Issues – The Wisconsin Supreme Court certified the following four issues for review:
1. Do taxpayers have standing to challenge the legality of tax incremental district (“TID”)? (Wis. Stat. § 66.1105)
2. Must the legal requisites for a formation of TID actually exist, such that their presence or absence can be challenged in a declaratory judgment action?
3. Does the payment of a cash subsidy to a property owner for private improvements violate the Uniformity Clause of the Wisconsin Constitution or the Public Purpose Doctrine?
4. Did the plaintiff sufficiently plead a claim that the respondent is using TID funds to reimburse an owner/developer for the destruction of historic buildings in violation of Wis. Stat. § 66.1105(2)(f)1.a?
Background – In 2015, a group of residents, called “Voters with Facts” (Voters), filed a lawsuit against the City of Eau Claire, claiming that two tax increment financing (TIF) districts for the Confluence Project are illegal. Specifically, Voters argued the TIF projects are illegal because the properties within the TIDs do not meet the definition of “blight”, cash grants to a developer, who is a property owner within the TID, constitutes a property tax rebate in violation of the Uniformity Clause, and TIF funds are being used unlawfully to reimburse the developer for demolishing historic buildings.
The circuit court dismissed the lawsuit on the basis that a blight determination is a legislative decision based upon the particular facts surrounding the TID, and is not appropriate for judicial review. The court, therefore, concluded that Voters did not have standing to pursue a claim.
On appeal, the court of appeals affirmed in part and reversed in part. The court concluded that Voters lacked taxpayer standing to seek a declaratory judgment that Eau Claire acted unlawfully, either under its statutory authority or from a constitutional standpoint. Because the Voters failed to prove that the City engaged in any illegal behavior (e.g., providing cash grants to destroy historic buildings, providing a cash grant to the developer for reimbursement is a rebate for property taxes), among other things, the court concluded that Voters lacked standing to make a declaratory judgment claim. However, the court ruled that Voters could challenge the TIDs through certiorari and reversed the circuit court’s dismissal of that claim. (Note – A certiorari review is a review of the decision of a local government or other decision maker, while a declaratory judgment is legal determination requested generally to resolve a question of law.)
The City appealed to the Wisconsin Supreme Court, which accepted the case.
Discussion – TIF is one of the most important and successful local economic development tools in Wisconsin. The success of TIF in Wisconsin can be attributed to, among other things, the flexibility that the law provides local governments. The flexibility is especially important in making key determinations such as whether a project would occur “but for” the use of TIF, whether an area is “blighted,” or whether a project warrants a cash grant to a developer. These are primarily factual determinations made by local elected officials on a case-by-case basis, after receiving input from the public through the public hearing process.
In addition to being factual determinations, Wisconsin’s TIF law establishes that these local decisions are highly discretionary and cannot be challenged as a matter of law. The determination of “blight,” for example, requires local, elected officials to make this determination on the basis of “health, safety, morals or welfare” of the community which only the local official can discern. Finally, the statutes are void of any evidentiary standards by which to measure the accuracy or sufficiency of the local decision making. Thus, the only way for a judge to evaluate the decisions made by the local official would be to substitute his or her judgment for that of the local official, which would be in direct conflict with the distinct and separate authority of the legislative and judicial branches of government.
Finally, the payment of cash grants to developers in certain cases is wholly independent of the developer’s obligation to pay property taxes according to the same methodology as other property owners within the community. The Uniformity Clause of Wisconsin’s Constitution requires all property to be taxed fairly and equally. Generally, all property within a TID is taxed in the same manner as property located outside a TID, with the only difference being how the property tax revenue is allocated. The statutes limit cash grants to reimbursement for “project costs” which are defined as public works or improvements within the TID. Thus, the cash grant is reimbursement for expenses the developer has already incurred in making public improvements, and is not a rebate on property taxes paid. Moreover, from a public policy standpoint, cash grants are generally offered in redevelopment projects, due to the increased risks, financial uncertainties and broader public benefits associated with such projects.
Because the outcome of this case will affect the use of flexibility of TIF, WRA staff believes this case has widespread importance to the real estate industry, local governments and economic development activity in Wisconsin. Over the years, preserving and enhancing the use and flexibility of TIF has been one of WRA’s top legislative priorities. The ability for local governments to have flexibility in making decisions about the use of TIF is critical to ensuring that economic development activity continues to thrive in Wisconsin.