Are TIFs – tax increment districts – necessary tools for economic development in blighted areas – or just “smoke and mirrors” designed to spend taxpayer money on projects that do not need it?

A recent story from the Milwaukee Journal Sentinel that provides some pretty strong evidence in support of the “smoke and mirrors” theory.  

The article points out that there is apparently some question whether the developer of the well-known and long-delayed Couture high-rise apartment building is ever going to obtain the financing to start construction and actually build the project. The Couture is within a tax increment district created by the city of Milwaukee in 2015 in connection with its decision to fund the construction of the Milwaukee Streetcar project.

Here’s what happened. At the same time that it was voting to approve the $124 million streetcar project, the city created a new tax increment district that consists of just two buildings, the Couture and a new office building located at 833 East Michigan Street. Although tax increment districts are intended to foster development that would not occur without tax increment financing, the Couture development was already well beyond the planning stage and the 633 building was already under construction and virtually completed. The real purpose of creating the tax increment district was to permit the mayor to say that this “financing district” would be paying for a substantial portion of the streetcar costs.

But what that really means is that the property taxes on the two buildings in the district would be used by the city for that purpose. This is just taxpayer money. And at least in the case of the already existing 633 building, it was taxpayer money that could have gone into the city’s general revenue to be used for any governmental purpose.  

The same is true, or at least might have been true, of the property taxes on the Couture. That project was planned and underway when the TIF district was approved meaning that there was no development need to actually create a TIF. The only real purpose of this particular TIF was to allow city politicians to say that it was not the city taxpayers, but rather some “financing district” that was paying for the streetcar project. But of course it was, and is, tax money that is paying those costs – money that could have been used for any number of other and perhaps more important purposes.

The TIF obfuscation continues, facilitated by the Journal Sentinel. The question the newspaper purports to ask is whether the “financing district” will have the money to make its contribution to the streetcar costs even if the Couture is not built. That means, in effect, whether the property taxes paid by the owners of 633 will be sufficient to cover that part of the streetcar costs associated with the TIF. Of course, the city would have had the 633 tax money whether or not a “financing district” was ever created.

So the real and only question here is whether the city has enough tax money to pay for the streetcar whether or not the Couture is actually built. Whether or not the city’s tax revenue first passes through some unnecessary “financing district” is really quite beside the point. City officials seem to be pretty sure that city taxpayers would really like some “financing district” to pay the streetcar bill, but the fact is that it is the taxpayers who are paying for it.  

The good news is that the city has enough tax money, with or without the Couture. The bad news is that the tax money could have been spent on something else. The bad news, of course, is something the politicians might like to keep to themselves. Hence the “financing district.”

Smoke and mirrors.      

Mike FischerMike Fischer is Senior Counsel with the Wisconsin Institute for Law & Liberty.