Entrepreneurial Communities and Civic Wealth Creation: Rethinking Tax Increment Financing for Resilient Economic Development

Originally posted by John S. Weidl, City Manager, City of Whitewater on LinkedIn

Abstract

Tax Increment Financing (TIF) is a widely utilized economic development tool, particularly in states like Wisconsin, where stringent levy limits constrain municipal revenue growth. Traditionally assessed through metrics such as property value increases and municipal levy expansion, TIF’s broader potential as a driver of civic wealth creation and community entrepreneurship has been underexplored. This article bridges that gap by integrating insights from civic wealth creation frameworks, entrepreneurial community theories, and the critical role of affordable housing with empirical research on TIF. The result is a comprehensive strategy for local economic development that addresses fiscal constraints while fostering social equity.

By aligning TIF projects with community-driven goals, municipalities can cultivate inclusive growth, strengthen social resilience, and ensure long-term fiscal sustainability. This article emphasizes the centrality of affordable housing within TIF frameworks and presents illustrative case studies, actionable policy recommendations, and redefined success metrics. These insights position TIF as a transformative mechanism that goes beyond financial outcomes to drive societal progress. This integrative framework provides a pathway for municipalities to build resilient, thriving communities in fiscally constrained environments.

Introduction

Tax Increment Financing (TIF) is a critical tool for municipalities navigating fiscal constraints, particularly in Wisconsin, where state-imposed levy limits tie property tax revenue growth to net new construction (Weidl, 2024; Dye & Merriman, 2000). Historically, TIF has been used to stimulate economic activity and boost property values. However, its potential to address broader societal challenges, such as the acute affordable housing crisis and community resilience, remains underutilized. Recent studies underscore the importance of incorporating principles of civic wealth creation (Lumpkin & Bacq, 2019) and entrepreneurial orientation (EO) (Deslatte & Swann, 2019; Lumpkin et al., 2022) into economic development strategies. This integration allows municipalities to balance sustainable economic growth with enhanced community innovation and resilience.

Communities as Engines of Innovation

Communities are not passive beneficiaries of development but active entrepreneurial agents capable of generating innovative solutions to societal challenges (Bacq et al., 2022). Lumpkin et al. (2022) define entrepreneurial communities as those that collectively identify opportunities, mobilize resources, and create value. This perspective reframes TIF districts as collaborative platforms where residents, businesses, and municipal leaders converge to achieve shared economic and social objectives.

Affordable housing is central to this framework. Structuring TIF districts to prioritize mixed-income housing alleviates housing cost burdens for working families, strengthens community cohesion, and enhances workforce stability. Wisconsin’s Affordable Housing Extension (AHE), enacted in 2009, provides an innovative policy mechanism, allowing municipalities to extend TIF district lifespans by one year to fund housing initiatives (Witynski, 2018). This approach illustrates how TIF can balance economic and social imperatives.

Civic Wealth Creation: A Holistic Framework for TIF

Civic wealth creation emphasizes generating economic, social, and communal value through inclusive and collaborative processes (Lumpkin & Bacq, 2019). This paradigm challenges traditional economic development models, which prioritize financial metrics over societal benefits. When aligned with civic wealth principles, TIF fosters property value growth, social resilience, and equity, enabling municipalities to achieve sustainable outcomes (Naldi et al., 2020).

Affordable Housing as a Catalyst for Civic Wealth

Affordable housing stabilizes communities, increases workforce participation, and reduces socioeconomic disparities. Illustrative examples include:

  • Milwaukee, WI: The city extended seven TIF districts under the AHE, generating $2 million for its Strong Neighborhoods Plan, which supports energy-efficient housing and revitalizes underserved areas (Witynski, 2018).

  • Madison, WI: Through its Affordable Housing Initiative Fund, Madison utilized TIF revenues to incentivize developers, creating 486 affordable units for low- and moderate-income households while catalyzing $100 million in broader development (Eagon, 2017).

  • Fitchburg, WI: Fitchburg employed a one-year TIF extension to implement its Housing Goals and Strategies Plan, advancing targeted investments in affordability (Witynski, 2018).

These examples demonstrate how affordable housing initiatives integrated into TIF frameworks align with broader community goals, fostering sustainable and inclusive development (Carroll, 2008).

Redefining Success Metrics for TIF

Traditional TIF evaluation metrics, such as property value increases and levy growth, cannot capture broader societal impacts. A comprehensive evaluation framework should include:

  • Affordable Housing Units Created: Tracking the number of affordable units developed within TIF districts.

  • Workforce Stability: Measuring workforce retention and reduced commuting burdens due to housing proximity.

  • Community Engagement: Assessing resident participation levels in planning and governance processes.

