“Inappropriate, short-sighted, and an insult to the city.” Other than that, how did you like our letter, Mr. Mayor?

Judge Doyle Square is back in the news. The City is now weighing two different proposals from the same developer for the two downtown blocks. The Board of Estimates endorsed the more expensive of the proposals last night (April 11) and the Common Council will likely take a vote on April 19.

To the vocal dismay of Mayor Soglin, the school board has gotten involved, writing to the mayor and alders to urge that they select the less expensive of the remaining alternatives. Here’s the letter:

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Why does the school district care? With the right decisions, Madison public schools could receive $12 million. It is worth ruffling a few feathers to advocate for those much-needed funds.

By now, most folks’ eyes glaze over at the mention of Judge Doyle Square. But it’s important, really! So gird yourself, plow through the following questions and answers, and you’ll emerge equipped to explain to the mayor and anyone else why $12 million for our schools is better than a $13 million subsidy for downtown luxury apartments.

Q.   Let’s start with some background, and first deal with some of the acronyms. What’s TIF and TID?

A.   TIF is tax-incremental financing. With a TIF project, a tax incremental district (TID) is created that encompasses an area targeted for improvement. The city makes public funds available to a developer who needs financing help for a project located in the TID. The city then freezes the current property value in the TID. Property owners in the TID pay property taxes levied by the school district, city, county and Madison College based on the current assessed value of their property, just like everyone else. But the only portion of those taxes that go the taxing jurisdictions is an amount equal to what the property taxes would be on the frozen property value. The amount paid above that frozen value – known as the increment – is devoted to paying off the public investments in the projects. Once the cumulative incremental property taxes have paid off the initial public investment, the TID can be dissolved and the increased property value in the TID can be restored to the tax rolls.

Q.   That sounds like a smart approach.

A.    It is. In general, TIF financing is a very useful economic development tool. The school district has consistently supported city proposals to create new TIDs.

A.    What’s TID 25?

A.    TID 25 was established in 1995 to assist in the development of the area between Capitol Square and Lake Monona. Among other investments, it provided TIF financing assistance for the ambitious redevelopment of Block 89 on the southeast side of Capitol Square, as well as for the Hilton Hotel serving Monona Terrace. The TID has been successful. The tax increment is has generated has been sufficient to pay off the TIF financing it was provided. At the end of 2014 it had a surplus of about $19.5 million, and the surplus has been growing by about $3.7 million per year.

Q.    Why is TID 25 still open?

A.    The city views the TID 25 surplus as a source of public financing for redevelopment of Block 88 (which includes the Madison Municipal Building) and Block 105 (the site of the Government East parking lot). The two blocks make up an area labeled Judge Doyle Square in anticipation of the transformation the city envisions. The city would like to see a new hotel on the site that would be beneficial for Monona Terrace, additional retail space including a bicycle center, apartments, and an underground replacement for the crumbling Government East parking lot.

Q.    What about office space?

A.    The Hammes Company and a partner had proposed a JDS development that included a new headquarters for Exact Science. Mayor Soglin aggressively supported this proposal, and it was narrowly approved by the Common Council last September. The project soon fell apart after Exact Science’s stock price tumbled.

Q.    What happened then?

A.    The city went back to the three other developers that had submitted proposals for JDS and asked them to resubmit their ideas. Two of the developers did, Beitler Real Estate Services and Vermilion Development.

Q.    Did the school district take a position on the Exact Science proposal?

A.    No.

Q.    Why get involved now?

A.    In response to the city’s request to resubmit JDS ideas, Beitler submitted a proposal that required less public investment than others but still met all the requirements of the City’s request for proposals except it did not put parking underground. The city analysis of this proposal stated that it “appears to be able to generate sufficient TIF increment from a new TID to cover the overall investment.”

Q.    Why is that significant?

A.    If the initial Beitler proposal didn’t need funds from the TID 25 surplus, the proposal could be selected by the city and the TID could be closed at the end of this year. From the school district’s perspective, this was a win-win situation. The city could get what it wanted for JDS (except underground parking), the TID could be dissolved, and the school district and other taxing jurisdictions could get their shares of the TID 25 surplus.

Q.    How much are we talking about?

A.    The surplus should total nearly $27 million by the end of the year. The taxing jurisdictions would split that up in proportion to the property taxes they have levied. The school district would get about $12.8 million, the city would get nearly $10 million, the county would get more than $3 million, and Madison College would get almost $1 million. Since the school district’s share would not fall under the revenue caps imposed by the state, it would be a big, big help in our efforts to provide the best possible education for Madison’s children.

Q.    Did the city share your enthusiasm for the initial Beitler proposal?

A.    No. The city asked Beitler to come up with something that would put parking underground. Beitler came back with a revised proposal that included six levels of underground public parking and added an additional 144 apartments to the 210 apartments it had originally proposed.

Q.    Could the revised proposal support a separate TID and so allow TID 25 to close?

A.    No. The revised proposal required an additional $13 million in TIF financing, all to come from the TID 25 surplus. TID 25 would have to stay open through at least 2022 with the revised proposal.

