Grab a waste basket, you might want to puke.
PUBLIC TESTIMONY
Was 15 minutes late, public was speaking, a parade of lobbyists gushing over how great this new policy is. Gross. Smart Growth Madison loves it. Realtors love it. Chamber of Commerce loves it. Downtown Madison Inc loves it. All their campaign contributions are paying off and their paid lobbyists are here in full force. The realtors were particularly gross talking about affordable housing. The back patting and congratulating was too much to take, almost all of them said nothing but thank you! Thank you! Thank you! Thank you for giving us what we want! And then they speak with disdain about having to deal with “social issues”, they believe that has no place in the discussion here. They believe that the money generated by TIF will trickle down to social service programs and that is all we need to do. Is that really working? Flat budgets, no cost of living increases, etc. etc. Garbage, pure garbage. Trickled on.
Chris Schmidt asked many of them what the worst things in our current policy is, and mostly they said the 50% rule (50% of the TIF generated goes to developer, 50% to infrastructure costs) and the equity kicker (meaning if they sell and make money we get a share of it – to prevent fraud on the developers part). No surprises there. Lots of discussion of flexibility.
TJ Mertz from the school board spoke and upset people in the room with issues about how this impacts the schools, because they didn’t want to hear it – they believe it doesn’t. I missed much of this discussion.
Alder Rummel registered to speak. Rummel says that in the last policy they tried to create jobs, but this is a real estate tool and the trick is how to ensure that we are protecting tax payers and that we are get a great deal. She says there are some lovely ideas in the report, but we need to put teeth in them, we can’t throw out all standards. If we are going to create jobs, what are we paying for the jobs, how much are we willing to pay? Do we get job guarantees? We tried to incentivize jobs, and the business community didn’t want that. We need performance standards, if we are giving money to retain or grow jobs, how do we assess the performance? We can be flexible in the strategy, but we are throwing out a lot of bones. She notes that there is not a diversity of people at the table at EDC or the alder committee and she would like to see that. She says that community benefits are still important. How can we get card check neutrality. A landlord can’t guarantee what a tenant does. How can be ensure there will be living wage jobs. Rummel also notes that the affordable housing hasn’t really been used since it was put in the policy.
Audio will be here as soon as its done uploading. You can hear for yourself the full barfarama effect.
Audio Part One
Audio Part Two
STAFF PRESENTATION/THE SMACK DOWN (Sorry its in black and white, looks better in color.)
Joe Gromacki gives a background on the program. In 2012 they had $103M in new value in 5 projects, using 8.5M in TIF, that is 11:1. “To listen to some of the testimony, we are screwing up, I guess.” says Gromacki. 1999 – 2013 $30M in TIF loans, $324M in project value. The first TID closed in 7 years. He talks about going up to 70% on the Madison Mark because it provided a public benefit. $48M in requests in the last 14 years, they awarded $30M. Only two developers walked away and both projects got built. It saved the taxpayers $20M/ 321 jobs were created, 952 were retained – that they know of. Arbor Gate had 500 jobs created or retained, they would have gone to Middleton otherwise. From 1979 – 2013, $103M in investment, $1.3B in new value, $91M in infrastructure improvements were made. The adopted TIF policy was in 1999 and they put in protections for the taxpayer – the reason was that there were no rules and the developers wanted it to be predictable. They wanted a consistent set of rules. The first draft was 3 pages long, and it got up to 19 pages. The simple version is that there is a 50% rule because internally Paul Riley had a rule that was about 60%, things got done and it kept going up and it got to 100% and then there were not funds for infrastructure. People were worried about a downturn, where the mill rate goes down, and there is less increment. The $91M would not be possible without the 50% rule. The second thing was a personal guarantee. Banks have required this for decades. When you buy a car or a house you guarantee it. They also require the project to be self supporting. It’s how we protect ourselves for a rainy day. He says that we have clear objective standards, we want equity in the amount of the TIF, to make sure the developer has skin in the game. They surveyed people, Sun Prairie, Fitchburg, Middleton, Waunakee, Verona and DeForest. None of them have policies, no application or analysis. Verona wouldn’t answer the questions, they totaled $23M in the last 10 year and have a new value of $208M. They also pay for most of their infrastructure costs. We spent $25M and got $269, they all had $23M in loans and have $208 in value. He talks about the suburbs doing greenfield developments. We are developing in the city on top of infrastructure that has been there. We are using only 1.85% of our TIF, we can do 12%. Joe shows borrowing numbers and TIF expenditures. Middleton is over the cap and want 40 years to pay it off because they are not getting the increment. This is not sustainable. Dan Rolfs takes over and shows maps of where the growth could be. He says they are mostly doing greenfield development. He talks about the developments other projects are doing. He shows maps of where TIF districts are and have been. He looks for places that could have a TIF district. He eliminates all the areas already in TIDs or that recently were or don’t qualify. Next they eliminated things like East and West Town and the American Family Center. They also eliminated greenfield areas. He says there is not much, they are looking at Royster Clark and Park St, but there is very little left. And there is a question about if there is a desire to do it. The city converts about 160 acres a year to commercial uses. If we are going to expand TIF dramatically, we are changing to big box retail. We have strong construction numbers – 2600 new dwelling units under construction, approved or pending. 400,000 sf commercial space under construction, approved or pending. We don’t have TIF in most of those deals and they happened anyways. The development is taking place all over the city. If things are really that bad, how is this happening.
