Closure of 3 city TIF districts will put money back on tax roll

By Correne Martin

Two of Prairie du Chien’s six tax increment financing (TIF) districts are expected to close at the end of 2015 and a third in the first half of 2016, putting about $3.5 million back on the local levy for city taxpayers.
“We still have to go through the official audit and notify the state that they’re being closed,” City Administrator Aaron Kramer said. “But it’s essentially like we’re closing out a checking account.”

To realize the impact of this, it’s important for taxpayers to understand the complexity that is a TIF or a TID, aka, a tax increment financing district.

Here’s an explanation.

A TIF district is a piece of valuable, vacant property within a city or village that the local government can use to attract new business, invest in infrastructure or rebuild blighted areas­—which can also create and retain jobs, increase property values and provide development opportunities without increasing taxes. In the beginning, the city of Prairie du Chien, for instance, borrows money to start the TID, which must be approved by the state. Those initial funds are routinely used toward start-up water, sewer and street costs.

“There’s usually a promising project in mind before a TIF district is created. But the TID has to be created before any development actually occurs,” Kramer stated. “You have to develop a project plan, including what you’re going to spend the money on and what you hope to accomplish. There is a joint review board that has oversight over all the districts. If they’re projected right initially and the revenue is conservatively estimated and watched closely, most of them will benefit the city as was initially planned.”

The number of TIDs are not limited; however, the total value of all the TIF districts within one city or village is limited to 12 percent of the government entity’s value, Kramer explained. That 12 percent applies to when the districts are initially developed because, of course, it is hoped that they will grow overtime. Once the 12 percent in base value is reached, additional TIDs cannot open until the percentage of base value drops.

Property taxes generated by the incremental increase in value of the TIF district are available for projects, such as street improvements, demolition or more redevelopment. But there is a catch: the money must be used within that same TIF district, it can be transferred to another TID that’s in trouble financially or it can be used within one half-mile of a TID.

“Due to the complexity of some of these districts, citizens sometimes misunderstand how the process works. That’s the biggest problem: public education,” Kramer said. “People think if we fix one street in town, we can fix another street on the other side of town. But there are different pots of money that can be used in different spots.”

The maximum life of a TID is typically between 20 and 27 years, or as soon as tax increments are collected in excess of the total approved project costs. Once a TIF district is closed, the entire value of the property that was in the TID is returned to the tax rolls of the overlying taxing jurisdictions, including the city, Prairie du Chien School District, Crawford County and Southwest Tech in this area. This benefits those other taxing bodies.

“While the TID exists, the tax collections for each overlying jurisdiction are limited to the base value. After terminating the TID, all of the overlying taxing jurisdictions share in a much larger tax base. This means, tax rates can be lowered to generate the same amount of revenue, which is a benefit for all of the taxpayers,” Kramer said. “In theory, had no development occurred, the base value would have been the only value for each of the jurisdictions to tax.”

Of the city’s three TIDs closing in the next year, their March 2015 value was: #1 Bennett Hardwoods, $2,024,540; #2 McGregor Loudspeaker, $2,567,300; and #7 Bloyer Park, $127,100. The first two are 27 years old and the latter is 19 years old.

According to Kramer, the city cannot create a new TIF district for another six years, until 2021, when the Cabela’s TID closes.

“That one alone has well exceeded our original expectations,” he pointed out. “It started out with a base value around $1 million. Now, we’re looking at $54 million.” Kramer added that, upon the closing of the additional three TIDs—#6 Cabela’s and #5 Quality Wood in 2021 and #4 Prairie Industries in 2022—some $60 million, in today’s dollars, could go back on the tax roll. “The tax levy will drop much more noticeably,” he said.

While some cities and villages have been shaky in TIF district development since the market crashed in 2007, Prairie du Chien has been quite the opposite, Kramer noted. “We’ve been lucky,” he said. “Five of our six TIDs have shown tremendous growth.”

Editor’s note: TID #3 was proposed but never officially created.