Ehlers

May 16, 2011

 

As part of Ehlers monitoring of the current legislative session in Madison, we offer the following update and commentary on changes introduced last week to the levy limit provisions of the proposed State budget, as well as two bills currently under consideration with implications for economic development and Tax Incremental Financing:

  • Senate Bill 83, which is on a fast track for consideration, severely curtails the ability of Community Development Authorities and Redevelopment Authorities to exercise their powers to promote economic development.
  • Assembly Bill 87 broadens the number of Tax Incremental Districts eligible for distressed status, but could be made more beneficial if amended to include additional provisions.

We encourage all local units of government to review these proposals and to contact your State legislators to let them know how they will impact you.

 

Senate Bill 83: Changes to Blight Finding Requirements Would Prevent CDAs and RDAs from Exercising Powers in Nearly all Situations

By Mike Harrigan, Chairman and Senior Financial Advisor 

 

Approved out of Senate committee on May 12 by a 3-2 vote, Senate Bill 83 substantially restricts the instances in which a local government can acquire property through eminent domain.  Of particular note and concern, the bill changes the definitions of "blighted property" and "blighted area" such that to make a finding of blight, the subject property would as a pre-condition have had to been cited for violation of a state or local building code, and have had to fail to correct those deficiencies after having received at least two notices from the local government to do so.  Furthermore, the cost to correct the code violations would need to exceed 50% of the value of the improvements on the site.

 

Since a Community Development Authority (CDA) or a Redevelopment Authority (RDA) can only exercise its powers in blighted areas, or over blighted properties, this stringent requirement for determining blight would eliminate their ability for involvement in most economic development and redevelopment efforts.  As examples, unless the property in question met the strict blight requirements noted above, a CDA or RDA would be unable to:

  • Acquire and assemble property for redevelopment, even if the owners approached the Authority.
  • Provide development incentives, or raise the funds through lease revenue bonds.
  • Act as a conduit issuer for double tax-exempt private-financing of economic development projects.
  • Provide loans, grants or other assistance through programs operated by the Authority.

The negative impact and consequences of this legislation on local and State wide economic development cannot be overstated.  The League of Wisconsin Municipalities is actively opposing this legislation and we would encourage the communities we work with to do so as well by contacting your State legislators and explaining in specific terms how this bill would preclude your future involvement in nearly all meaningful forms of economic development assistance.

 

 

Assembly Bill 87:  Change to Distressed TID Eligibility Requirements

By Brian Reilly, Financial Advisor 

 

This bill, currently in the Assembly committee on Ways and Means, would eliminate the requirement that a TID have been in existence for at least seven years prior to becoming eligible for designation as "distressed" or " severely distressed".  This is a beneficial change, but will have limited applicability since the distressed TID law will expire on September 30, 2011.  If not already underway, cities and villages planning to take advantage of the extended life and other provisions of the distressed TID law will need to start the process within the 90 days if they expect to complete necessary actions before the law sunsets.  If you are unsure of whether your community may have a TID that is eligible, or whether to pursue such a designation, please call your financial advisor soon to discuss.

 

We would also encourage communities that believe they may have a prospective need for distressed TID status to contact their State legislators and suggest that AB-87 be amended to eliminate or extend the current September 30, 2011 sunset provision.  Additional beneficial changes to the law would be the removal of the eligibility requirements for a distressed TID to have been created before October 1, 2008, and the requirement that it's Project Plan could not have been amended on or after October 1, 2009.

 

 

Joint Finance Committee Modifications to Levy Limits

By Todd Taves, Financial Advisor 

 

On May 13, the Joint Finance Committee (JFC) moved to approve Governor Walker's proposed extension of levy limits, but made several significant changes:

  • Levy Limits Made Permanent.  The provision that would sunset levy limits after the 2012/(13) levy would be removed, making levy limits permanent.
  • Increase in Allowable Levy after Two Years.  The allowable increase of the greater of 0% or net new construction would remain for the 2011/(12) and 2012/(13) levies.  Beginning with the 2013/(14) levy, the allowable increase would be the greater of 1.5% or net new construction.
  • County Tax Rate Limits for Operations Suspended.  For the 2011/(12) and 2012/(13) levies only, counties will not be required to comply with their tax rate limit for operations.
  • Limited Restoration of Unused Levy Limit Carry Forward.  If a county or municipality did not levy its full allowable amount in the prior year, it would be able to carry forward and apply that unused prior year amount under the following conditions:
    • The amount that could be applied would be the lesser of the actual unused levy amount, or 0.5% of the prior year's actual levy.
    • The carry forward must be approved by a ¾ vote of the governing body (a ⅔ vote if the body has five or fewer members).
    • For towns, a majority vote of the electors at an annual or special town meeting would also be required.
    • Beginning with the 2013/(14) levy, carry over could be approved by a simple majority vote of the governing body.
    • If the governing body elects not to apply some or all of a prior year's unused levy capacity, that amount would continue to be carried forward for future use, but only up to an amount equal to 0.5% of the prior year's actual levy.
  • One-Year Exception to Negative Adjustment Provision for Pre-2005 Debt.  The Governor's budget requires that in any year where the total debt service levy for general obligation debt authorized prior to July 1, 2005 decreases, the county or municipality must decrease its allowable levy in the same amount.  For the 2011/(12) levy only, this negative adjustment would not be required provided that the county or municipality does not carry forward any unused levy limit in that year.

Ehlers Commentary

The effect of making levy limits permanent versus a biennial reauthorization has little practical effect given the ongoing likelihood of their renewal, and since the legislature will continue to retain the authority to change the statute in the future.  The addition of a minimum allowable 1.5% levy increase beginning with the 2013/(14) levy, while an improvement from 0%, will continue to place extraordinary pressure on county and municipal budgets which will struggle to keep up with cost of service increases that will exceed levy increase authority.  The two-year relief period from County operating rate limits will be beneficial in cases where declining equalized values may have otherwise resulted in a requirement to decrease operating levies. 

 

Counties and municipalities that did not levy their full available amount in 2010/(11), and that will also have a decrease in their pre-July 1, 2005 authorized G.O. debt service levy next year, may want to consider foregoing utilization of their available carry forward amount for the 2011/(12) levy in order to avoid the negative adjustment.  This would allow for capture of the debt service levy decrease and its conversion to operating levy.  Since the unused levy amount would still carry forward to 2012/(13) (up to a maximum of 0.5% of the prior year's actual levy), it could be utilized in the second year, thus maximizing available levy increase potential over a two year cycle. 

 

Given that special or specific individual circumstances often apply, Ehlers strongly recommends that you consult with your financial advisor during your budget process for assistance or review in calculating your available levy limit, and development of a levy limit management strategy.

Sincerely,

 

The Ehlers Wisconsin Team 

 

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