Chicago suburbs without property taxes – but perhaps not for much longer

In a region known for high property taxes, at least a few suburbs outside Chicago have no property taxes:

A town of about 40,000, Carol Stream managed to avoid a property tax even when another outlier, Schaumburg — a village with a much larger retail base — took the leap during the Great Recession.

But officials say Carol Stream is facing significant budget pressures from rising pension costs. If it maintains the status quo, projections also show the village would exhaust capital reserves during the third year of a five-year plan for roadwork and infrastructure projects…

In Oak Brook, another town that doesn’t charge a property tax, candidates in the last mayoral race took stock of the financial challenges from flat sales tax revenues. Carol Stream also saw a 2.4% drop in sales tax dollars — the village’s largest revenue source — from calendar years 2017 to 2018.

Suburbs have multiple ways to reduce or eliminate residential property taxes. Sales tax revenue can come from shopping malls, big box stores, and other retail options. Schaumburg and Oak Brook have sizable shopping malls surrounded by many more retailers. Communities can also seek out industry; Carol Stream founder Jay Stream intentionally set aside much land for industrial parks (which are still there). Some suburbs would not like this as industry could conflict with an ideal of quiet neighborhoods of single-family homes.

The article suggests these suburbs with no property taxes will have to reconsider because of declining sales tax revenues and rising pension costs. Given the fate of shopping malls and the problems facing retailers, even in successful malls in wealthy areas like in Oak Brook and Schaumburg, communities need additional revenue.

Suburbs typically do not have the ability to quickly counter declining sales tax revenues. In order to not have property taxes in the first place, certain decisions had to be made long ago. Then, later decisions build within a framework of no property taxes. Making changes to land use takes time for study, approval, development, and then reaping benefits. A suburb cannot say it wants to bring in more sales tax revenue and line up a set of retailers operating within a year.

The fate of these suburbs will be worth checking in five years to see whether they can hold on against levying property taxes.

(Reminder: this does not mean residents in these communities do not pay any property taxes. Rather, their suburbs do not collect property taxes even as school districts and other taxing bodies do.)

Bringing medical clinics to vacant shopping mall space

Filling emptying shopping malls can be a hard task. Add medical services to the list of possible replacement uses:

Mall of America in Minneapolis, America’s largest mall, announced plans last week to open a 2,300-square-foot walk-in clinic in November with medical exam rooms, a radiology room, lab space and a pharmacy dispensary service. Mall of America is teaming up with University of Minnesota physicians and a Minnesota-based health care system to operate the clinic…

While mall leases for clothing retailers declined by more than 10% since 2017, medical clinics at malls have risen by almost 60% during the same period, according to Drew Myers, real estate analyst at CoStar Group. The growth of medical clinic leases at malls has been the “strongest among all major retail sectors over the past five years,” he said.

Mall landlords are betting that when patients visit for a flu shot or eye exam, they’ll shop around for clothes or electronics. Adding medical clinics also makes sense for mall owners because they draw in doctors, nurses and technicians every day who may shop and eat at restaurants, according to a May research report by real estate firm JLL. Health care providers are also attractive tenants for mall landlords because they tend to have high credit ratings and sign longer leases compared with other retailers, JLL analysts noted.

On the provider and health insurer side, shopping malls give companies convenient locations to set up outpatient care posts and preventative care locations for patients. Providers are increasingly looking to these lower-cost clinics to help patients avoid expensive trips to the emergency room.

The medical offices can serve the new residents and commercial uses that are also now occupying shopping mall space in addition to blending shopping and medical trips (dubbed “medtail” in the article). Just wait until the new hospital takes over the mall and patients and visitors can walk out one door and into a clothing store down the hall.

More broadly, this hints at a blending of activity within single structures that suburbs are not used to. Suburbs are known for separating land uses, often with the goal of protecting single-family homes. Suburban downtowns, places where multiple uses might be found, are limited and now often seem geared more toward entertainment and cultural use. Could the shopping mall truly be a community center in the coming decades with more residential units, medical offices, and community spaces?

Another use for vacant retail buildings: schools

The Chicagoland suburb of Palatine is considering converting vacant retail space into a school:

Under the proposal, a shuttered Whole Foods Market and other adjacent space totaling about 80,000 square feet would be renovated for a maximum of 32 classrooms for kindergarten through sixth grade. The school would be in the Park Place shopping center opposite a Walmart, southeast of Dundee and Rand.

Stuckey Construction Co. Inc. of Waukegan would buy the space for about $4.1 million and spend another $13.8 million renovating it, Thompson said. He said District 15 would lease the building with an option to buy it within seven years if the idea receives school board approval…

As part of the plan, Park Place’s owner would build four retail buildings closest to Rand. The former T.J. Maxx/Home Goods portion of the plaza would be demolished to make room for the new retail section and a playground and sports fields covering 2 acres for the school.

