The 12% Rule

In May, 2025, the Wisconsin State Legislature created exceptions for Beaver Dam and Port Washington to a rule designed to protect municipalities from taking on too much financial risk. That rule is called the 12% rule and put as simply as possible, it prevents a community from growing too fast with new development in its Tax Increment Districts. The rule was perfectly designed to prevent small cities like Beaver Dam and Port Washington from a development project that would add new valuation equal to 40% of the city’s current total valuation like these data centers will.

Why is that a risk? Well, in financial terms, it creates a concentration risk. The city becomes beholden to the single large taxpayer. Its future becomes tied to the success of a single project. It gives immense near- and long-term leverage in all negotiations to a single entity.

Commercial development is often touted as a way for a community to broaden its tax base and mitigate risk. These large data center projects in very small cities do exactly the opposite: they concentrate the risk.

Fast forward 20 years, the TID is finally paid off, and now there’s a single property producing 35% of the city’s tax revenue, and the data centers are starting to show their age. The city will do anything that property owner asks because the financial pain of that single property owner walking away from the building would be immense. If 30% of a city’s budget disappeared overnight, the gap could only be made up by a massive and sudden increase in the residents’ tax rates.

No certified financial planner would invest your money that way. No financial institution would lend its money that way. Risk is managed with diversification, not concentration.

The state senate approved it 29-3. The state assembly 91-6. And the governor signed it. Bipartisan risk-taking, because everyone wants to have big data centers.

When 30%+ of Beaver Dam’s or Port Washington’s tax revenue (city, county, and schools) dries up when the property walks away, will the state step in and provide relief? Will they admit the 12% Rule exceptions were a mistake? Or will they let the two small cities suffer the problem on their own?