Wednesday, June 06, 2007

Development Blues

According to the figures presented in a JT commentary today, the Point Blue project near downtown Racine will be worth $145 million upon completion. The cost of construction, though not mentioned in the commentary, is presumably projected to be somewhat lower than $145. The developers have already received free lakefront property valued at $1.25 million and an additional $1 million for cleaning up the contaminated soil. They are also likely to receive another $21.5 million in TIF money. TIF money is money borrowed by local governments and "repaid" by developers in the form of property taxes. Since taxes must be paid anyway by property owners, the $21.5 million in TIF money is actually a gift to the developer from Racine taxpayers, via our elected leadership.

All told, the Point Blue developers will be recieving $23.75 million from taxpayers. In actuality, the sum will likely be much larger because the $21.5 million borrowed by the city must be repaid with interest. At any rate, the $23.75 million gift from taxpayers represents, at the very least, about 16% of the projects costs. This figure assumes that the cost of the project is the same as the property valuation (an unlikely scenario) and 0% interest on the government bond (an impossible scenario).

Let us put this in perspective. I am presently engaged in a development project of my own. I project the cost of my project to be about $160,000. If you, generous taxpayer, would also provide me with 16% of my costs, I could cut my costs by $25,000. This would be most helpful to me.

So we have a situation were some politically savvy developers finagle huge sums of money for their developments, financed by you and I, while you and I pay the full price for our own developments, and then some, because we are also paying additional taxes to finance other people's projects.

There is a fairer way to encourage development. First, we could lessen the tax and regulatory burden on all development. We should realize that the tax burden is too high if a developer can not profitably develop lakefront property. Secondly, instead of the city borrowing upfront for development projects, they should instead offer any citizen the opportunity to develop their properties with an understanding that the increased property valuation will not be taxed for some specified number of years. By the way, I offered this idea to Mayor Becker a few months ago.

An arrangement like this would be fair for anyone wishing to improve their properties. Additionally, it would reduce the need for developers to cozy up to government for cash. And this will not be happening anytime soon because politicians derive their power and influence by granting favors and money in return for political support.


Caledonia Unplugged said...

I'm curious, Denis, if you know the specifics of the TIF for this project. Is part of the project in a TID, in other words, no taxes to Unified, Gateway, county, etc.until paid off? Or is this simply going to be a $21 million incentive payment with no actual TIF created, on the order of Cabellas in Washington County?

Denis Navratil said...

No Calunp, I don't know the details at this time, or even whether it has been voted on, or if it needs to be. When I have more time, I will look into it some more.

Greg Helding said...

It is part of a TID. It needs to be voted on and all of this was done late last year.

Denis Navratil said...

Thanks Greg. But I remain confused by your sentence. "It needs to be voted on" suggests that it has yet to be voted on, while "all of this was done late last year" suggests that it was already voted on last year. Can you clarify? If it was already voted on I would be disappointed because I try to stay apprised of major city council actions and I didn't hear anything about this one.

Anonymous said...

Has the city (or county) ever done a follow up audit of a TIF (or TID) to see how it has panned out?
If so, where can one read such a study?
If not, why are we still doing them??

greg helding said...

Denis -

I should have said "It is something that requires a vote and this vote was taken last year."

The TID was adopted in August. You can check out its legislative history here:


I am not sure of any audits, but I am not sure an audit would be necessary - unless you were looking for problems in the initial spending of money. That would be a legitimate concern, but most TIFs I know of go to pay for infrastructure improvements like roads and sewers and such. These items (in the city) are all approved before they go in.

After the initial construction, the process is pretty straight forward. The property is assessed and the tax money is collected and used exclusively to repay bonds for the project.

So, yes, we look at these things to see how they pan out. We know how they are doing because we account for them every year. Racine has some winning TIFs and some losing TIFs. The nice thing about this TIF is that the city is not on the hook if it becomes a losing proposition. We have some from the past that didn't pan out financially and we have to subsidize them. Your Alderman would be happy to get you a report of that. It is also in the budget every year, a document you can get from the city website.

wayne said...

I would not hold my breath on Point Blue anymore. The group has no money left and I understand that the group has not yet closed the land sale.

Racine could have used this. I keep hearing there is a big story here but we would need a newspaper to look into it. Anyone know of one?