How a TIF Works
To create a tax incremental district (“TID”), a Wisconsin City or Village must designates a contiguous geographic area and develop a written TID project plan.  Various procedures and approvals are required, including a public hearing and approval by the Plan Commission, approval by the Common Council or Village Board, and approval by a “Joint Review Board” that includes representatives of the County, the Adult Education District, the School District, and the City or Village in which the TID is located, plus one public member.  Various findings are also required, including a finding by the Common Council or Village Board that at least 50 percent of the TID area is a blighted area, is in need or rehabilitation or conservation work, or is suitable for industrial sites (and has been zoned for industrial use).

After creating a TID, the municipality may spend costs on land assembly, demolition, environmental remediation, infrastructure improvements, and related professional service and administrative costs.  The goal of these expenditures is to stimulate private, taxable development within the TID, thereby increasing the property tax base for all overlying taxing jurisdictions.  For the life of the TID, local property tax revenues on the increased property values in the TID are not split among the overlying taxing jurisdictions as they normally would be; instead, they are paid entirely to the City or Village so that it may reimburse itself for (or pay debt service on) its initial, up-front expenditures.  (Property tax revenues on the original property values continue to be split among the overlying taxing jurisdictions, as they normally would be.)

The size of a TID can vary greatly — for example, a larger area (with many parcels) targeted for redevelopment or a business park, or a single parcel targeted for a specific project.  Very often, the City or Village will enter into a development agreement or other arrangement with a developer, company, or other party, whereby the parties agree upon the use of TIF for a specific project — for example, the relocation or expansion of a manufacturing plant, the remediation of a contaminated brownfield, or the development of a business park.

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Eligible TIF Costs
Generally, expenditures that are eligible for TIF funding must be costs of public works or improvements, or incidental costs.  Wisconsin’s TIF statute, § 66.1105, identifies the following as eligible TIF costs:

Capital costs, including, but not limited to, the actual costs of the construction of public works or improvements, new buildings, structures, and fixtures; the demolition, alteration, remodeling, repair or reconstruction of existing buildings, structures and fixtures other than the demolition of listed properties as defined in s. 44.31 (4); the acquisition of equipment to service the district; the removal or containment of, or the restoration of soil or groundwater affected by, environmental pollution; and the clearing and grading of land.

Financing costs, including, but not limited to, all interest paid to holders of evidences of indebtedness issued to pay for project costs and any premium paid over the principal amount of the obligations because of the redemption of the obligations prior to maturity.

Real property assembly costs, meaning any deficit incurred resulting from the sale or lease as lessor by the City or Village of real or personal property within a TID for consideration which is less than its cost to the City or Village.
Note:  Under this provision, the cost of purchasing land is not itself the eligible TIF project cost.  Rather, it is the shortfall or write-down between (i) the cost of land and (ii) the sale or lease of the land at a lower cost.

Professional service costs, including, but not limited to, those costs incurred for architectural, planning, engineering, and legal advice and services.

Imputed administrative costs, including, but not limited to, reasonable charges for the time spent by City employees in connection with the implementation of a project plan.

Relocation costs, including, but not limited to, those relocation payments made following condemnation under ss. 32.19 and 32.195.

Organizational costs, including, but not limited to, the costs of conducting environmental impact and other studies and the costs of informing the public with respect to the creation of TIDs and the implementation of project plans.

The amount of any contributions made under s. 66.1333 (13) in connection with the implementation of the project plan.

Note:  § 66.1333 (13) authorizes a City or Village (or any other public body) to lend or contribute funds, to assist any redevelopment project located in an area in which a Redevelopment Authority (RDA) or Community Development Authority (CDA) is authorized to act.  Generally, this requires that the project area be designated a “blighted property” or a “blighted area” under § 66.1333.  The City or Village may lend or contribute funds to parties other than the RDA or CDA itself.

Payments made, in the discretion of the local legislative body, which are found to be necessary or convenient to the creation of TIDs or the implementation of project plans.

That portion of costs related to the construction or alteration of sewerage treatment plants, water treatment plants or other environmental protection devices, storm or sanitary sewer lines, water lines, or amenities on streets or the rebuilding or expansion of streets, the construction, alteration, rebuilding or expansion of which is necessitated by the project plan for a TID and is within the TID.