District 15’s school at the mall would serve 750 to 800 children in the northeast area, where about 22 percent of the students live but don’t have a neighborhood school. Thompson said he projects the new school would have 74 percent Hispanic students and an overall low-income population of 70 percent.

As retail locations struggle, many communities are looking for answers as to how to use the vacant structures. There a number of possible options but rarely have I seen the idea of schools. I suspect converting these spaces to schools has several distinct advantages:

  1. It could reduce the amount of money needed to provide school buildings. Referendums or tax levies to build new structures often face opposition in suburban communities because of the cost. Additionally, the new school buildings might be in response to a relatively new need in the community tied to new growth but the building may not necessarily be needed in the long term. Converting an existing building could save money.
  2. Retailers often locate in key locations near major intersections. This could make accessing a school easier for a broader range of residents.

Yet, there would also be disadvantages to pursuing this strategy:

  1. Converting the retail structures into schools takes possible land off the tax rolls. Many communities hope vacant structures will be filled by land uses that will contribute property taxes and sales taxes. Schools provide neither.
  2. The location may be central or at a key point but residents often have images of what neighborhood schools should be: located in or very close to residential neighborhoods. Several concerned residents are quoted in this story and they raise safety concerns of being located near major roads and higher-crime areas.

I wonder if a school could also be viewed as a community anchor for a larger mixed-use plan in a redevelopment setting like this. Having some new residences alongside some retail space plus new community (school plus parks, plazas, etc.) could create a new neighborhood setting.

Seeing the real America at the ER Saturday at 10 PM and Walmart Sunday at 8 PM

I visited both of these locations in recent weeks and was intrigued to see the mix of people at each. I’ll make a quick case for why these locations could provide as good cross-section of America as any other location:

  1. Limited options. For the emergency room on a Saturday night, there are few other medical options available at that time. If anyone has a medical issue, they will end up here. As for Walmart on Sunday evening, there are limited brick and mortar shopping options and the work week is about to start.
  2. People need medical care and grocery/home items. Both locations have people trying to meet basic human needs. Even as online shopping may allow people to avoid other shoppers and online medical consultations are now available, there are inevitably moments where running out to a store or medical professional is necessary. It is hard to imagine either of these facilities disappearing completely (even if the number of retailers is severely reduced).
  3. Connected to #1 and #2 above, people of differences races, ethnicities, and social classes are at both locations. In many other locations, whether due to residential location, the location of jobs, ill will toward others, or access to resources, not all groups are represented. Sociologist Elijah Anderson wrote a book about such rare urban locations.

While these may not be the best locations in which to conduct research, they could offer insights into typical American life.

Thinking through “architecturally ambitious” shopping malls

One writer suggests the shopping malls of the future will need to offer a unique architectural experience:

My version of the mall game would offer more aggressive architectural interventions. Pop the top, and change the air-conditioned, enclosed food court into an open courtyard with a creek running through it. Cover the tan stucco with silvery panels to give it that au courant “industrial” look. Turn one section of the parking lot into a food truck rodeo, local vendors only. Replace the Dillards with a Spa Castle, or a Nitehawk Cinema. The mall of the future is architecturally ambitious, includes plants and water features, judiciously sprinkled with local retailers and food options, and surrounded not by a donut of surface parking lot but with housing, hotels, even educational facilities.

Don’t get me wrong: Malls are still dying. Credit Suisse estimated that 220 to 275 shopping centers, 20 to 25 percent of the current stock, would close within the next five years. We built too many, too cheaply. And it would cost too much to make many of them a worthy destination in 2018.

But even in the age of Amazon, people still leave the house, still shop, still eat. Malls have generated their own version of industrial ruin porn, including video. But when I talked to Erik Pierson, the man behind YouTube channel Retail Archaeology, he freely shared that, while his video of Mesa’s defunct Fiesta Mall may have gone viral, SanTan Village in Gilbert is doing just fine.

In an experience based society, going to the mall needs to be an exciting or satisfying experience compared to shopping at a big box store or purchasing items online.

Three thoughts about this suggestion:

  1. Only certain malls (and in certain areas) will have the resources to try to be architecturally ambitious and not all of them will get it right. My guess is that shopping malls in less well off communities will die off while those in wealthier areas will continue and will be the ones that take more architectural risks.
  2. Shopping malls have been criticized over the decades for their crass commercialism and their fakeness (acting like public spaces when they are really not, simulating other environments). Would more ambitious architecture make them more or less acceptable to critics? Take water features: they may be interesting to patrons but are they authentic design elements or just another symbol of the artificiality of the setting?
  3. What about creating malls that have flexible or changing architecture? Designing malls so that they have regularly changing features – as cited above, the “silvery panels” that provide an industrial look could be swapped out every 6 months with different kinds of panels – could help provide an element of novelty and excitement.

As is suggested in the article, perhaps the real secret is to better embed these ambitious malls in already interesting architectural settings. Instead of having to build a destination in the middle of a suburban parking lot, take advantage of already lively spaces and put an interesting and unique mall there.

