its tax base is expanding, ….
its tax base is expanding, we have to crawl into the clanky, complicated Rube Goldberg machine that is Wisconsin municipal finance and look around.
The first thing we’ll see is that Abbotsford is not alone. All kinds of other western Marathon County municipalities have raised their property taxes by double digits since 2013. The village of Edgar, for example, raised its taxes 14 percent. Other municipalities, such as the villages of Marathon City and Stratford, raised their local levies by 15 and 18 percent, respectively. These 2013-19 tax hikes are comparable to levy hikes in Wisconsin River metro municipalities like the cities of Wausau, 15 percent, and Schofield, 20 percent.
The second thing we notice is that these cities and villages commonly use something called Tax Incremental Finance (TIF). This technique, developed nationally in the 1970’s, permits a municipality to give a business free roads, sewers, blacktop and curb and gutter in exchange for a pledge to erect a new, taxable building. After a Tax Incremental District (TID) is formed, the municipality captures all of the taxes from the new structure and, typically, over a 25 year period, uses the taxes to pay off the city’s investment. When a development loan is finally paid off, the business property taxes are routed to the municipal general fund. That promises to lower everybody else’s property taxes.
TIF is promoted as a win-win-win. The business gets a subsidy. The municipality gets growth. The taxpayers, if they are patient, get lower taxes.
But the third thing we observe is that TIF municipalities in Marathon County, strangely enough, do not have lower, falling property taxes. Just the opposite.
Our investigation documents that property taxes in these TIF municipalities during 2013-19 increased by an average of 12.27 percent. This compares with non-TIF municipalities, including townships and a few villages, whose taxes went up less than half that amount, 5.07 percent.
This larger trend is born out with local examples covering the 2013-19 period. The Village of Marathon City, for instance, saw a 15 percent increase in local municipal taxes. The neighboring town of Cassel had only an eight percent hike. Stratford had an 18 percent tax increase; the town of Cleveland, right next door, had an eight percent increase. The village of Edgar raised taxes by 14 percent, yet Rietbrock, the township to the north raised taxes less than seven percent.
All of this is quite strange. TIF stimulates business, development and growth. Local taxes paid by regular homeowners should, over time, decrease in TIF municipalities. Yet, in TIF municipality after municipality, regular residential taxes increase at double the rate of non-TIF municipalities.
To understand why property taxes are increasing in TIF municipalities, we have to rummage around further in the Rube Goldberg municipal tax machine.
What we find is something called Net New Construction (NNC).
This is an important part of the machine. It regulates how much local municipalities can raise taxes.
Under Wisconsin law, municipalities cannot raise property taxes (except for debt and referendum approved spending). Since 2013, however, the state allows municipalities to increase property taxes equal to the percentage of new construction in a municipality. So, for example, let’s say a $100 million municipality gets a new factory worth $2 million. With that new factory, state law will allow that municipality to raise property taxes by two percent.
The state Department of Revenue sends an NNC report to every municipality every year. That tells local municipal boards how much they can raise taxes.
Here’s the simple reason why taxes in TIF municipalities increase faster than in non-TIF municipalities: TIF powers the NNC in the municipal tax machine. It works like a turbo-charger.
Our investigation documents that Marathon County TIF municipalities had an average net new construction percentage during 2013-19 of 1.71 percent. Non-TIF municipalities only had an average net new construction of 1.2.
So, what happens is that municipalities employ TIF, they spur growth and, with the growth, that allows them to increase local taxes during what is otherwise a state tax freeze. Non-TIF municipalities don’t have that option.
So what does that do to TIF as a win-win-win?
That has changed as municipalities increasingly use TIF not just for development, jobs and growth, but to generate the higher taxes needed to balance budgets and pay bills. As the state has relaxed TIF laws, municipalities, too, are able to create “surpluses” in TIF projects where money can be used for all kinds of municipal uses, including administrative salaries, parks and sewers. This incentivizes municipalities to use TIF even more.
TIF thus helps businesses and municipalities, but it hurts taxpayers. These days, TIF is win-win-lose.
But isn’t there a payoff?
Surely, a TIF supporter would say, local property taxes will eventually decrease once millions of dollars worth of factories, restaurants and commercial office buildings are added to a municipal tax roll-- even if NNC allows some tax increases. Our investigation looked into this very question. We wanted to know whether a taxpayer is helped or harmed financially when a municipality has a “successful” year in its TID and it is home to millions of dollars worth of growth. To answer this question, we used a $198,400 commercial property in Marathon City as an example. We focused on 2018, when the village had an excellent year with $8.3 million of development in its two professionally run TIDs. We looked at this property’s municipal taxes, the tax increase the Marathon City Village Board approved based on that year’s NNC and cast forward what the property taxpayer would wind up paying in extra taxes over 20 years.
We then calculated the tax savings the property taxpayer will get after the village pays off its TIF loans in 2027 and 2036 and then adds the $8.3 million in growth to the village’s regular tax base.
The result? By 2038, the owner of the $198,400 property will pay an additional $1,452 in property taxes due to the NNC associated with the village’s 2018 TIF development. Yet the owner will only see $631 in lowered taxes after the TIF loans are paid off.
These figures reflect investing funds in both scenarios in low-interest federal T-bills.
The bottom line is that the property owner in Marathon City loses $821 over a 20-year period. The $8.3 million TIF development is a money-maker for the businesses and the village, but not the property owner.