That portion of costs related to the construction or alteration of sewerage treatment plants, water treatment plants or other environmental protection devices, storm or sanitary sewer lines, water lines, or amenities on streets outside the TID if the construction, alteration, rebuilding or expansion is necessitated by the project plan for a TID, and if at the time the construction, alteration, rebuilding or expansion begins there are improvements of the kinds named in this subdivision on the land outside the TID in respect to which the costs are to be incurred. 

Costs for the removal, or containment, of lead contamination in buildings or infrastructure if the City or Village declares that such lead contamination is a public health concern.

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Exclusions from Eligible TIF Costs
The TIF statute also identifies the following costs as not eligible for TIF funding:
The cost of constructing or expanding administrative buildings, police and fire buildings, libraries, community and recreational buildings and school buildings, unless the administrative buildings, police and fire buildings, libraries and community and recreational buildings were damaged or destroyed before January 1, 1997, by a natural disaster.

The cost of constructing or expanding any facility, if the City or Village generally finances similar facilities only with utility user fees.

General government operating expenses, unrelated to the planning or development of a TID. 

Cash grants made by the City or Village to owners, lessees, or developers of land that is located within the TID unless the grant recipient has signed a development agreement with the City or Village, a copy of which shall be sent to the appropriate Joint Review Board or, if that Joint Review Board has been dissolved, retained by the City or Village in the official records for that TID. 

In addition, the statute provides generally that other project revenues (i.e., non-TIF revenues) received or reasonably expected to be received by the City or Village must be used to offset the TIF funding.  These might include special assessments, land sale proceeds, or other project income or revenue.

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Newly Platted Residential Development
TIF project costs may include any expenditures made or estimated to be made or monetary obligations incurred or estimated to be incurred by the City or Village for newly platted residential development only for a TID for which a project plan was approved before September 30, 1995, or for a mixed−use development TID to which one of the following applies:
The density of the residential housing is at least 3 units per acre.
The residential housing is located in a conservation subdivision, as defined in s. 66.1027 (1) (a).
The residential housing is located in a traditional neighborhood development, as defined in s. 66.1027 (1) (c).
Lands proposed for newly platted residential use, as shown in the TID project plan, may not exceed 35%, by area, of the real property within the TID.
 Note:  “Newly platted residential development” is not defined.

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Statutory Tests and Requirements
A TID must be a contiguous geographic area, comprising (1) whole units of property as are assessed for general property tax purposes, and (2) railroad rights-of-way, rivers, or highways continuously bounded on either side, or on both sides, by whole units of property as are assessed for general property tax purposes that are in the TID. 

50% test:  Not less than 50% by area of the real property within the TID must be at least one of the following:
A blighted area.
In need of rehabilitation or conservation work, as defined in s. 66.1337 (2m) (b).
Suitable for industrial sites within the meaning of 66.1101 and zoned for industrial use.
Suitable for mixed-use development.

Caveat:  Sites purchased for industrial development under § 66.1101 or any other authority may be developed by the City or Village by the installation of utilities and roadways but not by the construction of buildings or structures.  The sites may be sold or leased for industrial purposes but only for a fair consideration to be determined by the governing body.

Vacant-land test:  Property standing vacant for an entire 7-year period immediately preceding adoption of the resolution creating the TID may not comprise more than 25% of the TID area, unless the TID is an industrial TID.
“Vacant property” includes property where the fair market value or replacement cost value of structural improvements on the parcel is less than the fair market value of the land.
“Vacant property” does not include property acquired by the local legislative body under ch. 32 or property included within the abandoned Park East or Park West freeway corridors in Milwaukee County.
“Vacant property” does not include property that is contaminated by environmental pollution, as defined in s. 66.1106 (1) (d).

12% test:  The equalized value of taxable property of the proposed TID plus the “value increment” (i.e., increased value) of all existing TIDs does not exceed 12% of the total equalized value of taxable property within the City or Village.

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Basic Financing Methods
General considerations.  Keep in mind that TIF does not itself provide an up-front source of funds.  Rather, it provides a revenue stream over time.  Also, there will always be a one or two year delay before the initial TID revenues are received.

General obligations bonds or notes.  A municipality may issue its general obligation (GO) bonds or notes to finance TID costs.  The bonds or notes would count toward the municipality’s debt limit and must be issued under proper procedures governing municipal indebtedness.  The bonds or notes would be backed by the municipality’s taxing power, which is generally the highest credit available to the municipality; the bonds or notes would thus receive the interest-rate benefit of this credit.