Shopping malls continue to be less about shopping

Shopping malls across the United States continue to evolve in order to bring in customers:

Many mall owners are spending billions to add more upscale restaurants and bars, premium movie theaters with dine-in options, bowling alleys and similar amenities. Some have turned swaths of space that previously housed department stores over to health clubs and grocery stores. Others are undergoing no less than a ground-up transformation to make room for office space, hotels and apartments.

The trend has been gaining traction as the companies that operate malls look for ways to keep people coming in at a time when Macy’s, Sears and other big department store chains have shuttered hundreds of stores and consumers increasingly opt to shop online…

Carving out space for movie theaters, videogame arcades and food courts isn’t a new strategy. What’s noteworthy is the degree to which mall owners are now counting on tenants that sell experiences, rather than physical goods. The share of space occupied by non-retail tenants at regional shopping malls reached nearly 13 percent last year, according to commercial real estate tracker CoStar. It was 10.5 percent in 2012.

Since 2014, about 90 large U.S. malls have invested more than $8 billion in major renovations, according to a study by commercial real estate firm JLL. Some 41 percent of the malls in the study spruced up their food and beverage offerings with an emphasis on restaurants that serve more varied fare and, in some cases, alcohol.

With these changes, I wonder if at some point the term “shopping mall” will become defunct. We already have one term in the running from recent years: “lifestyle centers.” Could a new term arise that invokes downtowns or community centers or activity nodes?

If this indeed continues the shift away from traditional retail stores, it is worth pondering how many of these centers based on experiences can exist. How much can Americans spend on eating out? (Apparently now more than grocery store purchases.) How many regional centers like this can there be?

Losing sales and property tax revenue as stores close

The difficulties facing retail stores also have an effect on local governments who rely on sales tax and property tax revenue:

Nationwide, sales taxes comprise nearly one-third of the taxes that state governments collect and about 12 percent of what local governments collect, according to Lucy Dadayan, a senior researcher at the Nelson A. Rockefeller Institute of Government, a New York-based research group. “The epic closures of the brick-and-mortar stores is troubling news for state and local government sales-tax collections,” she said. They’re already feeling the hit: States’ tax revenues grew just 1.9 percent between 2014 and 2015, after growing 5.8 percent in the previous four quarters, according to the Rockefeller Institute. Local-government sales-tax collections grew just 1.7 percent, after growing 7.5 percent in the previous four quarters. In Ohio, state tax revenues grew just 0.1 percent, when adjusted for inflation, between 2015 and 2016, according to Dadayan. When revenues don’t continue to grow, governments have to slow down spending and can’t readily invest in long-term projects…

Clark County is not alone. In the southeastern part of Ohio, near the border with West Virginia, Belmont County gets $17 million of its $22 million budget from sales-tax revenues, Mark Thomas, a county supervisor, told me. The county has lost a bevy of retailers of late, including Elder-Beerman, Hhgregg, MC Sports, and Radio Shack. A Kmart in St. Clairsville is expected to close soon, according to the company. The decline in sales tax isn’t the only thing that hurts revenues—abandoned malls mean less revenue from commercial property taxes too. Local governments also see lower income taxes and, when retail workers are unemployed, they spend less, creating a vicious cycle of less and less revenue. “That trickle-down effect is huge,” Thomas said…

States that have seen manufacturing companies depart are bearing much of the brunt of the retail closures, according to Dadayan’s research. She tabulated where Macys, Kmart, and Sears have announced in the past year that they are planning to close stores, and found that Pennsylvania will have the most of those total store closings, at 16. Ohio and Michigan have the second-highest number, at 15 each, alongside Florida. Other states that have bigger populations have much lower combined closings. California, for example, only has eight.

The closures raise the question of what state and local governments will do if retail continues to evaporate. Already, many local governments are attempting to raise taxes to make up for budget shortfalls. Springfield asked voters to approve an income tax in November; the measure failed. The sales-tax rate at both the local and state levels has been creeping up in Ohio as governments try to raise taxes to make up for declines, according to Jon Honeck, the acting director of the Greater Ohio Policy Center, a local think tank. Ohio has also cut back on revenue-sharing between states and local governments since the election of Governor John Kasich in 2010, making it more difficult for local governments to make ends meet. “Some have just cut services, since the state is not going to help them out,” Honeck said.

Two quick thoughts:

  1. Communities have competed for decades over shopping malls and retail establishments. This competition could only increase though it may be less about the opening of new stories (everyone wants replacements for old establishments – for example, see the fate of Dominick’s grocery stores in the Chicago region) and more about retaining existing stores and asking companies to close stores elsewhere.
  2. It is interesting to see which areas are experiencing closures. Not all malls or stores are doing poorly but the successful ones are likely in wealthier areas that will do even better comparatively with the ongoing tax revenues. It is very difficult to convince businesses to locate in communities with less income.