Public Policy Forum Blog

Tax Increment Financing and Sports Entertainment Venues

Tax increment financing (TIF) has been mentioned recently in relation to two proposed sports-related developments in southeastern Wisconsin: a new BMO Harris Bradley Center and entertainment district in downtown Milwaukee and a minor-league baseball stadium in Franklin. TIF is a mechanism that allows municipalities to borrow against expected future increases in property tax revenue to fund economic development projects now. Our previous research regarding the use of TIF in Wisconsin raised some interesting policy questions that are worth revisiting in light of discussions surrounding financing mechanisms for these two projects.

TIF financing was introduced to Wisconsin in 1975, with the aim of helping cities and villages (and towns to a lesser extent) make needed investments to deal with blighted properties. A municipality sells a bond, uses the proceeds to make improvements to a particular property, and uses the additional property tax generated by the improvements on the property (called “increment”) to pay off the bond.

Our previous research identifies important statutory restrictions that regulate the use of TIF:  evidence that the property (or properties) under question are “blighted;” a requirement that the municipality demonstrates that “if not for” TIF financing the project would not be developed; and a stipulation that the TIF bond can be paid off within a specific time (about 20 years).

Language in Wisconsin’s state regulations as to what constitutes blight is fairly broad and municipalities have used this latitude to define blight in different ways.  A sports- or entertainment-related use could be acceptable on several grounds. In some cases, municipalities have established that the property under question is under-utilized and thus TIF financing is called for. Depending on the location of a sports complex this justification could be used.  A definition of blight that demonstrates that the assessed value is much below what the market would dictate could also be used.

The “if not for” clause in TIF regulations means that the municipality must demonstrate that if not for TIF assistance, the development would not otherwise occur. The difficulty in evaluating whether these venues would be able to meet this regulation is difficult, inasmuch as there is no statutory rubric for evaluating whether or not a development would or would not proceed minus the TIF. One way in which this regulation has been applied is to argue that if not for the TIF, the development exactly as proposed would not happen.  So, for example, perhaps a baseball stadium could be built without TIF financing, but a baseball stadium with particular physical or design amenities wouldn’t be possible without the TIF.

Given the stipulation that the property tax increment be used to pay off the municipal bond, TIF may be a more difficult hurdle for these venues. The current BMO Bradley Center and the potential Franklin baseball stadium are both located on public land that is exempt from paying property taxes.  Thus, there would be no property tax increment with which to pay off TIF financing, unless the development included other uses on adjacent lands as well (which it appears both projects will).

We raise these issues not to suggest that it is inappropriate to consider TIF as a financing mechanism for these sports facilities, but simply to note that the state’s TIF legislation did establish certain criteria that dictate the types of projects that are eligible for TIF. Consequently, proponents of the use of TIF for these projects not only will have to convince legislative bodies of the projects’ economic merits and benefits for taxpayers, but also that they meet the statutory criteria for using TIF.

Virginia Carlson