Over time, the municipality would be repaid from the revenues generated by the TID.  Generally, the municipality assumes the risk that the TID revenues would not be sufficient, although the municipality may seek to mitigate this risk by requiring guarantees or other assurances from the applicable developer or company.  The structure of these guarantees and assurances may adversely affect the tax-exempt status of the bonds or notes.

Generally, Wisconsin law limits the maturity of GO bonds to 20 years, and the maturity of GO notes to 10 years (refundable up to an additional 10 years).

Lease-revenue bonds or notes.  A municipality may also finance TID costs through lease-revenue bonds or notes issued by its Redevelopment Authority (RDA) or Community Development Authority (CDA).  These bonds or notes would not count toward the municipality’s debt limit.  They would not be backed by the municipality’s taxing power and would thus not receive the corresponding interest-rate benefit; however, unlike GO bonds or notes, they are generally exempt from Wisconsin income tax and would thus receive a compensating interest-rate benefit.

As with GO bonds or notes, the municipality assumes the risk that TID revenues would not be sufficient, but again, the municipality may seek to mitigate this risk through guarantees or other assurances from the applicable developer or company.  (Depending upon the type of lease, the municipality’s risk may be a legal risk and/or a market risk.)  Again, the structure of these guarantees and assurances may adversely affect the tax-exempt status of the bonds or notes.

Unlike GO bonds and notes, the maturity of RDA or CDA bonds and notes is not limited to 20 or 10 years but reflects the useful life of the project.  This longer maturity is helpful where a TID has an expected life longer than 20 years.

Developer-financed grant or “pay as you go” financing.  If a TIF project involves a developer, company, or other party who itself has available funds, then the parties can use a developer-financed grant (also known as “pay as you go” financing).

With a developer-financed grant, the developer or company would finance the TIF costs, but the municipality would agree to reimburse the developer or company for agreed-upon costs, with interest, if and when TID revenues are received over the life of the TID.  The financing would not count toward the municipality’s debt limit, and the developer or company, not the municipality, would assume the risk that TID revenues would not be sufficient.

Combinations or variations.  These financing methods may be used in combination.  For example, certain TID costs might be financed using GO or lease-revenue financing, and others might be financed using a developer-financed grant.  Variations on these methods are also possible.  For example, the developer or company might purchase the municipality’s GO bond or note.  Here, the developer or company would be providing the funds for the TID costs, but the municipality would retain the risk of insufficient TID revenues (subject to guarantees or other assurances from the developer or company).

Caveat:  All of the foregoing methods would require careful analysis and documentation, specific to each TIF project.
For example, guarantees, other assurances, or security provided by a developer or company may have an adverse effect on the tax-exempt status of the bonds or notes.
A pledge of TID revenues may create unlawful debt.  See City of Hartford v. Kirley, 172 Wis. 2d 191, 493 N.W. 2d 45 (1992).  Thus, “TIF revenue bonds” described in § 66.1105 (9) (b) are not used.

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Additional Considerations
Villages have TIF powers of Cities.  Villages have all of the powers of Cities under the TIF statute (§ 66.1105) as well as the RDA and CDA statutes (§§ 66.1333 and 66.1335).

Additional types of TIF.  In addition to TIF described above (which is available to Cities and Villages):(1) Cities, Villages, Towns, and Counties may use environmental remediation tax incremental financing (“ER-TIF”) for costs of certain environmental remediation projects.
(2) effective October 1, 2004, Towns may use TIF for costs of certain agricultural, forestry, manufacturing, and tourism projects.

As with TIF described above, each of these additional financing tools has its own requirements, procedures, and limits.

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2004 Statutory Amendments
The life of a blighted TID or rehabilitation-conservation TID is now 27 years, and in some cases the life may be extended to 30 or 31 years.  This change allows many TIDs to collect additional revenues and thereby fund additional project costs.  (Previously, the life of a blighted TID or conservation-rehabilitation TID, if created October 1, 1995 or later, was 23 years.)  § 66.1105 (7).

Caveat:  The life of an industrial TID, if created October 1, 1995 to September 30, 2004, remains at 23 years.  The life of an industrial TID or mixed-use TID, if created October 1, 2004 or later, is now limited to 20 years, but in some cases the life may be extended to 23 years.  The life of any TID created prior to October 1, 1995 remains at 27 years.

