Village quintuples TIF districts; quarter of the village now TIF’d

The Kenosha News recently reported that the small village of Somers just created nine new TIF districts. Add those new TIF districts to the two Somers already has, and that gives the village a whopping total of 11. Twenty-five percent of the village’s land area is now in TIF districts. This is unheard of.

That’s more TIF districts than any other village in the state (including Menomonee Falls, which is five times larger than Somers). Only nine cities (the smallest of which, Janesville, is still six times larger than Somers) have more TIFs.

What does a village with a population of 7,000 need with so many TIFs?

TIF stands for tax increment financing, which means that all the new tax revenue generated by property value increases or new development is put into a special fund to pay for projects within the district for up to 27 years. TIF districts were created in the 1970s as a way for cities to deal with urban blight, but have since become quite the racket. Wisconsin has unwisely expanded TIFs so they can be used for virtually any development project that isn’t primarily residential.

All of the new property taxes generated within Somers’ TIF districts will be locked up on spending within those districts. They won’t be available for ordinary government expenses like roads, police, and fire protection. As a result, everyone else in the village will bear a larger share of those expenses. Also, by setting so much available land for heavily-subsidized development, the village is actively discouraging development outside of TIF districts.

Because of the negative effects of too many TIFs, municipalities have a soft cap of 12 percent on the percentage of property value that can be within TIF districts. Once they reach that cap, they can’t create new TIFs. The state legislature understood the problem of tying up so much property tax revenue in TIF spending and set the cap to limit that risk.

So how is it that a village the size of Somers is getting this many TIFs through at once?

Somers is exploiting a loophole in state law. The village was going to hit that cap next year anyway, even without the nine new TIFs. Because they already performed the property assessments for 2019, they knew that recent development in the two existing TIFs would put them over the cap. If they waited until next year, they wouldn’t be able to create any new TIFs. By creating the TIFs now, they “beat the buzzer,” so to speak.

By creating so many TIFs at once, Somers is on track to dramatically exceed the cap. Within five years, using the village’s own projections, the amount of property value locked in TIF districts (already near the limit) will increase almost four-fold. Depending on whether and how much development occurs outside of the TIF districts, that could put the percentage north of 25 percent – twice the maximum the state deems prudent.

Somers is heading for financial disaster, virtually ensuring that property tax revenue from new development for the next couple decades will be locked up in TIF spending. Thankfully, most of the TIF spending isn’t slated to occur for a few years. Somers should take that time to think long and hard about whether this really is a good idea.

Tom Kamenick is deputy counsel and litigation manager for the Wisconsin Institute for Law & Liberty.