  • Quality of Life Improvements: Evaluating access to public amenities, green spaces, and overall community well-being.

Expanding these metrics ensures that TIF projects contribute to long-term community resilience and prosperity (Singla et al., 2018).

Challenges and Opportunities in Wisconsin

Wisconsin’s levy limits create unique conditions for TIF implementation. While TIF expands municipal tax bases, it also presents challenges, including:

  • Over-Reliance on TIF: In low-growth areas, incremental revenues may fail to cover infrastructure costs (Nguyen-Hoang, 2014).

  • Gentrification Risks: TIF projects can exacerbate the displacement of low-income residents (Weber, 2010).

  • Inter-Municipal Competition: Competition for development undermines regional collaboration (Briffault, 2010).

Wisconsin’s AHE offers an avenue to mitigate these challenges by directing TIF revenues toward affordable housing, fostering equitable outcomes, and enhancing community resilience (Witynski, 2018).

Mitigation Strategies

To address these challenges, municipalities should adopt the following strategies:

  • Equity Protections: Enforce affordable housing requirements and anti-displacement measures in TIF agreements (Eagon, 2017; Weber, 2010).

  • Feasibility Analyses: Conduct rigorous evaluations to ensure financial sustainability, assessing projected revenues against costs (Nguyen-Hoang, 2014; Dye & Merriman, 2000).

  • Regional Collaboration: Align TIF projects with broader regional goals to reduce harmful competition (Briffault, 2010).

  • Transparency and Accountability: Regular audits and public reporting ensure alignment with community objectives and build trust (Weber, 2010; Eagon, 2017).

Conclusion

Integrating civic wealth creation, entrepreneurial community frameworks, and affordable housing strategies into TIF represents a transformative approach to local economic development. By focusing on inclusivity, resilience, and long-term impact, municipalities can harness TIF to foster both financial growth and societal well-being. Wisconsin’s Affordable Housing Extension demonstrates the potential for innovative policy solutions to address housing crises while promoting sustainable development. Leveraging these insights, municipalities can position themselves as leaders in equitable and resilient community development.

References

Bacq, S., Hertel, C., & Lumpkin, G. T. (2022). Communities as entrepreneurial agents: A cross-disciplinary integrative literature review. Journal of Business Venturing, 37(3), 1–23. https://doi.org/10.1016/j.jbusvent.2021.106196

Briffault, R. (2010). The most popular tool: Tax increment financing and the political economy of local government. University of Chicago Law Review, 77(1), 65–95.

Carroll, D. A. (2008). Tax increment financing and property value: An examination of business property using panel data. Urban Affairs Review, 43(4), 520–552. https://doi.org/10.1177/1078087407308516

Deslatte, A., & Swann, W. L. (2019). Elucidating the linkages between entrepreneurial orientation and local government sustainability performance. American Review of Public Administration, 50(1), 92–109. https://doi.org/10.1177/0275074019869376

Dye, R. F., & Merriman, D. F. (2000). The effects of tax increment financing on economic development. Journal of Urban Economics, 47(2), 306–328.

Eagon, B. (2017). TIF-for-tax: Upholding TIF’s original purpose and maximizing its use as a catalyst for community economic development. Wisconsin Law Review, 2017(1), 192–213.

Lumpkin, G. T., & Bacq, S. (2019). Civic wealth creation: A new view of stakeholder engagement and societal impact. Academy of Management Perspectives, 33(4), 383–404. https://doi.org/10.5465/amp.2017.0060

Naldi, L., Larsson, J. P., & Westlund, H. (2020). Policy entrepreneurship and entrepreneurial orientation in vulnerable Swedish municipalities. Entrepreneurship & Regional Development, 32(7-8), 473–491. https://doi.org/10.1080/08985626.2020.1798557

Nguyen-Hoang, P. (2014). The impact of tax increment financing on local economic development: Evidence from Iowa. Public Budgeting & Finance, 34(4), 24–46.

Singla, A., Stritch, J. M., & Feeney, M. K. (2018). Constrained or creative? Changes in financial condition and entrepreneurial orientation in public organizations. Public Administration, 96(4), 769–786. https://doi.org/10.1111/padm.12540

Weber, R. (2010). Selling city futures: The financialization of urban redevelopment policy. Economic Geography, 86(3), 251–274. https://doi.org/10.1111/j.1944-8287.2010.01081.x

Witynski, C. (2018). Using TIF to benefit affordable housing. The Municipality, January 2018, 19–20.

Weidl, J. S. (2024). Assessing the long-term fiscal impacts of tax increment financing under Wisconsin’s levy limits: An empirical and survey analysis: unpublished manuscript, University of Wisconsin-Whitewater.

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