A municipality will now have additional opportunities for donating revenues from one TID to another, if the donee TID is used for low-cost housing or remediating environmental contamination or is a blighted or rehabilitation-conservation TID.

A municipality now has to meet only a single valuation test before creating a new TID:  the taxable value of a new TID plus the “value increment” (i.e., increased value) of existing TIDs cannot exceed 12 percent of the municipality’s total taxable value.  This is a significant increase in a municipality’s TIF capacity.  Previously, a municipality has to meet one of two alternative valuation tests before creating a new TID, either a 5 percent valuation test or a 7 percent valuation test.

In addition to blighted, rehabilitation-conservation, and industrial TIDs, a municipality can also create a TID for mixed-use development containing a combination of industrial, commercial, or residential uses.

Property contaminated by environmental pollution no longer counts as vacant property for purposes of the 25 percent limit on including vacant property in a non-industrial TID.

The minimum time period required for creating a new TID has been reduced by several weeks.

TID expenditures can now be made for up to 5 years prior to the unextended life of a TID.  This benefits both existing TIDs and newly created TIDs; for an existing TID whose expenditure period has already expired, this will reopen the TID expenditure period for a significant additional period of time.

Caveat:  The statutory amendments contain a technical error that has the effect, as interpreted by WDOR, of not extending the expenditure periods of blighted or rehabilitation/conservation TIDs created prior to October 1, 1995 or industrial TIDs created prior to October 1, 2005.  See §§ 66.1105(6) (am) 1. and (7) (am).  Currently, the WDOR is advising that municipalities may apply for relief through the “mandate waiver” relief procedures of § 66.0143.  Additional legislation that will correct the technical error is expected in 2005.

Note:  An additional tool for meeting the statutory expenditure deadline is to deposit the applicable funds into escrow.  These escrows, however, require careful analysis and documentation, specific to each TIF project.

A municipality can now add or subtract territory from a TID as many as 4 times during the TID’s entire life.  Previously, a municipality could add territory to a TID only one time (and only during the first 7 years of the TID’s life).  In addition, TID expenditures relating to the addition or subtraction are no longer limited to a 3-year period but can be made during the same extended period applicable to all TID expenditures generally.

New requirements or limitations:
TIF may not be used for costs of newly platted residential development unless the TID is a mixed-use district and certain density or other land-use requirements are met.  Newly platted residential use may not exceed 35 percent of the TID area.  Previously, TIF could not be used at all for newly platted residential development, except for TID project plans approved before September 30, 1995.  §§ 66.1105 (2) (cm) and (f) 3.

A joint review board may request the Wisconsin Department of Revenue (WDOR) to review a TID proposal to determine whether it complies with the TIF law or contains a factual inaccuracy.

The WDOR may charge a $1,000 fee to determine the base value of a new TID (or in some cases to redetermine the base value of an amended TID).

Amendments to a TID require that the municipality meet the 12 percent valuation test noted above.  Previously, there was no valuation test at all for amending a TID project plan or boundary.

Cash grants to owners, lessees, or developers of land require that the grant recipient and the City or Village sign a development agreement.  A copy must be sent to the Joint Review Board for the TID (or, if the Joint Review Board has been dissolved, must be retained by the City or Village in the official records for the TID).  If applicable, the Plan Commission’s notice of public hearing must include a statement that cash grants are anticipated.

A TID may not include any territory that was annexed from a Town within the previous 3 years unless the City or Village and the Town enter into a cooperative plan or other agreement or the City or Village pledges to pay the Town an amount equal to the property taxes levied on the territory by the Town at the time of the annexation for each of the next 5 years.

Note:  These payments to the Town will themselves be eligible TIF costs.

A Joint Review Board may not approve the creation or amendment of a TID unless the Joint Review Board makes a positive assertion that, in its judgment, the proposed development would not occur without the creation of a TID.  This is known as the but-for test.  Currently, meeting the but-for test is not an absolute requirement but is one of the criteria to be considered by the Joint Review Board.

An application to the WDOR for the determination (or redetermination) of a TID base must include the percentage of territory in the TID that the Common Council or Village Board estimates will be devoted to retail business at the end of the TID expenditure period, if that estimate is at least 35%.

A City or Village must submit certain information to the WDOR following termination of a TID, including a final accounting of all TID expenditures and the total amount of TID revenues.  The WDOR cannot certify the base of a new TID or TID amendment until the information is submitted.

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