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Saturday, January 31, 2015 |  Madison, WI: 23.0° F  Overcast
The Daily
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City rules have builders TIFfed off
Madison's tougher policy on subsidies leads to lost opportunities
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Binkowski says the hassle of obtaining TIF money â??just isnâ??t worth it.â??
Binkowski says the hassle of obtaining TIF money â??just isnâ??t worth it.â??

Brad Binkowski, a stalwart downtown developer for 27 years, is frustrated if not angry. He says tax increment financing, the city's primary tool for helping revitalization projects, is being destroyed by shortsighted city officials.

Binkowski faults what he says are tedious project reviews that go on for years, a sharp curtailment in the amount of available aid, and the city's new insistence that it share in the profits years after a project is sold.

'TIF is sitting on a track record of sterling success, and they've proceeded to screw it up,' says Binkowski.

Madison Mayor Dave Cieslewicz disagrees. He says the policy changes and close review of TIF proposals are necessary 'to make sure that developers aren't ripping off the taxpayers.'

The city, he notes, has stepped forward in recent years to help such projects as Randy Alexander's Capitol West, Todd McGrath's Union Corners, Executive Management's University Square, Dave Keller and partners' Monroe Commons and Gary Gorman's Avalon Village in the Allied Drive neighborhood.

Where's the problem? Cieslewicz demands to know.

Binkowski, in response, points to Findorff Yards. He says it took his company, Urban Land Interests, 'two and a half years of agony' to negotiate a TIF deal for what he calls 'a poster child for renovation in the central city ' a project everyone wanted to see built.' (Located in the Bassett neighborhood, Findorff Yards drew honors from the Madison Trust for Historic Preservation for converting two old and deteriorating tobacco warehouses into 61 modern loft apartments.)

'If we had known what the city would require on the front end of the project, we would have not done it,' says Binkowski. 'The brain damage you have to go through to implement a TIF deal just isn't worth it.'

The mayor, when told this, doesn't step back one bit. 'If Binkowski is indicating he didn't need TIF, maybe he didn't. That's why we need staff to fully vet these things to make sure the taxpayers don't get ripped off.'

This is tough talk from two guys who normally would stand shoulder to shoulder on most urban issues. Who's right?

Both, in some ways.

As Cieslewicz says, the city continues to dole out TIF and other developer assistance. But, as Binkowski argues, the process has become mighty complicated.

Madison is in the midst of its third laborious review of TIF policy in less than a decade, and the city has been steadily tightening the financial screws all along.

One example: To make sure that developers aren't padding their profits, the city is demanding an 'equity kicker' so it will share in the proceeds when a TIF-subsidized project is sold.

Cieslewicz feels this is appropriate because TIF-subsidized projects sometimes prove more profitable than expected. 'Perhaps the project didn't need the TIF subsidy, but we didn't know it at the time,' he says. 'This allows the taxpayers to participate in the upside, so I think it's only fair.'

Binkowski is dumbstruck by this argument. He says the city has already been repaid for its subsidy with the higher taxes generated by the new development. Further, he asks, how in the world can the city equate a TIF subsidy, which the developer is legally obligated to repay, with something as inherently risky as venture capital?

Attorney Tripp Widder, chair of the committee doing the latest TIF review, agrees: 'The flaw in the equity-kicker idea is that it's a one-way street, because it's only excess profit that's shared. If the developer's costs are higher, or if the market is less than robust, and the profits aren't there, the city doesn't step in and offer more TIF.'

Meanwhile, the mayor's notion that developers may be 'ripping off' taxpayers perfectly illustrates the hostility and suspicion some developers say await them when they approach city hall for help.

Increasingly, developers are turning to suburban communities like Middleton and Verona, where officials are more welcoming. Huge building booms are under way there with the sort of projects ' think of Costco in Middleton with its $17-an-hour retail jobs ' that used to go up in Madison.

How this exodus to the suburbs is helping Madison is hard to figure.

A few years back, after Madison Mayor Sue Bauman and the city's Board of Estimates balked at helping Epic Systems expand at its old headquarters on Odana Road, the medical software giant turned to Verona. The city offered $11 million in TIF assistance for site preparation and building a huge (1,500-stall) underground parking garage on a former cornfield and later another $1.75 million in Lease Revenue Bonds for building on/off ramps on U.S. 18/151.

The payoff has been spectacular. Epic has built a breathtaking complex of buildings worth $150 million, moved at least 1,500 jobs to Verona, and is now engaged in a new round of construction. Epic's projected Verona workforce: 3,000.

'It's mind-boggling,' says city administrator Larry Saeger, who notes that Verona's total assessed value has reached $1.1 billion, almost 10 times what it was 15 years ago.

Middleton, meanwhile, has pumped about $60 million of TIF subsidy into one large tax increment district ' and seen the district's value skyrocket from less than $40 million to more than $500 million. Included are such projects as Greenway Center, Middleton's new downtown center, Discovery Springs (where Costco is building) and the Airport Road and Parmenter Avenue expansions.

'Eight years ago, our assessed valuation was around $1 billion. Now it's about $2.5 billion,' says city administrator Mike Davis. 'TIF has obviously been a huge generator of our growth.'

Neither Middleton nor Verona has a written TIF policy of the sort that Madison has labored over. Instead, they rely on past practices, such as not using TIF for retail development in Verona.

'How do you put it in a written policy?' Saeger asks. 'It's just too dynamic of a situation.'

Both cities have backed away from TIF in the past year because the intense growth of their tax increment districts now exceeds the valuation limit set by the state. It doesn't appear to be slowing them down, however. Middleton and increasingly Verona appear to be reaching the critical mass where housing, job and retail growth reinforce one another's continued expansion.

Terrence Wall, Dane County's largest commercial real estate developer, has seen a noticeable shift in customer demand for suburban expansion sites. His T. Wall Properties has subsequently shifted its focus from Madison to outlaying areas. It has major 'urban village' proposals in three communities: Tribeca in Middleton, West End in Verona and Harvard Square in Fitchburg.

'This is what our customers were asking for,' says Wall. Count him among those who feel that Madison's tight-fisted TIF policies have backfired.

He cites the collapse last summer of Gary Gorman's $58 million Avenue 800 project on East Washington Avenue after the city refused to chip in more than $2 million in TIF on the first stage. How shortsighted! Wall says in exasperation.

Gorman's project and the Capitol would have anchored one end of the East Wash corridor with Todd McGrath's Union Corners on the other end. 'The entire corridor,' clucks Wall, 'could have been redeveloped over maybe 10 years with a million square feet of office space.'

And therein may be the question for Madison: Has it been too conservative with its use of TIF?

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