Saturday, January 23, 2010

TIF Is Not a Loan; It's a Handout

With all the talk about the $16 million in tax incremental financing sought by the proposed Edgewater development, I keep reading references to the city being "paid back" through increased property taxes. People seem to be forgetting a few pertinent facts:

1. If the developer did not get the TIF money, but financed the entire cost itself, the property owners would still owe the same increased property taxes to the city, and the developer would have to repay the bank (or other investors) the entire cost of the development.

2. If the city did not give out the $16 million in TIF, and if the project was built anyway with private financing, the city would still get to collect the same amount in increased property taxes.

3. Keeping these two facts in mind, the $16 million in TIF cannot really be a loan. It is a development grant. The use of TIF is meant to make possible developments that are in the public interest but could not happen without TIF assistance.

Furthermore, the cost to the city would be more than just the $16 million given to Hammes. The city would have to borrow the money, which would increase its debt and raise the interest rate it has to pay on all its borrowing.

I am not impressed with the way the city wants to give this developer a free pass to ignore city ordinances (not just the Landmarks ordinance, but also the shoreline development rules, which are meant to protect the lakes and prevent property damage from flooding).

What really pisses me off, however, is the eagerness to throw millions of dollars of taxpayer money at a private developer for a dubious economic development argument. The developer refuses to commit to hiring local construction workers for family-supporting wages. How much do you want to bet we'll be seeing out-of-town subcontractors bringing in immigrant construction workers for minimum wage?

I do not begrudge hard-working immigrants the right to work in this country, assuming they are here legally. However, when the primary justification for public financing is the addition of jobs to our local economy, I want to make sure those jobs go to permanent Madison-area residents (whether immigrants or native-born citizens) who will spend much of their salaries on goods and services in this area, rather than send it to their families in Milwaukee or Chicago or Mexico.

Several years ago, Beaver Dam gave Wal-Mart a whole bunch of tax incentives to build their distribution center there, in the name of economic development. Residents were horrified to learn that prisoners were brought in for the construction work.

To all the folks who think the city should give carte blanche to any developer in the name of making Madison more "pro-business", be careful what you wish for. The Edgewater is already a profitable hotel. The owners have chosen to neglect the building in order to squeeze more short-term profits out of it. It's kind of like the Rio hotel in Las Vegas, which was recently described as "the most tired and used up looking 20-year-old I know, hands down."

Why should the city give money to an entity that refuses to properly maintain its property?

Why should my tax dollars be spent on corporate welfare, when the city refuses to put enough plows on the street after a major snowstorm?

Why should my tax dollars be spent to further gentrify downtown, when we are already stuck with the white elephant that is Overature Center? That was supposed to re-vitalize the downtown and foster economic development, at no cost to the city. Yeah, right.

I've heard this sales pitch before, and I'm not buying it.


Lucy said...

Wow, thanks for your right-on comments. How to get this kind of opinion out to the whole city, when there's now effectively only one newspaper?

Lucy said...

Thanks for expressing all this so well. How to get this opinion out to the whole city, when we now effectively have only one newspaper?

Forward Our Motto said...

Thank you for making that clear. TIF isn't some magic funding thing where money is created out of nothing. It's tax dollars.

And the idea that there are no projects for downtown Madison without TIF dollars is just ridiculous. The city shouldn't reward a building owner for not maintaining their building.

Tim Morrissey said...

The owners let the place go to hell - so far down in hell that apparently nobody else wanted to buy the joint.

We're gonna end up owning a pretty good chunk of the hotel. We'll have to help pay the note, but we'll never have our name on the deed to the property, and our equity will not be carried as an asset.

We won't even get a discount on room rates.

Nice deal.

Anonymous said...

What a bunch of crap! It would be nice if you would get your facts straight, thank god this doesn't get out to the public. I suppose no one told you that it depends on how the TIF is structured, as to how much is paid back by the developer. It could be up to 100% paid back by the developer, essentially a no interest loan. The City sees increased tax revenue from this development, as well as from other properties that would increase in value because of the betterment of the area. In fact, in Wisconsin, when the tax base grows and spending is stable, tax rates and tax bills are expected to go down, decreasing the property tax burden for everyone. So the excuse that "my taxes will go up" is moot also.

As for the local contractors, I've heard they are lining up a local construction firm. All the conspiracy theories are ridiculous! It doesn't surprise me that they aren't out there screaming who they are going to hire for a job that may not happen because of all the crap that goes on in this city.

Anonymous said...

"Why should my tax dollars be spent on corporate welfare"'

Why should my tax dollars be spent on personal welfare?

Why should my tax dollars be spent on welfare that helps middle/lower middle class people buy housing?

See how that works...

FYI - These devoloper arent "The owners that have chosen to neglect the building in order to squeeze more short-term profits out of it."

Ordinary Jill said...

Anonymous #1, please explain how the developer "pays back" the TIF except by paying higher property taxes on the improved property (which it would owe even if the development was entirely self-financed). Please cite your source for that information. Also, please give me an update if the developer has recently agreed to a commitment to hire local union labor. They had avoided making any such commitment the last that I heard. I'm fortunate to have a fact-checker who does not, apparently, belong to the public, and I would welcome any inside information you could give me.

Anonymous #2, although these developers are not the current owners, they have an option to buy the property and are trying to benefit from the years of neglect. If the city coughs up the TIF money, Hammes will buy the property and reward the current owners.

Unknown said...
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Anonymous said...

Yes, I know you are jealous that you do not know everything, as you seem to think you do. I may have a source who does have inside information and all I can say is that it does depend on the terms of the TIF deal how much they have to pay back to the City. It's not all "free money" as you simple people think. That's why I find it funny that people who don't know all the facts blab about how it's a free handout, when in fact it is not. Ask the City how it works, I'm sure they'd be glad to fill you in.

Anon #1

Anonymous said...

Are you against all uses of TIF?

Should the new owners be penalized for the past owners mistakes and neglect?

Property taxes won't go up if the renovations don't happen, which is likely without TIF.

Saint Stephen(aka anon #2)

Ordinary Jill said...

Please read the city's TIF policy (there's a link in the original post, but here it is again:

TIF requires a "but for" test, to allow blighted areas to be improved. The Mansion Hill neighborhood is not blighted, nor is the Edgewater in financial difficulty.

Anon, #1, perhaps you can get your inside source to send you some links to documentation that actually refutes my argument. Repeatedly saying "it depends how the TIF is structured" without explaining any mechanism by which the developer has to "pay back" the TIF (except by paying higher property taxes, which it would owe even if the development was self-financed) is not really convincing. If I'm wrong, surely someone can point out where I made my error.

Jason said...

Everybody's such an expert on the internet. What a disaster.

Anonymous said...

The TIF for Edgewater is even more of a handout than most TIF public assistance projects.

The mayor is setting up Edgewater's TIF so that the tax increment from the Edgewater will only pay back $6 million of the $16 million TIF loan.

The other $10 million will be paid by other properties in TIF district #32 which includes University Square. This $10 million could otherwise be used to close TID #32 early and contribute to the general fund and thereby reduce our taxes.

The $10 million that won't be paid by Edgewater is listed as "Excess Tax Increment" in the city's summary of Hammes TIF application. See

come from proway the mayor intends to set up add Edgewater to an existing TID that includes the University Square Development. is The tax increment generated by The