QUESTIONS OF STAFF
Chris Schmidt asks how they went from $48M in requests to $30M in loans, was Edgewater included. Gromacki says no. Schmidt asks about the 2009 policies and when phases were included – and I missed it. Schmidt asks how much outside of Madison was not greenfield. Staff says it was hard to tell but very little. 90% seemed to be greenfield loans, plus the infrastructure. Middleton had one, Waunakee has some, Sun Prairie had one. Gromacki says that the TIDs Middleton have were redevelopment TIDs that were amended to include greenfields, so it is hard to tell. Rolfs also said that many cities draw TIDs that include downtown and greenfields and they do signs and benches downtown and call it a blighted TID, but the money is spent on the industrial areas and the streets and getting water there etc.
Gromacki explains that TIF is largely self enforcing, like golf, you have to call a penalty on yourself. We wouldn’t say greenfield is blighted, the state only looks at if the notices are filed properly and the 12% cap. Schmidt asks about how others are doing their TIF. Gromacki says that it is hard to tell because the info they get they don’t get a gap analysis. Rolfs says most TIF is negotiated. He says negotiated usually means this is what we need, when will you write us a check. Its a different economic reality. Olver says that the but for finding is left to the Joint Review Board. We look at gap analysis, and others are not doing an underwriting. Schmidt asks how much DOT money goes into this. Gromacki doesn’t know. Schmidt says look at all the concrete in Sun Prairie.
Mark Clear asks about the functional difference in greenfield and redevelopment TIF, what makes that an uneven playing field. Gromacki says infrastructure, and other communities are paying for that. Our infrastructure has been around for many years, and it is more sustainable. No new utilities and streets. Redevelopment is always a better bang for the buck. Clear asks about Union Corners, that infrastructure was done, was that partially assessed to the property owner? Yes. WE had $1.6M in costs. We did that before the generator was finalized and the result is that the market went flat and we had no increment to pay for it. Don Marx says that some of the infrastructure there was done with the redevelopment of East Washington as well. Clear says “its not broke, don’t fix it”. Gromacki says no, there are some flaws in the current document. He says that equity participation has been a problem for years, we might want to let it go. He says he would like it to be shorter again. When developers come in they want to know how do I get. I ask if they read it and they say yes. He thinks they can take some of the stuff can go in a different document. He says there is no application deadline realistically, why have it. The 12 year expenditure period was put in and the legislature said it could be 22 years. We keep our expenditure to a minimum. He says there are other things that are vital to our success. Lots of cities ask to see our policies from all over the United States. In other places there are no policies or they have loose policies.
Sue Ellingson asks what is vital for success? 50% rule, personal guarantees, generators. We have three districts without generators. But for, gap analysis are very important. They are open to talking about business retention and job creation projects. We can leverage jobs. Where we get into trouble is with subjective analysis like competitive factor. Gromacki talks about coming from Racine and how it worked there. You can’t get any information, can’t confirm what people say they are getting and it creates a bidding war. We were used as a stalking horse for Epic. It cost Verona $20M. They are getting the value but 80% of the employees live in downtown Madison. Stay close to defensive methods to determine but for. A few years ago I was summoned to the District Attorney’s Office by a developer who said we had unfair standards, not sure what the charge would have been but we pulled out the files and that is a relief to have that info and be able to defend your decisions. He asks what a catalytic project is. He says there are other little things. He’d like to have chapter numbers, make it shorter. Talk all the nice language about affordable housing in a separate document. Have the objectives be separate. Developers bypass everything about affordable housing and go right to finding the rules that say what they can get.
