Development-spurring TIF has consequences in Wisconsin’s taxpayer-protecting levy limits, but there’s a way around tradeoff
“There’s good TIFs and bad TIFs,” as one economic development figure, the head of the Metropolitan Milwaukee Association of Commerce, put it to the Badger Institute last spring.
But good or bad, all uses of tax increment financing — a way of paying for public improvements through the added land value they eventually lead to as a way to spur development — can raise existing residents’ property tax bills, at least the way the tool is used in Wisconsin, according to another long-prominent voice on the issue.
“I’m not opposed to TIF,” said Duey Stroebel, a retired state senator from Saukville who previously had been in land development. “If you have a brownfield, by all means, you’ll benefit your taxpayers by getting that property back on the tax rolls.” But it does mean, he said, “you’re committing your taxpayers” — because of the way TIF interacts with the state’s municipal levy limit.
Tax increment financing was spotlighted this year after opponents of a data center near Port Washington complained that the city used the financing tool to pay for water and sewer infrastructure at the 647-acre site on former farmland.
Opponents saw the financing as a subsidy, but the city and regional development boosters pointed out that the data center developer paid for up-front for infrastructure the city will own. That owner will be reimbursed over time out of the additional taxes the city can levy on land suddenly made much more valuable by the development — which in turn wouldn’t have happened without the infrastructure. “It’s a closed loop,” as one observer said.
But not quite closed: It has external effects, said Stroebel. Now a regional administrator for a federal housing agency — he emphasizes his views on TIF are his own and he’s not speaking for his employer — when in the Legislature he was critical of some uses of the financing tool.
One problem is its interaction with municipal levy limits.
Wisconsin cities, villages and counties are limited in how quickly they annually can raise their levy, the sum they intend to collect in property taxes: They may raise it by the same percentage as the increase in total value of property in their boundaries, a figure called “net new construction.” This should mean that while the total a city levies in property taxes rises, the levy is spread over a proportionately larger tax base, so the rate of tax doesn’t rise.
Tax increment financing complicates this. Taxes collected on new growth spurred by such financing don’t go to city coffers until the TIF-financed spending on infrastructure or brownfield cleanup is paid off. Crucially, the land’s added value resulting from development doesn’t count as part of the city’s tax base. But the new construction in the tax increment district does count toward “net new construction.”
As the Wisconsin Legislative Council explained in a memo then-Sen. Stroebel obtained in 2022, “the mill rate will increase from the prior year, because the mill rate’s numerator increases while the denominator stays the same.”
Taxpayers aren’t made to subsidize new development directly, but a tax increase can be imposed on them by a city because of new development.
The amount of tax increase varies with the underlying values and levies, and the Legislative Council memo offers examples. The Wisconsin Legislative Fiscal Bureau notes, as well, that calculation was altered slightly for TIF deals starting in 2025, but the underlying mechanism remains.
Stroebel says the effect is not widely appreciated, even among well-versed officials. “I’ve had some tell me that, ‘No, you’re lying, dude, that doesn’t happen,’ and I had to show them that paper to prove it.”
A more common complaint from critics is that for as long as tax increment district remains open, which can be up to 27 years, a share of taxes on a property isn’t going to local governments but instead to the deal’s purpose.
The tool also comes under fire for how it sometimes is used not for infrastructure but simply to provide a subsidy to grease the skids for new development, such as a high-end apartment building. Stroebel, a long-time critic of such mission creep, pointed out that such subsidies can be self-defeating, inflating the price that land sellers know they can get for a parcel.
The effect of tax increment financing on raising levy limits, however, is a separate issue and not a reason to kill off TIF, said Stroebel.
An increase in everyone else’s mill rate isn’t intrinsic to the tool: If a city chooses not to increase its levy as much as permitted, forgoing the benefit of net new construction in a tax increment district, taxpayers would be unmolested. Other states using TIF, he points out, have such protections. Requiring it by changing the way levy limits are calculated could protect taxpayers by making Wisconsin municipalities more prudent.
“If you do a TIF when it was truly to designed to help the taxpayer,” that’s an option worth preserving for cities, he said. “When you do it just because it’s a shiny object and someone else might get it, then you’re not helping anything. You’re costing your taxpayers.”
Patrick McIlheran is executive editor at the Badger Institute.
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