Q.    So, what’s the difference between the initial and revised Beitler proposal?

A.    The revised proposal requires $13 million more in TIF financing and makes room for an additional 144 apartments by putting the public parking underground.

Q.   So the revised Beitler proposal will cost a lot more, but at least there won’t be that unsightly aboveground parking, right?

A.    Uh, no. The revised proposal calls for six levels of underground public parking. This frees up room for two levels of aboveground parking for the new apartments.

Q.    What kind of apartments?

A.    There would be eighteen apartment units on the 5th through 12th floors of a new building. Of the 144 units, 48 would be studios, 64 would be one-bedrooms and 32 would be two-bedrooms.

Q.    What about rents?

A.    Beitler is projecting that the 144 apartments would generate $3,082,248 in rent annually. This works out to an average monthly rental of $1,784. That’s pretty darn expensive. The new Domain luxury apartments on West Johnson Street downtown advertise one-bedroom apartments of about the same size for $1,525 per month.

Q.    So, we can consider what Beitler proposes to be luxury apartments, huh?

A.    Yep.

Q.    Does the city’s TIF policy allow for TIF financing of luxury apartments?

A.    No. But technically, the TIF financing for the revised Beitler proposal would be for the underground parking that makes the luxury apartments possible.

Q.    But underground parking is good, right?

A.    It depends. It’s a lot more expensive. Its value inheres in what replaces the aboveground parking that now is put underground. In this case, the $13 million in additional public funding purchases 144 luxury apartments, which works out to a subsidy of about $90,000 per apartment.

Q.    Who could possibly support that?

A.    Well, the mayor, for one. The three members of the Board of Estimates who voted in favor of the revised Beitler proposal, for three more.

Q.    So has the city thrown its weight behind the revised Beitler proposal?

A.    Not yet. The Common Council has to vote on it. Given the tight timetable for the project, they have to make their selection at their meeting next week, on April 19.

Q.    What’s the school district’s view?

A.   All seven members of the School Board signed the letter to the mayor and alders shown above, urging them to select the initial Beitler proposal, close TID 25, and distribute the surplus to the school district and other taxing jurisdictions.

Q.    Did the mayor appreciate the school board’s insights?

A.    Apparently not. He has not responded to the letter. But he was quoted in the State Journal opining that our letter was inappropriate, short-sighted and an insult to the city.

Q.    In the same newspaper article, the mayor said that the city can essentially loan the district its share of the TIF surplus now and get repayment when the TIF district is closed in the early 2020s. So what’s the problem?

A.    The mayor mentioned this notion when he was running for re-election and repeats it whenever the school district questions the use of the TID 25 surplus. We’ve talked a lot to the city about the loan idea for two years, but it won’t work. One big hang-up is who bears the risk if at the end the TID surplus isn’t as big as projected. The city, which controls the TID and its expenditures, or the school district? The city says not us; if there’s not enough in the TID at the end to pay off the loan, the school district is on the hook. This makes the idea unworkable for us. We can’t borrow money now and possibly stick a future board with the obligation to come up with the difference if the city ends up using more of the surplus than it says it will.

Q.    The mayor also says that the city intends to keep TID 25 open an extra year, through the end of 2023, to generate money for affordable housing. This isn’t possible if the TID closes before it has to under state law, like you want. What have you got against affordable housing?

A.    Nothing. It would be great to expand the city’s stock of affordable housing.   If TID 25 closed at the end of 2016, the city would get about $10 million of the surplus. It could spend as much of this as it wanted on affordable housing. If the city stuck with its current plan of keeping the TID open as long as possible, it would end up with about $10.8 million at the end of 2023, about $3.7 million of which would automatically be earmarked for affordable housing. Whatever your view of affordable housing, the city is better off getting $10 million at the end of 2016 rather than $10.8 million at the end of 2023.

Q.    Speaking of using more of the surplus, the school board’s letter to the city says that more than $20 million of TID 25 surplus has been spent by the city without Joint Review Board authorization.   What’s that about?

A.    The ground rules for tax incremental districts are set by the Joint Review Board (JRB), which is made up of representatives of the school district, city, county and Madison College, along with a citizen member. (TJ Mertz is the school board rep on the JRB.) When it approved TID 25, the JRB defined the range of permissible TIF expenditures. The JRB can later amend the scope of the project, but the city apparently has spent more than $25 million from TID 25 without seeking or receiving approval from the JRB to amend the TID so that these additional expenditures would be authorized. For those who think the JRB should be more than a rubber stamp for the city, it’s a troubling and probably unprecedented situation.

Q.    So, how exactly did you insult the city?

A.    Who knows? Not every question has an answer.

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4 Responses to “Inappropriate, short-sighted, and an insult to the city.” Other than that, how did you like our letter, Mr. Mayor?

  1. Good work on the part of our school board. Good analysis, Ed. Now, let’s elect a new Mayor.

  2. Our community desperately needs new leadership.

    This is yet another reason why I regret having voted for Soglin, why I won’t vote for him again, and why I hope we will have better candidates next mayoral election.

  3. Leta Steffen says:

    Thanks, Ed. Once again, I appreciate your thorough explanations–it’s much more informative than what I can find elsewhere in the local media!

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