May 22, 2024

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Pride of the Travel

Madison may again use TIF to boost State Street, Downtown | Local Government

Madison is again looking to use its most potent financing tool to boost the Downtown, which city officials say is growing but needs support for State Street and its businesses, low-cost housing and infrastructure.

Alds. Patrick Heck and Mike Verveer are proposing to create a tax incremental financing (TIF) district in the greater State Street area between Capitol Square and Lake Street. It would deliver funds for State Street amenities, repairs and upgrades; $4.2 million in grants to small businesses that suffered during the COVID-19 pandemic and destructive protests of 2020; and $15 million to help finance public elements of the proposed, roughly $140 million redevelopment of a State Street parking garage at 415 N. Lake St.

Verveer, 4th District, is also seeking to change the boundaries of an existing TIF district west of the Square to produce an extra $8.2 million to bury power lines and make stormwater improvements in the West Wilson Street area. The reshaped district would also have $9.7 million in funds that could support private housing or commercial projects.

With TIF, the city and other local taxing entities agree to freeze property values in an area. Tax revenues from growth are then invested in private development or public infrastructure. When investments are repaid, the district is closed and the higher-valued property is fully returned to the tax rolls. The city can also leave districts open an extra year to generate funds for low-cost housing.

The State Street and West Wilson Street areas currently have multiple, big private projects under construction or planned that would serve as tax revenue generators for the TIF districts.

TIF - West Wilson Street

The city is considering expanding an existing tax incremental financing (TIF) district to reach to West Wilson Street, above, where a 10-story housing project is under construction and other properties are being eyed for redevelopment.

“The timing is absolutely ripe to get a new State Street TIF district,” Verveer said. “It would be foolhardy for the city to not take advantage of all the new construction that’s happening now.”

After several difficult years, “now is the time to invest both publicly and privately Downtown,” said Jason Ilstrup, president of Downtown Madison Inc. Tax incremental districts, or TIDs, “are a very powerful tool to help revitalize and reimagine spaces and places throughout our city.”

In the past 40 years, the city has used TIFs to transform Downtown, including the Monona Terrace Hilton hotel; the massive Block 89 redevelopment facing Capitol Square; Judge Doyle Square; pioneering condo projects, and a lot of public infrastructure.

Taxing entities create new Downtown TIF district

When a district is closed, any surplus funds are paid to the taxing entities, which include the city, Dane County, Madison schools and Madison Area Technical College. The main criticism of TIF is that it can amount to corporate welfare for private projects and that property taxes from big new developments could be used for other purposes during the years it’s being plowed back into the project.

The TIF Review Board, which consists of the four taxing entities and must approve any new district, is scheduled to consider the new and expanded districts at noon on Tuesday.

A boost for State Street

The city has already tapped TIF to revitalize the State Street area.

In 2003, the city opened TID 32 to help fund a complete remake of State Street; transform Lisa Link Peace Park, 452 State St.; and support the massive University Square housing and commercial project on the 700 block of University Avenue, as well as Ovation 309 project, which includes housing, commercial space and Fire Department administration offices at 309 W. Johnson St. The city closed the district in 2018.

In 15 years, the value of property in TID 32 rose a whopping $546.7 million to $956.2 million. And after paying for all projects, it yielded a surplus $5.6 million that was shared among the taxing entities.

The proposed “State and Lake” TIF district, called TID 50, would deliver $15 million to the public elements of the city’s redevelopment of the State Street-Campus garage, which will include public parking and the city’s first intercity bus depot.

TIF - State Street Campus Garage

A new TIF district could support public elements of a planned redevelopment Downtown, including replacing the existing State Street-Campus Garage, above, with a 12-story project that would include parking.

Under the plans, the existing 510-stall garage, built in 1964, would be demolished while a separate 542-space addition constructed at 420 N. Frances St. in 1982 would be connected to the new structure.

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The city is negotiating with Mortensen Development of Minneapolis to buy development rights above the new parking garage for a roughly $140 million, 12-story structure with 263 student housing units, including 100 low-cost beds, café, pool and other amenities, 590 public parking spaces, and the bus depot. To pay for the $49.7 million cost of the public parking/bus depot, the city would use the $15 million in TIF, Mortenson’s payment for the airspace above the garage, and some Parking Utility funds.

TIF - Mortenson Development

Mortenson Development, of Minneapolis, is negotiating with the city to proceed with a $140 million redevelopment of the State Street-Campus Garage. 

TID 50 would also deliver $600,000 for State Street public amenities, repairs and upgrades, and $4.2 million for business improvement grants, façade improvement grants, a “Pop-Up Shop” program, a business ready program and commercial ownership assistance program. It provides $500,000 for administrative and professional costs and $300,000 for marketing, planning and market studies.

“Not only do we expect the TID proceeds to fund much of the replacement cost for the oldest portion of the State Street-Campus parking garage, but also to provide funds for boosting small-business opportunities and ownership in the area, particularly for those from communities of color, immigrants, women, LGBTQ, disabled and veterans, business and property owners,” said Heck, 2nd District.

The city expects to repay the $20.6 million in investments in a decade, although a district can legally be left open up to 27 years.

Gateway to Downtown

The proposal to amend the boundary of the “Capitol Square West” district, TID 45, created in 2015, would allow more investments Downtown.

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Already, the city has invested $13.3 million in the Anchor Bank mixed-use redevelopment at 25 W. Main St., and $2 million for improvements at the former AT&T building, 316 W. Washington Ave.

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The boundary amendment, which would expand the district from near the Square toward John Nolen Drive, would deliver $1.2 million to bury power lines on West Wilson Street, which is to be rebuilt in 2023, and $5.8 million in stormwater improvements in the areas of Broom and Hamilton streets.

Burying transmission lines, which can only be funded by TIF under city rules, allows trees to be planted in the area and delivers significant aesthetic improvements to a gateway to the Downtown, Verveer said.

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Another $9.7 million in remaining development loan authority from the full district could be used to support lower-cost apartments in large housing projects envisioned at 131 and 139 W. Wilson St. or other private development projects, city officials said.