Mike Verveer asks for hard copies of the presentation and to put them in legistar. He asks about personal experience about the two developers that walked away. Who were they, can you explain that? Gromacki said one was Inclusionary Zoning and it was easier not to have inclusionary zoning. The other one didn’t want to pay prevailing wage. He made more money not doing that and not getting TIF. The other was equity participation. One said that they couldn’t live with equity participation but the project was built anyways. Olver says that what you don’t know is who just didn’t even apply after looking at the rules. Gromacki says these were ordinances, not policies. Marx says that one other was the personal guarantee. Olver says that one of the complexities is that they have to deal with downtown development vs other developments. IN other places we have areas that are a substitute for the suburbs. EDC talked a lot about the TIF policy being silent, there is nothing in there about greenfield TIDs. Opportunities are on the West and Northeast sides of Madison, do you want to create greenfield TIDs? We have a policy that works well for a real estate developer, but what about a company that comes to us? Olver says that 4 companies have called him that want to locate on the West side, they have offers from Middleton and Verona and we have nothing to offer them. Verveer also asks about exceptions to the policy, more often than not it is the 50% rule. Did you do an analysis on what percent have exceptions. Gromacki says the trend started in 2007 where they asked for more than 50% and we have become more flexible, but we haven’t blown the door off, its usually below 60%. Madison Mark was the highest one for affordable housing, and they got a capital revolving loan as well. We have shown the flexibility for them, why throw out all the rules if we have flexibility. Verveer asks other exceptions – personal guarantee with Gorman and Edgewater, 2 out of 70 deals. We generally don’t have problems with that. Developers don’t like it, but we haven’t had a problem with it. He says that when you have project in front of you we can talk about precedent, but when the rules get loose, then people start complaining it is not fair.
Shiva Bidar-Sielaff asks about the exceptions, she says we are trying to attract that kind of project. If the rules are more flexible won’t we attract more instead of them applying and then hoping we will be flexible. She says we have made little progress in affordable housing. Gromacki says that affordable housing doesn’t work well with TIF, if the rent is suppressed and it costs the same to build as the project around the street, it is worth less than that project. It may have as much or more need for TIF than other projects. What attracts the developers is the market. Gromacki says the nice thing about Madison is that you can create affordable housing and make a healthy amount of money. If we open the flexibility, we will deplete our resources, if we do every project that comes in the door we will have trouble paying it off. Olver says that there is complexity and nuance in the TIF policy and how do we want to deal with nuance. What tends to happen is that when there is consensus among staff then the project makes it to council. In some cases the policy doesn’t tell us what to do, we don’t look at the strength of the TID in the policy, but the staff look at it. TID 40 the light is red because there it is underwater. TID 25 is really strong. 50% is hard to say is the right thing. We should have flexibility to invite developers in and then we should explain the downsides. Let the council decide and not stifle it at staff. The 10% set aside doesn’t work, TIF is an awkward tool for affordable housing. He says there is no gap if you get WHEDA, but they get credit if they get TIF, so what the EDC said was to treat affordable housing as a hybrid of infrastructure and development. He says there was a 10% set aside in Marsha’s district where it failed in part because of our policy. Gromacki disagrees. He says the council provides exceptions when appropriate and necessary. Gromacki says every developer asks for more than they need. Gromacki says every project is the bottom of the next proposal and it just escalates. Clear asks why that doesn’t happen now. Gromacki says the policy. The development community wants to maximize our participation, but we don’t have to be a willing participant. Clear asks if the 50% rules puts us in a stronger negotiating positions. Gromacki says it sets the boundaries. Clear says that he tried to make analogies between land use and TIF application processes and he says that projects don’t get stopped at the staff level in planning and he says with TIF they get stopped at the staff level. Gromacki says no, we get a fair amount of tire kickers. You don’t see those, the ones you see have viability, credibility. The project has to have investors and a market. Right now we wouldn’t do condos. There is no need for TIF for student housing, we have that. Recently we had a $225K TIF which was a hotel that got $5M in value. You don’t hear about those. He likes the EDC policy that expands the TIF team. Its good to have different voices, but its harder to get together on a tight timeline. He doesn’t see a problem in the turndown rate. Missed some here. Rolfs says the policy is respectful of the developer, staff and policy makers time. The deals you don’t see is when a developer comes in that has sources and uses that match and they don’t need the money but wants it and one developer looks at the other and says “I told ya” and then you don’t see that. Keeping the rules hard and fast keeps the application process consistent. Gromacki says if you don’t want us to make exceptions, let us know. We put the flexibility in there and they make exceptions – we haven’t made tremendous exceptions. They get the best deal for the city and the policies help us do that.
Schmidt asks if there is any more questions, this has turned into a debate. Olver says that is good to get the issues out. Schmidt says that they will go through the matrix next time with the comparisons and we can decide if they want to use old policy, EDC policy or start from scratch.
Bidar Sielaff asks if we should point out what we have doubts or concerns about, then we won’t spend time avoiding the big issues.
Schmidt says the matrix will be basis for discussion next time and their homework is to flag the issues of big concern and at the end of the meeting they will decide how to proceed.
Verveer says at the first meeting they talked about Aaron presenting his powerpoint. Are we still doing that? Olver presentation is 20 – 30 minutes and they will start the next meeting with that.
They refer the item to the next meeting.
The next meeting is August 1st at 5:00. (Thursday) They talk about starting before 5:00 but they decide to keep i at 5:00 for people who have “normal jobs”.
They adjourn after 2 hours and 45 minutes, the first hour being public testimony.
