TID #5
Time for TID 5. This one should be a layup. The story of the parcel predates me moving to Caledonia. I've seen reference to both an "old Western Publishing building" and also to a former "Olympia Brown School" building. Someone who's been around here forever perhaps can tell the longer story to those two buildings. The layup part of this is that half the TID area is lakefront property. The other half is across the street and in a nice residential area. Surely we can't mess up lakefront property! (External links to maps and articles at end of section.)
The TID was approved in June 2019, which I suppose was its first bit of bad luck as that little virus thing came along several months later to turn the world on its ear. This one looks perfect for a TID in that to make the parcel attractive for development an extension of 5 Mile Rd over to Erie St would help quite a bit. So it's simple: village will agree to extend the road, developer(s) will agree to build on the land. Let's look at the initial forecasts and the actuals and see what happened:
Proposal said building would start right away, with new valuation rising from $2M in 2019 to $45M by 2024. Total tax increment would start at $42k in 2019 and rise to $952k by 2024. The $952k then would persist for the duration of the 27-year TID, resulting in $23M in tax increment.
Ok, so how about costs?
There would be $11M in costs incurred within the TID boundaries through 2025 and $13M in costs outside the TID that were related to the project, for a total of $24M. Let me pause here for a moment with a comment from experience. I did big projects like this during my career and I learned to be instantly suspicious of numbers that magically match. In this case, the infrastructure work to support the TID is $24M and the 27-year TID revenue is $23M. I also learned to be really suspicious of a plan where there's no margin for error. Ok, back to the proposal:
The first phase of costs has $5.5M worth of line items that include property purchases, demolition, and Lake Michigan bluff stabilization. My first reaction was "Wait, the Village is paying for those things? That seems generous." Maybe that's the way this game is played. I'll suspend disbelief assuming I'm naive about these things, and I'll just focus on the numbers: is it a good deal or bad in the rear view mirror?
Here is the history since 2019. Costs so far are $13.3M, $2.8M of which are "economic development," or grants to developers and here's where my eyebrow went upward. Going through TID reports on the state's website, I see these:
Scannell Properties $227k
Glen at Waters Edge $2.6M
Glen at Waters Edge $88k
Glen at Waters Edge is the developer for the homes that will be built west of Erie St (the non-lakefront property). Scannell, however, made my eyebrow rise. I saw that name in TID 4 and looked them up. They are a commercial real estate developer and are or were involved in TID 4 development. Why are they getting a developer grant in TID 5 which is all residential development? Before anyone jumps to conclusions, I really don't know the answer and haven't had an opportunity to ask. It could be as benign as an accounting error. For now, it's minor and just something I'd like to figure out.
You can also decide for yourself why we need to grant the Glen developer $2.7M to build 30 houses that are listing for $450K. Again, maybe I'm just naive, but why are current residents subsidizing that? Can anyone show me with math that despite being obnoxious on its surface that it is in the residents' best interest?
Now how about on the revenue side?
Recall that by 2024 we originally projected to be at the final tax increment of $952k, paying down the debt incurred like good debtors do. Unlike the other TIDs, this one seemed to need all its infrastructure work up front with limited ability to phase it in. That's fine, but it then makes the financials very sensitive to the build schedule. Delay the schedule and you are sitting on lots of debt expense without the new tax increment to pay for it. And here's where the layup clangs off the rim. TID revenue increments by year:
2020: $0
2021: $0
2022: $31k
2023: $71k
2024: $87k
2025: $122k
2026 budget: $84k -- I have no idea why it is dropping from 2025, but that's worrisome.
So this one as of end of 2024 had $10M in costs still to recover with new tax increment and that new tax increment is under $100k/yr. Quick math for you: ignoring interest cost, that would take 100 years to pay off. On the bright(ish) side, there is activity with Glen at Waters Edge west of Erie St. It looks like 3 parcels have been sold to real people and so maybe construction has or will start on real homes which in turn will increase the tax increment.
But on the lakefront part of the TID, there's nothing but chain link fence and an empty property. What's going on there? That's when I bumped into this on page 40 of the village's audited financial statement for 2024. Read it a few times to see if it leaps off the page at you like it did for me. I can't tell if it's our loan or the developer's but since it is at our loan terms (i.e. a lower interest rate than a developer would get) and since we call it a receivable in the financial statement, we're on the hook for it either way. Now reread the part about the loan term extensions and let me know if you think 1) we're seeing that money any time soon and 2) whether TID 5's lakefront parcel has a chance in Hades of development starting anytime soon.
So what happens if the developer defaults? Without the legal agreement and a lawyer to help I can't be certain, but it is certain that the $4M loan is ours to pay off. The bank no doubt would allow us to renegotiate the terms of the repayment and we would likely add it to our long term debt since we probably don't have $4M lying around.
What's the most embarrassing form of a missed layup? Off the rim and hits you in the nose drawing blood?
One other editorial comment I have to add before pitchforks come out. These TIDs and their problems span many compositions of Village Boards, multiple Village Presidents, and multiple Village Administrators. The knee jerk reaction is to get mad at the people in those seats today, but you really need to be more discriminating than random outrage. There's something systemically wrong if we're whiffing on every one of them over the course of almost 20 years. I'm bothered by how bad it is and probably even more bothered by doing more of them in the hopes the next one will be different. When deciding where to direct your dissatisfaction, though, be careful. Who asks tough questions and who goes along? Who admits we have a problem and who downplays it? Who is in a position to fix the problem but isn't?
Next up is TID 6, the last one. It is very new so it will just focus on the proposal. There is no history to compare to yet.
Links
Google map of site: https://maps.app.goo.gl/4UMvAsfdqFvmNaUf6
History of parcels: https://patch.com/wisconsin/caledonia/what-s-next-for-old-western-publishing-building
Developer’s website for west side of TID: https://veridianhomes.com/find/neighborhoods/region/milwaukee/glen-at-waters-edge/)