The cost of TIF is real

Back in September, The Record-Review published a story about Tax Incremental Finance (TIF). It showed that municipalities that use the technique have higher municipal property tax bills and that, in paying these higher taxes, regular residential property owners don’t really benefit long-term when local governments use TIF to court business expansion.

We said cities and villages had an incentive to use TIF because the resulting development counted as “net new construction” and was a method to work around state levy limits that, otherwise, freeze property taxes.

Our story focused on one property in Marathon City as an example, 216 Main.

In response, village of Marathon City administrator Andrew Kurtz said our story was “not news,” that our analysis was fatally flawed and, despite our use of a property as a real world example, was mere theory in search of facts.

We quote briefly from his critique of our work that we published alongside our TIF story:

The article concludes that the property owner in Marathon City does not benefit from the growth in Marathon City’s TID. This claim is simply not accurate because it is based on a series of unrealistic assumptions, calculations featuring hypothetical scenarios, and values derived from those calculations designed solely to support the author’s opinion.

Well, game on. This past week, the Marathon County’s Treasurer’s Office posted this year’s property taxes and, looking at actual 2020 individual property tax bills from Marathon City, we see municipal taxes in that village are up, just as our story would have predicted.

We can be specific, sampling a trio of randomly selected properties in the village. The house at 504 Washington Street will see its village property taxes (not the K-12 school, tech school or county taxes) increase from $580.74 in 2019 to $593.64 in 2020. The municipal property taxes at 1103 Fifth Street will increase from $1,152.22 to $1,177.62. And the annual village tax bill at 440 North Ridge Road will go up from $1,281.04 to $1,309.28.

These tax increases are not hypothetical or theoretical. They are actual taxes people will have to pay for Marathon City services.

The reason for these higher taxes traces back to TIF. The Department of Revenue reports the village of Marathon City saw its two Tax Incremental Districts (TIDs) increase in value from $41.8 to $45.3 million between 2019 to 2020 and, enjoying new development, the village had a healthy “net new construction” percentage of 1.59 percent. This percentage allowed the village to raise this coming year’s taxes by $12,463.

Now, it could be that people like to see new development in Marathon City and paying an extra $10 or $20 more in municipal taxes each year is worth it. And it may be immaterial to these people whether these higher taxes paid every year are greater than the tax relief that is supposed to occur after a TID is paid off and closed out decades into the future.

But we would point out that while every TIF plan approved in Wisconsin shows to the dollar how much surplus cash each village or city will earn when a TID is dissolved, no TID plan we’ve ever seen calculates how any individual taxpayer will actually make out at the end of a TID using real world assumptions. This is the case even though state law mandates that the benefits of any TID proposal “outweigh the anticipated tax increments to be paid by the property owners…” (our emphasis).

The “news” is that the costs of TIF in the form of higher property taxes paid by property taxpayers are real. It is the promise of future taxpayer benefits that are, as irony would have it, “unrealistic” and “hypothetical.”