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Walworth County TIF losses add to pain

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Darryl Enriquez
March 14, 2011
— The value of 14 tax incremental financing districts in Walworth County dropped more than $59 million, or 7.6 percent, in 2010 because of a change in state policy, a slowdown in building and declining property values, county records show.

The largest monetary loss was in the Fontana TIF district, which dropped in value nearly $27 million, or 22 percent, according to figures from Walworth County comptroller Jessica Lanser.


Sharon's only district lost about 24 percent or $312,000 in value. Whitewater's District No. 7 lost 51 percent of its in value, falling from $644,600 to $313,400 in the past two years.


Of the 14 districts, 11 declined in value. The village of Darien, a district in Elkhorn and a small Whitewater district showed increased value. In total, the districts' overall value dropped from $772 million to $713 million, according to Lanser's figures.


TIF districts are a fiscal tool used to promote economic development. They allow communities to borrow money to pay for infrastructure improvements, such as sewer, roads and drainage. Providing infrastructure is meant to lure developers by reducing upfront costs.


Theoretically, property values rise with development, pushing up property taxes to pay the debt. When debt is retired, property taxes again flow to the municipalities, school districts and other taxing units that sacrificed tax revenue while the district was paying off infrastructure debt.


But some TIF districts are in trouble because the slow economy has depressed commercial and industrial developments—the lifeblood of TIF districts.


The problem was made worse when the state Department of Revenue modified its formula to bring TIF values in line with what the department views as the actual worth of property, Fontana Administrator Kelly E. Hayden–Staggs said.


State officials believed previous assessments were inflated because of the rapid growth of the early and mid-2000s, she said. The formula change dropped property values in the TIF districts to be in line with what the department viewed as more realistic values.


As a consequence, gains in district values over the past few years were wiped out with a stroke of the Department of Revenue's policy pen.


"We understand that the change is a better representation of the value," Hayden-Staggs said. "The way it was done was sudden and without consulting the communities."


Lower value means less tax revenue, which could delay paying off debt on TIF districts and postpone the return of those properties to the tax rolls, she said.


A decrease in taxes also means less money that the district can plow back into projects to attract other businesses. Taxes in the Fontana district, for example, fell from $1.2 million in 2009 to $893,000 in 2010.


Troubled districts could pursue relief by extending the time needed to retire debt, but a panel of representatives from the taxing districts affected by TIFs must approve the extensions.


Whitewater received a time extension for its largest district, No. 4, extending its retirement deadline from 2018 to possibly 2028.


The district's value dropped about 8 percent, or $6.4 million, during the previous two years.


Whitewater City Manager Kevin Brunner said the district had suffered development setbacks because of an inactive real estate market.


The Department of Revenue formula change played a role, too. It reduced the value of Generac Power Systems, costing the district $50,000 annually in increment, Brunner said.


In 2010, District No. 4 fell $128,000 short in tax collections. In a controversial move, Whitewater declared the loss as a special assessment it could not collect and passed the debt along to the county.


In doing so, the county had to reimburse Whitewater for the special assessment. It's now up to the county to collect the debt.


Walworth County Administrator David Bretl said the move is upsetting. If the county is unable to collect the liability, the cost would be divided among all county taxpayers, instead of remaining the responsibility of Whitewater property owners.


Special assessments usually are minor expenses attached to property tax bills, such as unpaid grass cutting charges or unpaid water bills. If the taxes are not paid, the bill and assessments are sent to the county for collection.


The county traditionally has accepted the assessments because most are not costly. The $128,000 from Whitewater was beyond what the county was used to, Bretl said.


Whitewater officials in spring will talk to district business about ways to prevent missed tax projections from being passed onto the county.



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