The profession of a bigtime developer isn't an enviable one these days in metro Milwaukee amid a slumping economy.
Securing lending from banks and other sources is tougher than it has been in a long time, and the shaky economy and uncertain future means few are willing to take a risk.
But Menomonee Falls officials are stepping up their use of special taxing districts as a way to keep the wheels of development spinning throughout the village. While the strategy has paid off so far, it’s also a calculated risk for the village — as is any investment.
Shovels in the dirt are proof of success
A number of large-scale developments have already received the OK from the village, or are on the horizon. In a period when conventional lending sources have dried up, public sector and private sector collaboration has been the key to spur new development.
The biggest tool on the belt for the Falls — as well as municipalities across the state — is to create tax incremental financing districts to differ upfront costs for prospective development and add property value to the village.
In a nutshell, TIF districts work like this: The village invests in infrastructure improvements like roads, sewers and bridges to handle costs that would typically be absorbed by the developer. The added tax revenue from the new development pays off the cost of those improvements, and eventually the revenues are shared by all taxing entities in the village.
It’s a method of financing that Falls is using more, as well as communities throughout the state. And so far, it’s reaped dividends for the village.
Recently, the village created its 10th and 11th TIF districts and got the ball rolling on a number of projects. Wacker Neuson, a light equipment manufacturer, is in the midst of a . However, during construction the company ran into bedrock that complicated the process and required blasting and rock crushing, which added costs.
To help out the company, the village created a TIF district and will spend $3.3 million to defray infrastructure costs. The expansion is expected to add nearly 100 jobs to the community.
This year, the opened officially marking the beginning of transformation along Main Street, and removed an . A $17.7 million in public financing got the project going, of which about $12.5 million went toward construction of the hotel. The remaining $5 million covered other expenses such as acquisition of the property, paying off the outstanding mortgage and demolition.
The Radisson also is in a TIF district and a jump in property values from the development should be reflected in 2012.
In addition, the Eaton Corp. to build a research headquarters in the Woodland Prime Office Park. In the coming months, village officials should also know whether in the same park. The village has pledged to invest $41 million in infrastructure improvements through another TIF district to get shovels in the dirt.
Taxing districts play key role
There’s no way of telling how many of these projects would not have moved forward without some help from the village, but officials say there is little doubt the taxing districts are helping boost development.
“When things are a little tougher from a conventional lending standpoint, it’s definitely important to look at public and private partnerships where they make sense to continue moving forward on a development,” said village planning technician Matt Dorner. “That’s becoming more important to ensure development progresses.”
From 1991 to 1999, the village created four TIF districts. However, in just five years, the village has created six additional ones.
And the village isn't alone. Of the 1,077 active taxing districts in the state, 39 percent have been created in the past 5 years, according to a report released in August by the state Department of Revenue.
“Recently we’ve been more aggressive with tax incremental financing,” Dorner said. “Generally speaking, there’s been an upward trend toward and an increased use of TID financing throughout the state.”
A calculated risk
But TIF districts aren’t always filled with success stories. There is a calculated risk to creating a district, and following up with the public investment. If the development doesn’t come through, or property values don’t rise as much as expected, the cost of the village’s investment shifts to the general fund and the taxpayers.
In 2010, the village created a TIF district that encompasses the Village Centre and stretches south along Appleton Avenue to fuel redevelopment projects in the area. However, property values have sagged in the district, and its incremental value is actually a negative $9.1 million from 2010.
This has caused officials to take extra caution in any investments they make in that district, because a return on the investment is far from guaranteed.
“That’s a relatively new TIF district. We have time to recover, but almost from the get-go we are starting in the hole,” said Village Manager Mark Fitzgerald. “It shows that we could have picked a better time to create that district.”
Although the property values have dropped, the village isn’t at any risk as long as officials remain prudent about how and when they invest. The tricky part for officials will be finding a way to add significant property value to a downtown area where a lot of infrastructure is already in place. Property values won’t rise as dramatically as they would in an area such as a vacant parcel of land without sewer or roads.
“The risk in my opinion is minimal, but we don’t try to get out too far in front of ourselves approving projects,” Fitzgerald said. “The economy isn’t getting better so I don’t expect an instant bump. (The district) could stay relatively static for a number of years.”
A savvy investment strategy
Although the downtown TIF district has started slowly, the figures and projections officials use to create a district have been pretty reliable. There have been a number of success stories in Menomonee Falls through the use of taxing districts.
According to the DOR, the village has added $212.1 million in incremental property value through its active districts.
In 2007, a taxing district including the current Kohl’s headquarters, Frito Lay distribution, SBS Battery Storage Systems and PBBS Equipment closed. It was created in 1995 with a base value of $4.6 million, and closed 12 years later with a base value of $129 million.
Another district that includes and Magnetek Inc., started at a base value of $5.4 million and closed in 1995 with valued at $61 million.
And a district created in 1999 that includes a recently constructed Actuant Headquarters, Woodman’s and a Briggs and Stratton facility, added $53 million of value to the village.
“We’ve changed the sentiment on what tax incremental districts can accomplish in the state,” said Trustee Michael McDonald. “We’ve had four or five extremely successful ones in the past. We’ve got a lot of vision and a phenomenal village manager that has come up with means to finance various projects.”
Taxing districts have been key in much of the property growth throughout the village, especially in industrial growth. Menomonee Falls now ranks in overall industrial property value. At $288 million of assessed manufacturing value, the village only trails Milwaukee and Green Bay.
Despite the significant investment the village has made in the private sector, the Moody’s bond rating for the village to a Aa2 bond rating, which means investors in municipal bonds from the village can expect a high quality investment with very low credit risk.
As a result, the village can borrow with ease, which keeps property tax levels stable.
“At a time when the rest of the country seems to be in an implosive environment. Menomonee Falls has created an expansive environment,” McDonald said. “Any investment we have made in the past has come back fivefold. I think we have demonstrated, as our results indicate, that our prudent and farsighted thought process has reaped significant returns for the community and taxpayers.”