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Relief for Distressed Tax Incremental Districts

Public Finance Update Rebecca A. Speckhard

Governor Jim Doyle recently signed into law amendments to the tax incremental financing law (2009 Wisconsin Act 310), which provide an opportunity for relief to certain distressed tax incremental districts ("TIDs"). The amendments allow municipalities to extend the lives of such distressed TIDs as well as the lives of donor TIDs sharing increment with such distressed TIDs, and allow increment sharing to mixed-use and industrial distressed TIDs. In order to avail themselves of the opportunity offered by the new law, municipalities must follow the procedures set forth in the law to designate a TID as "distressed" or "severely distressed."

Eligible TIDs

To be eligible, a TID must meet the following criteria:

  1. The project costs incurred with respect to the TID must exceed the amount of revenues from all sources that the municipality expects the TID to generate to pay off such project costs during the life of the TID.

  2. The TID must have been created before October 1, 2008.
  3. The TID has to have been in existence at least seven years before it is designated as "distressed" or "severely distressed."
  4. No amendments may have been made to the TID's project plan or boundaries after October 1, 2009.
  5. The municipality must act to designate the TID as "distressed" or "severely distressed" no later than September 30, 2011.

Effect of Designation

Distressed TIDs. A TID which is designated by a municipality as "distressed" is allowed to extend its maximum life by up to 10 years beyond the original termination date, thereby giving the TID additional time to generate revenues sufficient to pay its project costs. Similarly, a donor TID which is sharing increment with a distressed TID can extend its maximum life by up to 10 years. Finally, the amendments have the effect of allowing any distressed TID to be the recipient of increment sharing (previously, mixed-use and industrial TIDs were generally not eligible to be recipients).

Severely Distressed TIDs. In order to be designated as "severely distressed," a TID must meet all the requirements for designation as "distressed" and must additionally have experienced a value increment drop of at least 25 percent from its highest value over its life. A TID which is designated as "severely distressed" is allowed to extend its life up to a maximum of 40 years after its creation. A donor TID which is sharing increment with a severely distressed TID may also extend its life to a maximum of 40 years. Like a distressed TID, a severely distressed TID which is a mixed-use or industrial TID may be the recipient of increment sharing.

Procedure

Designating a TID as "distressed" or "severely distressed" involves a series of detailed procedural steps similar to that involved in amending a TID's project plan, including a public hearing preceded by notices to the public and the overlying taxing jurisdictions, plan commission and governing body resolutions, joint review board approval, and submission of a packet and payment of a $500 fee to the Department of Revenue.

Restrictions on Distressed TIDs

Once designated as distressed or severely distressed, a TID may not do any of the following:

  1. Amend its project plan to add any new project costs.

  2. Become part of another TID with overlapping boundaries.
  3. Expend any funds outside its boundaries.
  4. Add any territory.
  5. Become a donor TID.
  6. Make any expenditures after its original expenditure period expires.

Any increment generated by or allocated to such a TID which exceeds its annual costs must be used to retire debt of the TID or to establish a reserve fund that may be used only for that purpose.

Questions on the distressed TID designation process should be directed to Rebecca Speckhard at (414) 277-5761 / rebecca.speckhard@quarles.com or your Quarles & Brady Public Finance attorney.