Madison is using a state law to keep three successful tax incremental financing (TIF) districts open an extra year to produce a whopping $15 million in tax revenue for affordable housing.
The revenue, coming in 2018, will let the city continue to channel $4.5 million annually to its Affordable Housing Fund for several years, but without more borrowing, a sticky spot in the city budget, community development director Jim O’Keefe said.
“This is an extraordinary year,” O’Keefe said. “Nobody should think that every couple of years these kind of revenues will fall into our lap.”
The TIF districts, one Downtown and two on the South Side, will also produce an estimated $8 million surplus that will be divided among the city, Madison schools, Dane County and Madison Area Technical College, and can be used for any purpose. It will be available in 2018 or 2019.
With TIF, the city and the other taxing entities agree to freeze property values in an area with tax revenues from growth invested in private development or public infrastructure. When investments are repaid, the TIF district is closed and the higher valued property is fully returned to the tax rolls with any surplus paid to taxing entities.
The city has made roughly $54 million in investments in the three districts, including support for the massive University Square development near UW-Madison and the reconstruction of State Street Mall and Library Mall, city finance director David Schmiedicke said.
Under a 2009 state law, municipalities can keep TIF districts open an extra year if most tax revenues from growth are used for affordable housing. The affordable housing can be created anywhere in the municipality and there is no time limit on when the money can be spent.
Madison, which launched Mayor Paul Soglin’s Affordable Housing Initiative in 2015, has used the state law to delay the closure of a district only once, generating about $500,000 for affordable housing from Tax Incremental District (TID) No. 33 in 2016.
The three districts now closing have all significantly increased in value, will deliver far more in revenue for affordable housing than in the past, and still leave a surplus.
- An Upper State Street district, TID No. 32, created in 2003, has grown in value from $409.4 million to $956.2 million at the start of 2018. It is projected to produce $13.5 million for affordable housing during 2018, and an estimated $5.6 million surplus to be divided among taxing entities in 2018 or 2019.
- A West Broadway district, TID No. 27, created in 1997, has grown from $4.5 million to $26.5 million. It will produce $539,000 for affordable housing and a $2.1 million surplus.
- A Park-Drake street area district, TID No. 43, has grown from $25.9 million to 66.5 million. It will produce $1 million for affordable housing and a $287,000 surplus.
Soglin and City Council members are introducing resolutions Tuesday to close the TIDs. The council will make a final decision at a later date.
Madison’s Affordable Housing Initiative, aimed at creating 1,000 low-cost units, including 250 for the homeless, over five years, uses city investments to help developers secure critical Wisconsin Housing and Economic Development Authority tax credits, which finance 60 percent to 70 percent or more of projects.
So far, the city has committed $15.8 million from its Affordable Housing Fund and the state awarded a total $94.9 million in tax credits to 13 projects with a total cost of $257 million, O’Keefe said. The projects offer a total 835 units with 744 for households making less than 60 percent of county median income, or about $46,000 for a family of three. Also, 163 of the affordable units are permanent supportive units for homeless individuals or families.
The city’s non-binding Capital Improvement Plan shows $4.5 million in annual contributions through 2023.
Under the formula for dividing surpluses, the Madison School District will get 47 percent, or $3.76 million; the city 37 percent, or $2.96 million; Dane County 12 percent, or $960,000, and Madison Area Technical College 4 percent, or $320,000.
The surpluses are among the largest from the closure of TIDs in a single year, Schmiedicke said. The largest surplus was $13.5 million from the closure of three districts in 2009, he said.
The city’s 2018 capital budget assumes using the city’s share of the surpluses in the closed TIDs will channel $600,000 for the Bridge Lake Point Community Center and $1.65 million to the Madison Public Market.