MILWAUKEE — Wisconsin continues to capture significant investment from global business leaders.
In just the past 12 months, companies such as Milwaukee Electric Tool, Oshkosh Corporation and Leonardo DRS have committed to constructing and occupying new corporate headquarters in Wisconsin. These three developments alone will create or retain over 2,500 jobs and add $75 million in local assessed property value. And Milwaukee Electric Tool just announced another massive campus in Menomonee Falls that could produce an additional 770 jobs in the area.
Unfortunately, the economic development tool that helped make these projects a reality — tax increment financing — is in jeopardy. Wisconsin should be wary of Senate Bill 560. Its goal is to rein in TIF, but it could have a chilling effect on investment instead.
In a globally competitive marketplace with increasing construction costs, financing large projects can be complex. Communities are becoming more concerned about the potential abuse of incentive programs used to lure economic development. But Wisconsin does not live in a bubble. When a company such as Milwaukee Electric Tool looks to invest in a long-term expansion, it can choose to locate anywhere.
The cost of occupying real estate is a major consideration when site selection decisions are being made, which is why incentives often are offered. Wisconsin is already behind the curve on this front, compared to neighboring states. Illinois, Iowa, Minnesota and Indiana can offer up a buffet of incentives such as property tax abatement as well as sales and payroll tax incentives. Wisconsin cannot.
The powerful tool we do have at our disposal is TIF. All three of the projects mentioned above utilized TIF to get across the finish line. Not every TIF project is going to work out according to plan. But taken as a whole, TIF unquestionably has been the most effective at leveraging economic development. For every $1 of TIF investment, an additional $4.66 of tax base is created.
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Municipalities, including Madison, often create tax incremental financing districts to help revitalize blighted areas.
Some critics are concerned TIF needs to be reined in. In particular, opponents of TIF have zeroed in on the ever-expanding use of upfront cash grants. These grants can be used beyond the traditional scope of TIF paying for public infrastructure. For example, cash grants might help businesses and developers with site acquisition, environmental remediation, parking structures and property tax rebates.
Though the term “cash grant” is attention grabbing, the practice has arguably improved accountability and responsibility when TIF is utilized for a project. When a cash grant is issued, a project agreement must be entered into between the community and the recipient. Such an agreement outlines what the specific project will deliver and how cash grants will be funded.
The practice is commonly referred to as “pay as you go,” or “PAYGO.” It reimburses recipients with cash grants when they deliver on their development promises. A great example of PAYGO is the Oshkosh Corporation agreement. The city of Oshkosh issued a $6 million grant in exchange for Oshkosh Corporation guaranteeing the construction of a 150,000-square-foot corporate headquarters valued at $19 million.
A bipartisan coalition of legislators has proposed Senate Bill 560 to fundamentally change how local communities use TIF. The bill would restrict upfront cash grants that communities can provide. It also would require unanimous consent among local TIF boards to amend territory and financing timelines for existing districts.
The impacts of this legislation could be chilling on corporate site selection. Both the Milwaukee Electric Tool and Oshkosh Corporation projects would not have been eligible for TIF assistance had SB 560 been law.
SB 560 could dramatically impact the $370 million of local economic development firepower that the TIF program can deliver on an annual basis. As Wisconsin businesses look to expand, lawmakers should not be looking to place limitations and restrictions on what has proven to be the most successful and responsible economic development tool Wisconsin has.
Hoffman is co-chair of the NAIOP Commercial Real Estate Development Association public policy committee and a principal with Cushman & Wakefield | Boerke in Milwaukee.