related costs.
“This is the city’s newest and most successful TID. It is scheduled to close in 2029, however, because it has been designated as a donor to distressed TID No. 6, its life can be extended to 2033. In 2020, TID No. 8 allocated $400,000 in increment to TID No. 6,” LeMire wrote.
In 2021, the city entered into a Developer’s Agreement with Garrison Holdings, LLC, for the Highland Dental building construction through pay-go financing for a total of $66,500 for infrastructure costs over five years.
The city intends to expend funds from this TID for street light improvements in 2021, LeMire wrote, adding that “tentative future plans for this TID include additional pay-go financing and TID assistance to promote development through the end of the expenditure period; completing all projects identified in the Project Plan; closing the TID when costs are recovered and TID No. 6 is solvent; extending the life for an additional year to provide funds for affordable housing; and creating a new TID including the undeveloped and under-developed land within the current TID and any new land annexed prior to creation.
According to the proposed 2022 draft budget, $268,210 will be used for northwest corridor development, with those funds coming from the tax levy.
Other future considerations
Under a heading of “Other Future Consideration, LeMire wrote:
“There are several other general TID-related items that are being considered for the future,” including:
- Allocation of additional administrative, planning, and engineering funds from each of the TIDs to pay for staff time associated with managing the TIDs, filing reports; negotiating developer’s agreements; vetting financing requests, etc.
- Consideration of timing relating to TID closures.
- Consideration of timing relating to new TID creation.
- Maintaining less than 12% (as stipulated by state statute) of the city’s overall value within TID (current increment is 5.3% of total value).
• Development of an affordable housing program in compliance with state statutes to efficiently and effectively utilize the increment captured from the TIDs prior to termination.
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