1. What You Need to Know about TIF 1

2. NAIOP- Wisconsin We are the champion for creating thriving communities in Wisconsin through successful commercial real estate development. 2

3. Our Panelists 3 Mike Harrigan Ehlers & Associates Inc. Nancy Leary Haggerty Michael, Best & Friedrich, LLP Mike Mooney MLG Commercial Richard Lincoln Mandel Group (Retired)

4. Tax Incremental Financing Mike Harrigan, Senior Financial Advisor / Chairman– Ehlers 4 10/29/2015

5. TIF in Wisconsin Since 1976 has been THE most powerful economic development tool available to local government –Intent Counteract economic downturn (mid 70’s recession) Address lack of incentives and financial resources Promote economic development Promote cooperation between public and private sectors Spread costs of economic development to all taxing jurisdictions that benefit 5

6. How does TIF Work? 6

7. The “But For” Test Key underpinning of the TIF program is referred to as the “but for” test. But for” the use of TIF, the proposed development would not occur: –as proposed –within the same time frame –with the same level of value –Property –Jobs –Amenities 7

8. Other Qualifications & Types of Districts Maximum base value = 12% of total E.V. At least 50% of land in proposed TID is: 1.Blighted or in need of Rehabilitation/conservation. 2.Suitable and zoned for Industrial use. 3.Suitable for Mixed Use Development. Any combination of Industrial, Commercial, Residential (newly platted maximum of 35%) 8

9. More on Mixed Use District Mixed Use District – 35% of area newly platted residential and must one of 3 standards: –Density at least 3 units per acre –Conservation subdivision as defined in §.66.1027(1)(a) -- compact lots & common open space, natural features of land are maintained. –Traditional neighborhood development as defined in §.66.1027(1)(c) -- compact, mixed- use neighborhood where residential, commercial and civic buildings are within close proximity to each other 9

10. Maximum Life A District may remain open until the earliest of the following occurrences : –The District’s maximum life is reached, which varies by type of District and when it was created –When total tax increments collected are sufficient to pay all of the District’s project obligations –When the Governing Body passes a resolution to close the District (any unreimbursed project costs become a general liability of the municipality) 10

11. Maximum Life TID Creation Date >10-1-2004 or later Blight Elimination27 Years (+3)* Conservation or Rehabilitation 27 Years (+3)* Industrial20 Years (+3)* Mixed Use20 Years (+3)* TownExp. Period + 11 years (16 Years Max) TID Creation Date >10-1-2006 or later Environmental Remediation23 Years 11 *District eligible to receive an extension to maximum life

12. Eligible Project Costs 12 Public works & improvements Financing costs Real property assembly costs (land write-down) Professional service costs Administrative costs Relocation costs Organizational costs Pro-rated costs of utility infrastructure Cash grants / Incentives (requires developer agreement) Environmental remediation Projects with ½ mile of district

13. Prohibited Project Costs Costs of constructing or expanding administrative, police, fire, community, recreational, library and school buildings Costs of constructing or expanding facilities if similar facilities are normally financed with utility user fees General government expenses unrelated to the TIF district Costs associated with newly platted residential development (except in Mixed Use districts where the density test has been met) 13

14. Expenditure Periods TID Creation Date10-1-2004 or later Blight Elimination22 Years Conservation or Rehabilitation 22 Years Industrial15 Years Mixed Use15 Years Town5 Years TID Creation Date10-1-2006 or later Environmental Remediation15 Years 14

15. Statutory Procedures Plan Commission prepares Project Plan Convene Joint Review Board –Each taxing body represented –One member of the public appointed Public Hearing by Plan Commission Plan Commission approval Village Board approval Joint Review Board approval State approval as to procedural matters 15

16. Amendments Boundary Amendment –Limit of 4 allowed during life of district –May add and/or subtract property –Must be in compliance with 12% test to add territory to a district Project Plan Amendment –No limit to number allowed (except maximum expenditure period) –Used to amend list of TIF-eligible projects to be undertaken 16

17. TIF Funding Options & Risk Management TIF projects can be funded by: –Municipal Cash. –Municipal Debt General Obligation Revenue Debt –Developer Funding with PAYGO note back to Developer. Risk Management : –Developer Agreement with Guarantees. Special Assessment Letter of Credit Personal Guarantees 17

18. Frequently Asked TIF Questions Is TIF a tax break? –Properties within a TIF District pay the same tax rate as properties outside the district. The difference is how the tax revenue is distributed. Is TIF only for blight elimination? –The original TIF law permitted both Industrial Districts and Blight / Rehabilitation Districts, in 2004 the law was expanded to permit mixed use districts. 18

19. Frequently Asked TIF Questions Does the TID change the zoning for property? –No. The TID does not change existing zoning already in place. Does the TID make it easier for the municipality to use eminent domain? –No. The process identified within State Statutes for eminent domain is the same whether a property is within a TID or outside a TID. 19

