## Facts

- The City of Hartford created Tax Incremental District No. 4 (TID No. 4) in 1988 to finance an industrial development project.
- The City previously issued approximately $4,155,000 in general obligation anticipation notes for the project, leaving it near the Wisconsin constitutional debt limit.
- In May 1991, the City authorized issuance of $2,300,000 in tax incremental financing (TIF) bonds under Wis. Stat. § 66.46 to fund additional project costs.
- The planned repayment source for the TIF bonds was the “tax increment,” meaning increased property tax revenues attributable to increased assessed values within the district.
- Property within and outside the district was subject to the same general property tax rate; the increment arose from valuation increases, not a separate tax or user-charge revenue stream.
- The statutory structure and the City’s plan required maintaining TID No. 4 until the bonds were retired; the bonds could remain outstanding for up to 23 years.
- The mayor (Dean T. Kirley) and city clerk (John C. Spielmann), whose signatures were required to execute the bond purchase agreement, refused to sign after the city attorney advised that the bonds would constitute “debt” exceeding the constitutional limitation.
- The City filed an original action in the Wisconsin Supreme Court seeking a declaratory judgment that the proposed TIF bonds were not “debt” under Wis. Const. art. XI, § 3; the matter was submitted on stipulated facts.

## Issues

1. Whether TIF bonds payable from increments of the City’s general property tax constitute “debt” within the meaning of Wis. Const. art. XI, § 3.
2. Whether characterizing repayment as limited to a “special fund” of tax increments removes such bonds from the constitutional municipal debt limit.

## Decision

- The Wisconsin Supreme Court denied the requested declaratory relief.
- The court held that the proposed TIF bonds constitute municipal “debt” under Wis. Const. art. XI, § 3.
- Because they are debt, the bonds must be counted against the City’s constitutional debt limit and could not be issued as non-debt obligations based solely on the tax-increment structure.

## Legal Principles

- For constitutional debt-limit purposes, obligations funded by general property tax revenues are treated as municipal debt even if repayment is routed through a segregated or “special” fund.
- The “special-fund” concept does not exclude an obligation from the debt limit when the special fund is supplied by diverted general tax revenues rather than by enterprise revenues (such as utility charges) or other non-tax sources.
- Courts evaluate municipal financing devices by substance: pledging a portion of the general taxing power to secure long-term repayment implicates the constitutional policy of limiting municipal indebtedness.
- TIF increments derived from the ordinary general property tax, imposed at the same rate citywide, are not equivalent to special assessments or proprietary revenue bonds for debt-limit analysis.

## Conclusion

The court concluded that Hartford’s proposed TIF bonds, payable from increments of general property tax revenues, were constitutionally cognizable municipal debt and therefore subject to the Wisconsin constitutional debt limitation.


City of Hartford v. Kirley, 493 N.W.2d 45 (Wis. 1992)