Now celebrating its fifth year, Octopi Brewing is looking at another major expansion and is seeking an incentive from the Village of Waunakee to do so.
The village is considering amending an existing Tax Incremental Finance (TIF) District to provide the assistance needed for Octopi’s $68 million project.
The Joint Review Board — composed of representatives from the various taxing jurisdictions including Dane County, the Waunakee School District, the village and a citizen representative — will meet virtually Nov. 9 to host a public hearing on the proposed TIF district expansion. Immediately afterwards the proposal will go to the plan commission, and then to the village board for consideration at its Nov. 16 meeting.
Octopi is seeking to build a 200,000-square-foot warehouse and canning line on Uniek Drive, across the street from its current location on 14 acres to be purchased from Tormach. In addition, the company would expand its brewery by 100,000 square feet on a parcel it currently owns adjacent to the brewery. A TIF district had previously been created on the land owned by Tormach, and the proposal would amend that district to include the land owned by Octopi.
Within a TIF district, the value of the land and taxes collected remain at the undeveloped level throughout the district’s life. As new development occurs and the value rises, the additional taxes generated go to pay off the project costs as an incentive to the developer.
The proposed TIF district for Octopi would be $3,061,197, with $2,975,000 going toward the development incentive, and the remaining $88,197 toward administrative expenses, according to the project plan prepared by Ehlers, the financial consultant assisting the village.
That document shows the project adding $20,600,704 in taxable value over the 20-year life of the district, with $7,193,962 in tax increment. However, Todd Taves of Ehlers noted that Octopi’s total investment is estimated at $68.2 million. Because it is a manufacturing facility, equipment is not taxed.
The incentive payments would be paid from the tax increments as they are collected on a “pay as you go” basis.
Ehlers estimates show the project generating $417,816 in tax increments per year starting in 2021.
During the Joint Review Board’s annual meeting in September to review the village TIF districts’ performances, Taves noted that the Tormach TIF District, TID No. 9, currently has a detrimental value as it is not occupied but still generating administrative costs. At the end of 2019, the district had a negative balance of just over $18,000, and by the end of the district’s life, that balance would be $36,000. Funds from the amended district would pay off that balance.
Addressing Tormach’s failure to develop the land, Village Administrator Todd Schmidt explained that when the tariffs were imposed on China, Tormach’s business model changed, preventing the company from building.
At the annual Joint Review Board meeting, Dave Boetcher, who represents the Waunakee school board on that panel, noted that the Octopi proposal will have to pass the “but for” test. Octopi’s success had necessitated the project, Boetcher pointed out.
State statutes require TIF incentives be used only for projects that would not occur without the creation of the district, or would not occur within the manner, at the value or within the timeframe desired by the municipality.
Taves explained Octopi’s financial gap, saying the incentive would allow the developer to borrow $1.85 million to fund a portion of the project cost.
Taves said when viewing the project as a real estate deal, the returns are not sufficient enough to attract an investment.
“Based on the information we were provided, the returns are actually negative, and with TIF they turn slightly positive,” Ehlers said. “Even with the TIF assistance, it’s not a great return to an investor.”
Octopi is completing the project to grow and expand and is less concerned with the returns than an outside investor would be, he added.
“The long and short of it is, if you look at it from a real-estate perspective, the TIF is necessary to just get them in a positive return territory,” Taves added.
The Nov. 9 Zoom meeting and public hearing will start at 6 p.m. To view the agenda, visit waunakee.com.