20. Applying What We Learned TID is needed now more than ever to help stimulate development that would not otherwise occur Key to successful TID use has always been understanding risk and mitigating it Communities must also recognize and understand realities of the market Values can go DOWN as well as up 20

21. What We Have Learned Fewer developers today than 7 years ago Lenders lending, but seek greater equity participation and lower loan to value ratios Lenders generally more willing to accept assignment of PAYGO Notes or Bonds than they were. PAYGO is used most often when the developer uses cash flow rather than assigning it to a bank 21

22. What We have Learned It is no longer sufficient to allow guarantees to lapse when valuation targets are met Personal guarantees, while still important can be very difficult to collect from Letters of Credit or Special Assessment Guarantees are viable options When values Drop and TID can no longer cover, General Fund Impacts can be significant 22

23. 262-796-6165 mharrigan@ehlers-inc.com Mike Harrigan Senior Financial Advisor/ Chairman 23

24. Tax Incremental Financing (TIF) J. Michael Mooney Chairman MLG Development League of Wisconsin Municipalities Annual Conference October 29, 2015 24

25. Setting the context: MLG- 28 Years of Land Development (“Dirt” Guys) 3,500 Acres – 18 Business Parks 3,500 Acres – 43 Subdivisions Business Parks 16 have been Public/Private Partnerships A collective municipal investment of $125,000,000 through Tax Incremental Financing 25

26. MLG Business Park Impact: Tax Base Currently $900,000,000 +/- When complete $1,250,000,000 +/- Property tax revenue $22,500,000 +/- Employment Currently – 25,000 to 30,000 Payrolls - $1.0 +/- Billion Payroll multiplier effect- 4 times 26

27. Economic Impact: Payroll Multiplier - $4,000,000,000 Property Taxes - $22,500,000 Total $4,022,500,000 Timeline – year after year, after year When projects are completed: 30-40% more $$ in payrolls, tax base and property taxes 30-40% more in employment 27

28. Proportional Financial Impact: $125 Million initial municipal investment 20 Year Return = $85,000,000,000 Not counting rest of business park growth 28

29. Geographical Impact: 15 invested communities contribute to benefit: Tens of thousands of families Dozens of other communities All the counties in the region The entire state 29

30. Other Essential Contributing Factors: Public/Private-A genuine partnership P/P/P Teamwork Leadership Problem Solving Financial Expertise Flexibility Lots, lots More 30

31. “Greenfield” Biz Parks: Two Types Traditional Style Parks Community managed development MLG-Type managed development Speculator-Style Parks Builder/Developer managed parks 31

32. Traditional Style: Subdivide an appropriate site Add infrastructure Market & fill it up Generally slower growth Building construction starts once buyers are secured 32

33. Speculator Parks: Park’s/Builder Developer builds speculative space Dependent upon its confidence in leasing space Construction commitment up to developer itself not future buyers of sites Less likelihood of local engagement 33

34. Pay as you go: Easier for the builder/developers, they are building at their choice Far more risky for the traditional style parks, dependent on securing buyers who then build 34

35. End Result: Traditional-Style Slower infill (especially community-managed) Primarily owner-occupied buildings More local engagement Steadier growth Less variable employment levels 35

36. End Result Speculator-Parks Possibly faster increment growth Primarily tenant-occupied buildings More variability in employment as tenants come and go Less likely local engagement 36

37. Local/Regional-Grown Companies A mix of local, regional and national companies Primarily locally owned firms, glued to the community, generating leaders in local government, schools, churches, non-profits and the like 37

38. Summing it up: TIF is greatly under-appreciated, unfairly maligned, and power folly effective economic tool. Its impact upon the economic sustainability of communities, companies and families is completely out of proportion to the scale of dollars invested. Communities having the guts to make this huge difference deserve our thanks Finally, business parks that succeed in attracting community connected companies touch my heart, and they should touch yours. Thank you. 38

39. Nancy Leary Haggerty Slides Working with TIF on redevelopment and infill sites Harrigan chart showed that TIF allows a municipality to “harness” future taxes from increment, to cause development 39

40. Nancy Leary Haggerty Slides Cities have responsibilities to their citizens: Install roads, water and sewer systems, drainage systems, traffic controls In the past, federal government collected high income taxes and made grants to cities to carry out these jobs These state and federal sources of money are rare Very few tools left to municipalities to create these improvements so now require private developers to do so with promise of partial reimbursement through TIF 40

41. Nancy Leary Haggerty Slides If you think of each parcel of land in a municipality as a “field” from which the municipality must secure “crop of taxes” then it becomes important that the development of each parcel be maximized Parcels that are underutilized, because they are too large, too small, environmentally contaminated, buildings that are too old or poorly configured, or have no public water or sewer service, need help to maximize value City requires developer to make these improvements with developer’s funds, and then share increased taxes from the development 41

42. Nancy Leary Haggerty Slides Not “corporate welfare” because developer is providing something to municipality in its development agreement Most communities use “pay as you go” mechanisms, so developer is not paid unless and until the tax increment is actually produced Most communities use able financial advisors to evaluate projects, and insert mechanisms into the development agreement to control outcomes WDOR website shows many TIF success stories 42

