Milwaukee city officials right to be cautious on Bucks arena

Even though the new Bucks arena bill has yet to be printed at the state level (and likely will not be debated until after the state budget passes, whenever that is), we did get some good detail from Milwaukee Mayor Tom Barrett’s office this week on how the city’s part would work. The city plans to spend $47 million on construction and gifts of land, which will go toward creating a public plaza next to the new arena, and in building a new parking garage across the street.

There are also plans for a new tax incremental district (TID) to help encourage development around the arena site, and the Milwaukee Business Journal explains where that district would be.

The boundaries of the new district extend north of the Park East corridor to West Vliet Street between North Dr. Martin Luther King Jr. Drive (Third Street) and North Sixth Street. The district also follows Old World Third Street between Juneau and West State Street and encompasses property east to the Milwaukee River.

Also in the district are the Milwaukee Journal Sentinel headquarters property, a county-run surface parking lot south of Milwaukee Area Technical College and the site of the BMO Harris Bradley Center, which is to be demolished after the new arena opens.

The tax incremental districts will not only help fund the arena and parking but also spur additional development, Barrett and [City Development Commissioner Rocky] Marcoux said. The Milwaukee Bucks owners have established a separate company that they say will invest $400 million in the Park East corridor over a nine-year period.

With the use of TIF as part of the city’s side of the project, let’s review the state of Wisconsin’s guide on how Tax Incremental Districts work, and how they affect city finances.

When a TIF district is created the aggregate equalized value of taxable and certain municipal owned property is established by the Department of Revenue (DOR). This is called the Tax Incremental Base. The municipality then installs public improvements and property values grow. Taxes paid on the increased value are used to pay for projects undertaken by the municipality. This is the Tax Increment. It is based on the increased values in the TID and levies of all the taxing jurisdictions that share the tax base.

The municipality, county, school districts, and other taxing jurisdictions do not benefit from taxes collected on value increases in the district until project costs have been recovered. After that, the added value is included in the apportionment process and everyone gains.

The underlying assumption of the TIF Law is that no new development would have taken place if the municipality had not created the TID. Public improvement costs needed to develop or redevelop the area would have been too prohibitive for the municipality and/or developer to do alone. So the necessary public works would not have been done. TIF provides a way for all entities benefiting from the expanded tax base to help pay the costs of promoting it.

It basically puts taxes into a separate account until the original amount of the TIF that is paid off. The idea is that the property values grow and then the full amount of that property is taxed at a future date, which takes pressure off of everyday property owners.

So note the timetable in the Milwaukee Business Journal’s write-up of the city’s financing plan.

The city conservatively estimates that recovering the first $12 million that the city grants to the new arena will take 15 years, Marcoux said. The remaining $8 million from the new tax incremental district will be paid off by 25 years after the district launch, he said.

I cannot tell for sure whether this TID would include the developments that the $400 million in development the Bucks owners say they will do in coming years, or not. Obviously, that makes a huge difference in how much in increased tax base the city, county, MPS and other local governments would be able to use out of this, and when taxpayers across the Milwaukee area would see a benefit on their tax bills, instead of having to pony up for costs related to arena improvements.

On a related note, there aren't any of these proposed developments that will be built and operating from at least a couple of years (along with the arena), with any assistance to the tax base coming much later than that. After all of the empty promises of all the companies that got kickbacks taxpayer-funded loans from WEDC and barely delivered 1/3 of the jobs that were expected, why should we believe that a new Bucks arena is a magic pill that leads to all of this new development? Maybe we should stop giving money to these rich folks up front, and instead of incentives, give rewards that kick in only AFTER they add something to the area. Just a thought.

In addition, with UWM facing serious funding cuts and MPS being gutted in the current state budget bill, is a sports arena really something that deserves priority and tax breaks over investment the generators of talent and quality of life that a high-level educational system bring (or even more concerning, the damage that results from NOT investing in that educational system)? Does it matter if we have a shiny new Bucks palace if the city and the nearby economy go to shit before it gets built? But I digress…

With those concerns in mind, this city financing plan is not going to be rubber-stamped by the Milwaukee Common Council. Patrick Small at Urban Milwaukee summed up a recent meeting of the City’s Steering and Rules Committee where Council members asked Mayor Barrett and other city officials about the arena plan and the city’s part. Small’s article indicates that the Bucks will keep a sizable portion of the revenues that come from the new $35 million parking garage, while the city will likely never get its money back on that part of the investment, and will have to pay more to get rid of the current parking facility it operates across from the Bradley Center.

The Bucks will nominally contribute $8 million for the parking facility and land it sits on, but under the deal that amount will later be returned to the Bucks from property taxes collected in a tax incremental financing (TIF) district the city will create for the Bucks project. In short, the Bucks will have no out-of-pocket costs the for parking facility while the city would take on $35 million in bonding to build it, yet would only get half the income, with the other half going to the Bucks. The city’s estimated take of $350,000 a year means it would take 100 years (and that would be with zero percent interest) to pay off the bonds. By that time there may be at least two more new arena projects, given the current average life span of NBA arenas.

Adding more costs for the city, it has agreed to tear down a city-owned parking structure just a block away from where the new facility would be built. The city paid $30 million in 1988 to build this 980-space garage on N. 4th St., to serve Bradley Center patrons and garner revenue. Committee member, [Ald. Nik] Kovac, was incredulous that the city would agree to tear it down, and then borrow $35 million to build a new one a block away. The mayor defended the scheme by saying that building a parking garage is what’s expected each time Milwaukee builds a new arena. Kovac pointed out that the current parking garage is a perfectly adequate parking facility, one that is paid for. Marcoux affirmed its life span was “not insignificant.” Kovac concluded that “we don’t really need to tear it down; we just have a new development plan that wants it torn down.”

No mention was made of demolition costs or who would pay them, but Barrett’s chief of staff Patrick Curley told Urban Milwaukee that this, too, will be a city cost, probably totaling $1.2 to $1.5 million.

There are also concerns about whether the proposed “entertainment mall” would hurt businesses that currently operate near the BC, and while the concept sounds pretty sweet, I don’t see how this is much different than what’s already on 3rd Street a few blocks away.

Some information was revealed about what the Bucks envision for their “entertainment destination” — it would be several floors of bars and restaurants facing the arena. Owner Wes Edens has said it would include the “biggest outdoor sports bar in the country” and he imagines Packer fans watching games on giant screens in cold weather. Marcoux told the committee the Bucks “don’t want this to be Anywhere USA,” yet the Bucks are promising only “25 percent local vendors” in the bar mall. In other words, three-fourths of the annex will be chain-franchised bars, restaurants and other retail common to other cities, competing with the mostly locally-owned businesses.

This is why the July 2 hearing of the Redevelopment Authority of Milwaukee and future action from the Common Council may be the biggest keys to the fate of the Bucks arena bill, because the city is the entity taking on the most risk and spending the most up-front money if this thing gets built, while having no guarantee that all the bigtime promises from developers ever come to fruition. The Bucks’ owners do have a guarantee regardless of how this plays out, either one from the NBA to buy the team for a $25 million profit if no arena is built, or to have the arena built, and join in with every other team in sharing the benefit of a huge increase in TV and digital money with a new deal that starts next year.

By comparison, the city faces the prospect of likely losing the Bucks if the arena is not built, or being left to hold the bag with massive debt costs and subsidies from a new arena, without getting any benefit in additional taxes for several years…if ever. Not a good set of choices.