City of Hartford v. Kirley
172 Wis. 2d 191, 493 N.W.2d 45, 433 N.W.2d 45 (1992)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
Tax incremental financing (TIF) bonds paid from a special fund comprised of general property tax revenues constitute 'debt' within the meaning of the Wisconsin Constitution's municipal debt limitation. A municipality pledges its credit and incurs constitutional debt when it obligates a portion of its general taxing power to repay such bonds.
Facts:
- The City of Hartford created Tax Incremental District No. 4 (TID No. 4) for an industrial project.
- To fund initial project costs, the City issued general obligation notes, which brought its borrowing capacity to less than $2,000,000 under its constitutional debt limit.
- The City's Common Council then authorized the issuance of an additional $2,300,000 in Tax Incremental Financing (TIF) bonds for TID No. 4.
- Issuing these TIF bonds would cause the City to exceed its constitutional debt limit if the bonds were counted as debt.
- Banc One Capital Corporation offered to purchase the bonds, but required the mayor and city clerk to first sign a bond purchase agreement.
- The city attorney issued a legal opinion concluding that the TIF bonds would constitute debt under the state constitution.
- Relying on this opinion, Mayor Dean T. Kirley and City Clerk John C. Spielmann refused to sign the bond purchase agreement.
Procedural Posture:
- The City of Hartford initiated an original action in the Supreme Court of Wisconsin.
- The City sought a declaratory judgment against its mayor, Dean T. Kirley, and city clerk, John C. Spielmann.
- The case was presented to the Supreme Court of Wisconsin on stipulated facts.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does a city's plan to issue Tax Incremental Financing (TIF) bonds, which are payable from a special fund of allocated general property tax revenues, create 'debt' within the meaning of the municipal debt limitation in art. XI, sec. 3, of the Wisconsin Constitution?
Opinions:
Majority - Shirley S. Abrahamson, J.
Yes. The City's TIF bonds constitute debt within the meaning of art. XI, sec. 3 of the Wisconsin Constitution. Although the legislature declared that TIF bonds are not debt, the court must examine the substance of the obligation. The key factor is the source of repayment. TIF bonds are repaid from a special fund containing 'tax increments,' which are not a special assessment or project-generated revenue, but are a portion of the city's general property tax revenues. By pledging these general tax revenues, the City pledges its credit, as its general taxing power is the real security for the bonds. Unlike revenue bonds secured by project income or special assessment bonds secured by a separate tax, TIF financing carves out a portion of the City's general funds and obligates them for repayment. To hold that this arrangement does not create debt would allow municipalities to nullify the constitutional debt limitation by committing large portions of their general tax revenues to special projects outside the limit.
Analysis:
This decision solidifies the principle that the substance of a financial obligation, particularly its repayment source, determines whether it is 'debt' under the state constitution, regardless of legislative labels. By defining TIF bonds backed by general property taxes as constitutional debt, the court significantly constrained a popular municipal financing tool. This precedent ensures that municipalities cannot easily circumvent constitutional debt limits through creative financing schemes that ultimately pledge their general taxing power. Future cases involving municipal finance will have to closely scrutinize whether an obligation, directly or indirectly, relies on general tax revenues for repayment.
Unlock the full brief for City of Hartford v. Kirley