PRESS EDITORIAL: Taxpayers should not have to guarantee developer’s profit

Remember when real estate developers were the bravest of bold capitalists?
    It’s not hard to remember, because it wasn’t that long ago that even in the small towns of Ozaukee County developers were fearless entrepreneurs.
    Visionaries and risk takers, they found land with potential for profit, created plans for subdivisions, apartment buildings, condos and shopping centers, persuaded lenders to finance their visions and rolled the dice.
    In most cases, all they asked of the municipalities in which they were chasing their business dreams were permit approvals and basic public infrastructure to serve their properties.
    Many of these projects succeeded and became the building blocks that fostered the growth of communities like Port Washington.
    That was then. Now developers operate in a different environment, one in which they expect their risk to be mitigated by local government serving as a sort-of taxpayer-owned bank and insurance company.
    TIF (tax incremental financing)—lending public money to developers with the expectation of tax revenue rewards in the future—has created this safer world for real estate investment. In Port Washington, the aggressive use of TIF for a number of projects has been met with criticism of what is seen as unnecessary taxpayer subsidies for developing prime property in a flourishing real estate market.
    The basis for that criticism is now on vivid display in a partially completed lakefront condo project. The Lakepointe Town Home development was started on what is surely one for of the most valuable pieces of land in the entire City of Port Washington—across the street from the marina, overlooking the harbor and Lake Michigan beyond—with TIF support only for some sewer work. But now the developer is asking for TIF money to complete the project.
    Developer Stephen Perry Smith has asked the Common Council for $365,000 in TIF funds to pay to fix some unexpected soil problems. To support his request, the developer explained that the project is facing mounting financial pressure from construction cost increases as well as what he described as “significant, unforeseen soil conditions” with a combined effect of $765,000 in unexpected costs.
    Seriously? A developer is asking taxpayers to advance cash to help him cover unexpected expenses? As though the business he is in is not supposed to involve the risk that something is not going to go exactly as planned? No wonder the memory of those bold developers of yore is so fond.
    The Common Council will consider the Lakepointe TIF request at its Aug. 17 meeting. It has good reasons to issue an unequivocal “no.”
    Wisconsin’s standards for TIF have been broadened to allow its now common use as a developer incentive, but it is not intended to be used to bail out a business operator who is worried about rising costs threatening profit expectations.
    The council has an even more compelling reason to say no: The city government will look foolish if it doesn’t.
    When the Lakepointe development was approved, city officials made a big deal out of the fact that no TIF developer incentives were included. They cited the avoidance of TIF support as justification for the absurdly low selling price they put on the Lakepointe site—$140,000 for a 15,000-square-foot taxpayer-owned property near the water’s edge with some of the best lake views in town.
    There is some question as to whether the “unforeseen” soil problems are matters of contamination or structural inability of the soil to support the condo buildings or both, but in any case a failure of pre-construction due diligence is evident.
    Signs of a failure of financial due diligence on the city’s part are apparent as well. Smith’s TIF funding proposal includes a threat that the second and third phases of the three-building, 11-unit condo project will not be built if the TIF money is not forthcoming. If financing is not robust enough to keep the project viable in the face of construction cost increases, it is something city officials should have known about before committing a precious piece of public real estate to the development.            
    Real estate development is supposed to be a risky business—for developers, not taxpayers.