The Badger Coach surprise; RA struggles with tax increment, low commercial assessment environment; "Equalized Value" vs. "Assesed Value" noted

The Tuesday night Redevelopment Authority meeting on Tuesday night dealt with a review of the tax increment numbers for the Badger Coach renovation and what these numbers might mean for the future--specifically for the planned restoration of the Old Ace Hardware building.

The details are difficult to follow sometimes but worth the digging. I have included four audio posts that cover this portion of the meeting and would like anyone at the meeting that has additions to post comments to help with this written summary.

Under the TIF agreement entered into between the developer and the city, the property that was assessed at $56,587 would be assumed to have a resulting equalized valuation of $206,587 after all the renovation was completed. However, after investing over $200M in the project(only $24,000 was TIF money), when the assessor did the assessment, it came in at $143,443. That is $63,000 below what was expected. Under terms of the agreement, if this happened, the developer would pay back a proportional part of the TIF money to the city.

The developer asked that he pay the "amount" whether in "tax" or in "offset" that equalled what he agreed to pay as opposed to a repayment of any TIF money. The Redevelopment Authority agreed to "cure" the agreement with the developer to allow this.

The bigger issue in the discussion was the implication of all this to the new proposed project for the Ace. In the Badger Coach case, because of low assessments and valuation of commercial buildings in the downtown, after investing $200M in a building, only half of that was delivered in value that would be measured for tax increment purposes---or in otherwords, in terms that the taxpayer would benefit from.

Because the "equalized" valuation made the numbers even starker than anticipated, even the Observer was stunned to see how difficult tax increment benefit would be to achieve in the downtown. Listeners can hear Mr. Hagen wonder what the point is of having invoices sent to the Redevelopment Authority if they bear so little relationship to the final valuation.

Mr. Otterstein stated that it is legal for a developer to agree to pay an "offset" to guarantee a stream of income to a city even if the assessment is below what would be necessary to make the numbers add up on an increment basis for the taxpayer. However, if the new Ace restoration did have an assessment of 1.4 million, it would appreciate only at 2% per year and it would be a long time till it reached the 1.9 that had been the cost.

In cases of central business decay, it is also the case that an objective of restoration is to avoid an even worse scenario----even lower commercial valuation of even worse decay.

Mr. Decker commented that the Badger Coach example was so clear that with a similar situation but larger numbers coming with the Ace restoration, developers were certainly on notice of the difference of "equalization" definitions and could not plead ignorance for future agreements where the issues were the same.

This is a developing story. The numbers were so stark on the Badger Coach case that the issues that the discussion raised will be part of the continuing story covered by The Observer. This is the dollars and cents discussion The Observer had called for and I am pleased to see it begin. Stay tuned.