43. Nancy Leary Haggerty Slides Caution to fit the TIF plan and development agreement into the real estate deal Can protect the municipality so tightly that buyer, user and lender of buyer can’t make the deal happen Be aware of requirements that will hamper lending for construction or hinder sale of lots Use the concept of the end-user’s Parcel Development Agreement to keep title clean, and completion certificates 43

44. TIF LEGISLATIVE UPDATE Joint Legislative Council Study Committee on the Review of Tax Incremental Financing Six Legislators Twelve “Citizen” Members Chair – Senator Rick Gudex (R-Fond du Lac) Vice Chair – Rep. Amy Loudenbeck (R-Clinton) Met Throughout 2014 Final Report – March 2015 Recommended Eight Separate Bills Making Changes to Current TIF Law Goal Was to Increase Flexibility, but Not to Make Wholesale Changes to Current Law 44

45. TIF LEGISLATIVE UPDATE SB 50 // AB 131 Makes Various Technical Changes Related to: Industrial Zoning for Mixed Use TIDS Standardized Tax Increment Collection Cycles Standardizes Certain Deadlines for TIDS Specifies Class 1 Notice for Plan Commission Hearing Changes to Levy Limits Upon Closure of TID Passed Senate May 6 th Approved by Assembly Committee October 22 nd Awaiting Assembly Floor Action 45

46. TIF LEGISLATIVE UPDATE SB 51 // AB 132 Makes Joint Review Board a Permanent Standing Committee Requires More Detailed Annual Reporting July 31 st Reporting Deadline 60 Day Extension Possible Passed Senate May 6 th Approved by Assembly Committee October 22 nd Awaiting Assembly Floor Action 46

47. TIF LEGISLATIVE UPDATE SB 52 // AB 133 Allows Any Type of TID to Be a Recipient District Currently Limited to Only Blighted Area TID Conservation or Rehabilitation TID Distressed or Severely Distressed TID Revises Restriction on Revenue Sharing Between TIDs with Overlapping Taxing Jurisdictions Passed Senate May 6 th Approved by Assembly Committee October 22 nd Awaiting Assembly Floor Action 47

48. TIF LEGISLATIVE UPDATE SB 53 // AB 134 Mitigates Negative Impacts to TID Cash Flows Caused by Legislative or Administrative Actions Amend TID Boundary Request Redetermination of TID Base Value Request Extension of TID Life Passed Senate September 16 th Awaiting Assembly Committee and Floor Action 48

49. TIF LEGISLATIVE UPDATE SB 54 // AB 135 Eliminates Current Limitation That No More Than 25% of a Blight or Rehabilitation TID Can Be Vacant Land Eliminates Requirement to Assign a Base Value to Municipally-Owned Tax Exempt Land Passed Senate May 6 th Approved by Assembly Committee October 22 nd Awaiting Assembly Floor Action 49

50. TIF LEGISLATIVE UPDATE SB 55 // AB 136 Increases from 12% to 15% the Limit on the Amount of Taxable Property Permitted to be Within All TIDs in a Municipality Approved by Senate Committee May 21 st Awaiting Senate Floor Action Approved by Assembly Committee October 22 nd Awaiting Assembly Floor Action 50

51. TIF LEGISLATIVE UPDATE SB 56 // AB 137 Extends the Sunset Date for Declaring a TID to be Distressed or Severely Distressed from October 1, 2015 to October 1, 2020 Passed Senate September 16th Awaiting Assembly Committee and Floor Action 51

52. TIF LEGISLATIVE UPDATE SB 57 // AB 138 Currently, a TID in Decrement (10% Drop in Value for Two Consecutive Years) can Receive a Redetermination of It’s Base Value Only Once During the TID’s Life Under These Bills, for Blight, Conservation or Rehabilitation TIDs, Multiple Redeterminations Would be Permitted, and Two Year Requirement Would be Eliminated Passed Senate September 16th Awaiting Assembly Committee and Floor Action 52

53. TIF LEGISLATIVE UPDATE SB 263 // AB 349 Sponsors – Sen. Strobel & Rep. Craig & 9 Others Any TID Created After October 1, 2015 Would Have to Comply with One of These “Best Practices” At Least 51% of Improvements Must be Financed by Private Developer With a “Pay-As- You-Go” TIF All Project Costs Must be Projected to be Repaid Within 90% of the TID’s Remaining Life Unless Unanimously Approved by JRB, All Project Expenditures Must be Made in the First Half of the TID’s Life Public Hearings Held in the Senate (10/21) and Assembly (10/22) 53

54. TIF LEGISLATIVE UPDATE Richard W. Lincoln 414-750-5456 rlincoln@mandelgroup.com 54

55. QUESTIONS 55

56. What You Need to Know about TIF Want to know more? Contact us: 262-442-9730 Kirsten@naiop-wi.org We are the champion for creating thriving communities in Wisconsin through successful commercial real estate development. 56