For the first time, the city of Milwaukee is extending its tax incremental financing program to support housing for middle-income residents – a long-sought change that local developers say is necessary for the city to accomplish its goals of housing affordability and population growth.
But after the details of the new plan emerged in April, developers are saying the city’s proposal misses the mark.
TIF, a common incentive tool, allows cities to use future increases in property tax revenues from a development to help fund that same project or related infrastructure. Historically, Milwaukee has used this tool sparingly for housing, focusing only on developments aimed at low-income residents earning below 60% of the area median income (AMI).
Now, under the new plan, projects with units set aside for residents who make between 60% and 100% of AMI – what’s often called “workforce housing” – will be considered for TIF assistance. For reference, 100% AMI in Milwaukee County equals $77,500 for an individual or $110,700 for a family of four, according to federal data.
In the guidelines, Milwaukee’s Department of City Development outlined a series of project “priorities,” such as conversion of obsolete commercial, or industrial buildings into residential properties in the downtown area; projects of at least 50 units; and projects in the downtown area that have a density of at least 150 units per acre; among others.
In any instance, developers must demonstrate that the project would not be economically viable without the city’s assistance and that they have leveraged other financing sources to help fill any apparent project financing gap.
Guidelines vs. policy
But for many in the development community, the changes don’t go far enough.
“We applaud the DCD for recognizing the importance of workforce housing,” said a statement from NAIOP-Wisconsin, a commercial real estate development association. “Unfortunately, guidelines are not a policy. They don’t provide the certainty that developers and investors need to push forward on many of these vital projects.”
That sentiment was echoed by several players in Milwaukee’s development scene.
Tim Gokhman, managing director of New Land Enterprises, says that Milwaukee’s new approach lacks clarity and usability.
The guidelines aren’t a guarantee that a project will receive incentives, and selected projects will still have to receive approval by DCD before going before the Common Council. Gokhman likened the approach to “gatekeeping” and said he doesn’t view the guidelines as workable.
“Business doesn’t work well without certainty,” he said. “DCD is saying they like projects like this in general, but if we submit a project with X, Y, and Z, do we get outcome A, B, or C? The answer is still, ‘It depends.’”
Developers also highlighted that the suggested length of DCD’s TIF is insufficient. For instance, a program in Seattle provides a 12-year tax abatement for projects that provide 20% of its units at 80% AMI. Milwaukee would provide only a six-year tax abatement for the same project.
“Few things are worse than the pretense of a solution that’s not going to work,” Gokhman said. “It relaxes everybody for years while nothing happens. These guidelines don’t set the development community up for success. We’re going to fail.”
City defends its approach
Lafayette Crump, Milwaukee’s commissioner of City Development, pushed back on the idea that the city hasn’t done enough.
“The question of whether this is policy or guidelines is truly semantics,” Crump said. “We’ve made it very clear what projects we will support. Now, everyone knows what those guidelines are. We’re excited about the projects that we know will move forward under this framework.”
Crump emphasized that DCD worked with industry groups and individual developers while drafting the guidelines but signaled that DCD would not pursue codifying these guidelines as policy, citing partly a lack of political support from the Common Council.
“Frankly, I’ve heard from a number of council members that they still want to have the ability to evaluate projects that are proposed for their districts, and they would not be supportive of an ordinance that takes that out of their hands,” Crump said.
Gokhman argued, however, that codifying a TIF policy would not innately mean the council would lose all say in TIF allocations, and that Common Council President Jose Perez already has signaled his support for a more formal TIF policy.
“If it’s the right thing to do, then go out and get the political support if it isn’t there,” Gokhman said.
What’s to come
The backdrop to this policy change is a development pipeline that’s been drying up.
Amid inflated development costs – largely due to rising construction costs, higher interest rates and limited access to capital – Milwaukee-area developers have been putting projects on hold. New Land, for instance, has three projects on hold, including two in Walker’s Point that Gokhman has said could move forward with a workable workforce housing TIF policy.
Developers said that if the updated TIF guidelines aren’t workable, the city will only see two types of housing: high-end apartment projects that are not subsidized but are too expensive for most Milwaukeeans and have limited demand, or heavily subsidized apartment developments for lower income residents that also require competitive tax credits and other financing sources.
“If you look at cities that are more aggressive in housing development, they tend to have clear, codified TIF policies,” said Nick Jung, director of development at commercial real estate firm F Street. “The city could use more workforce housing and these projects are vital to the overall health of the city’s housing stock, short term and long term.”
Despite the criticism, Crump is optimistic that the guidelines will generate new housing. Projects taking advantage of the new TIF guidelines are expected to emerge soon, though Crump declined to name specific developments yet.
“Success,” Jung said, “is measured in housing actually getting built.”
