Most public improvement projects require extensive planning to make a big impact. One way to pay for such projects is with tax increment financing (TIF). Wisconsin uses TIFs to fund parks, downtown area improvements, sewage line upgrades, and much more. There are laws and regulations concerning TIF use and calculation, and we’ll go over the basics of how TIFs are calculated below.
What is TIF?
Tax Increment Financing, or TIF, is a way for cities, counties, and states to invest in their communities. The purpose of TIFs is to increase future tax revenue in a “blighted” area while adding value to a community. Blighted areas have a broad definition and can include everything from run-down government buildings to undeveloped land. TIFs use public financing to redevelop an area by improving infrastructure, completing community improvement projects, or both.
First, the municipality identifies an area within the community that needs to be revitalized in some way. For example, a park improvement project or cultural district revitalization. They then create a district that often includes surrounding areas to increase the borrowing capacity; in other words, it increases the amount of tax revenue that can be generated from the project. The municipality then must calculate the value of the TIF district currently and in the future.
How are TIFs Calculated in Wisconsin?
So, how are TIFs calculated? In Wisconsin, the value of a TIF district can be determined by comparing the current tax value to the projected future value. Because the project takes tax revenue and gives it to the redevelopment efforts, the municipality must estimate the value that their project will add. A developer will use their expertise to compare the market value of the district with what they believe will be the future market value. They will often bring in other consultants, such as a legal team and property assessors, to come up with the numbers.
All surplus tax revenue generated by the project is redirected back into the TIF to continue development and improvements to the district.
Generally speaking, TIF districts last for between 20 and 25 years, allowing for large-scale projects and other developments within the district area. During that time, other expenses can come up, which must meet certain criteria in order to be paid for with TIF. Wisconsin laws are strict regarding what can be counted as a TIF expense. Which can include expenditures like the cost of hiring architects and engineers, building costs, hazardous cleanup,, and more. Before receiving approval for the TIF, the municipality is required to go through a process to break down their plans, estimated costs, and projected increase presented for approval. The municipality needs to prove that, after completing their project, the district will generate more tax revenue than if they hadn’t done the improvements.
Public Financing Attorneys in Wisconsin
It takes a full team of experts to create a strategy to receive TIF. Atolles Law, S.C. has a strong history of working with municipalities to develop TIFs that are effective. We understand state and local laws surrounding TIF and other public financing matters. To consult with a member of the Atolles Law team, contact us online or by phone to schedule.