Potentially risky $2M incentive was spark that lit development boom at Altoona's River Prairie

In retrospect, the gamble couldn't have worked out much better, as the hospital cured River Prairie's ills by relocating to the southeast quadrant and igniting a string of development that has pushed the value of the tax increment financing district that encompasses the project to $77 million.

"The big catalyst was the hospital," said Altoona Administrator Mike Golat. "That really got us over the hump."

Mayor Jack Blackburn described OakLeaf as "the heroic pioneer who was brave enough to come out into this barren area" that he said bankers and real estate brokers labeled as a toxic piece of property doomed to fail as a development.

That reputation came about because River Prairie, despite efforts by city officials to talk it up as an ideal location for commercial development and a key to the city's future, sat mostly empty with the exception of some housing for several years. The city created TIF District No. 3 in 2001 and by the end of 2008 had spent about $7 million on infrastructure with little return on its investment.

Golat believed at the time that River Prairie - located along the Eau Claire River and U.S. 53 on Altoona's far northwest side, bordering Eau Claire - was poised for a turnaround, "but then 2008 happened," he said, referring to the Great Recession, which stalled the housing market and slammed the brakes on nearly all commercial development.

While city officials steadfastly maintained River Prairie would prove to be a good investment in the long run, they also were forced to deal with the short-term budget pain resulting from a development seemingly unable to attract tenants who could buy land and pay property taxes to help the city pay off debt incurred for the infrastructure investments.

"There was definitely some real concern," Golat acknowledged.

In 2008, as the City Council voted to approve a budget in which $175,000 was leached from the city's general fund to pay for River Prairie debt, then-Mayor Tom Meyer put the situation in blunt terms.

"There was a picture painted. It was a beautiful picture in a perfect world, but it's not there anymore," Meyer said of River Prairie. "We can't live on that dream coming true anymore."

Turning point

The reversal of the development's fortunes came in a two-week period of June 2012 when Altoona reached agreements to sell land in the southeast quadrant for the hospital and for separate buildings housing Chippewa Valley Orthopedics and Sports Medicine, Northwoods Therapy Associates and Wisconsin Brain & Spine Center, and struck a deal with Access Commercial Real Estate allowing the city to reacquire the northwest quadrant, which officials considered the crown jewel of the roughly 180-acre River Prairie site.

That breakthrough would never have happened if city officials hadn't agreed to pay the $2 million cash incentive to OakLeaf and a $600,000 development incentive to River Prairie Holdings to build the neighboring medical facilities and Orgel Wealth Management, Golat said.

Todd Berry, executive director of the Wisconsin Taxpayers Alliance, said the most common use of TIFs is for municipalities to set them up to bond for money, as Altoona did at River Prairie, to build streets, gutters and other infrastructure to serve entities they hope to attract to the district. Many municipalities now also follow the path Altoona did and provide additional incentives through TIFs, he added.

Michael Harrigan, senior financial adviser and chairman in the Wisconsin office of the consulting firm Ehlers, said incentives are discussed in about 75 percent of the economic development initiatives that come to the table today in large and small communities alike.

Asked about the size of the OakLeaf payout, Harrigan, whose firm serves as a financial consultant for Altoona, said, "I would say $2 million is not a shocking number at all."

Topic for debate

Berry said he believes TIF incentives are overused, but acknowledged that the necessity of using taxpayer money for deals to attract tenants is often difficult to assess.

"Smart people could differ on the answer," he said. "But it's definitely something that merits a lot of public discussion because these things don't always work out and municipalities can end up holding the bag."

While the Altoona development agreements attracted little public attention at the time, Golat insisted they were discussed by the City Council in open session and said the incentives were necessary to obtain the commitments that sparked River Prairie development.

The city, which bonded for the incentives in 2014 through a 10-year note, protected itself by requiring that OakLeaf build a facility with at least $25 million in value before receiving the incentive, he added. That pay-as-you-go approach ensured the city would have the revenue stream - from the tax payments, or increment, generated by the hospital building - to make the debt payments.

"That's pretty good leverage if you ask me," Harrigan said, suggesting the merits of incentives should be judged on the value the recipient brings to a TIF.

"That was quite the deal," Golat said. "A lot of pieces had to come together to make it work, and we are thankful that they did."

Backup plan

Plans for the for-profit hospital, owned by Chicago-based National Surgical Healthcare, were announced in 2012, and it opened in August 2014.

The 108,000-square-foot medical center is about four times the size of the previous OakLeaf facility near Oakwood Mall, said Dr. John Drawbert, hospital board chairman.

OakLeaf officials initially planned to expand - and even held a groundbreaking event - at the previous site in Eau Claire but encountered hurdles related to covenants that made it impossible to pursue their preferred design. That's when Altoona offered the River Prairie site and the incentives to make building there economically feasible, Drawbert said.

"We went to Plan B, which turned out to be Plan A," he said. "We're very happy with the River Prairie location, and we love the convenience and visibility."

Some people argue that using public money to offer incentives for businesses to relocate from one community to another results in just "moving things around," as opposed to adding value, which is supposed to be the goal of TIF districts, Berry pointed out.

In this case, however, Golat maintained OakLeaf built a larger facility than was planned in Eau Claire in addition to being the anchor River Prairie sorely needed to attract other tenants.

"What's good for Eau Claire is good for Altoona and what's good for Altoona is good for Eau Claire is what I think," he said.

On a roll

Since OakLeaf announced plans to build in River Prairie, commercial development has taken off, with the addition of several office buildings in the northeast quadrant, construction under way on a giant Woodman's Food Market in the southwest quadrant and commitments for a Kwik Trip convenience store, WestConsin Credit Union, Bernicke & Associates and Staybridge Suites in the northwest quadrant along the Eau Claire River.

The city's plans for the northwest quadrant, which Blackburn likes to say is going to become "Altoona's front porch," include creation of a park, an amphitheater, recreation trails, a civic building and what officials are calling a new "Main Street" section.

Negotiations are under way with several other prospective tenants for lots in the northwest quadrant, Golat said, noting that the Staybridge deal, announced earlier this month, included a $38,500 marketing incentive from the city.

In addition to building a 240,000-square-foot grocery store, Janesville-based Woodman's plans to open a car wash and convenience store and seek tenants for other lots on its parcel. Altoona officials see the supermarket as an ideal traffic driver for the growing development.

"When Woodman's decided they wanted the southwest quadrant, that's when the avalanche started," Blackburn said, describing the River Prairie saga as a classic "rags to riches" story.

"To have all of this happen so fast I would think would be the envy of just about any city in Wisconsin and maybe anyone in the country," Blackburn said. "This is about as good as it gets."

Meanwhile, all but three or four of 110 River Prairie residential lots have been sold, said Jon Pfeilsticker, Altoona's finance director.

The surge in development has helped Altoona's property valuation rise from $367 million to $475 million in the nine years Golat has been with the city. Ultimately, Golat said, he expects TIF No. 3 to nearly double in value to about $160 million, and he is even hopeful the city will be able to pay off its debt on the district about five years before it is scheduled to expire in 2028.

To Golat, River Prairie is a prime example of the TIF model working as intended, albeit a bit slower than originally hoped.

"It's been a remarkable past three years," he said, "after a long time really hoping and wondering and scratching and clawing to make it work."

Lindquist can be reached at 715-833-9209, 800-236-7077 or eric.lindquist@ecpc.com.