Tag Archives: tax revenues

How much sales tax revenue a mid-sized suburban shopping mall might generate

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After the purchase of a local shopping mall by a suburban community, a news article highlights how much sales tax money the mall once brought into the suburb:

Bloomingdale officials faced a similar scenario with Stratford Square, which once brought in $20 million a year in sales tax, but now is mostly empty. The village bought the mall this year for almost $9 million after filing for condemnation against the owner, Namdar Realty Group, as the property fell into disuse.

According to the FY 24 budget of the Village of Bloomingdale, they had $41 million in tax revenue. If the mall once brought in $20 million in sales tax revenue, that is a big change for a suburban community. Because the mall has declined over time, they have had time to adjust to the decreasing sales tax revenue. Still, that is a large amount.

What are the odds that the new land uses generate that amount of money? Given the state of retailers and brick and mortar establishments, this might be difficult. And there appears to be less demand for suburban office space. A mixed use setting, popular in suburban redevelopments (one example not too far away), could sustain some business and office activity. Residential development could provide more housing options but also require some different city services.

This reminds me of the long-term process redevelopment can often be. From the peak of the shopping mall to what the new development might look like, decades could pass. In the meantime, the community has changed and social and economic life has changed.

What if a significant portion of residents and leaders want to provide lots of public money for stadiums?

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Plenty of professional sports teams owners have been in the news recently asking for public money to fund sports stadiums. I am against such funding (see examples here and here) as the benefits tend to primarily go to the owners.

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But, what if plenty of people want to give this money to teams for stadiums? What if they value sports? What if they see this as a good use of public resources?

Those who argue against stadiums may pitch it another way. Here is an example looking at the recent request by the Kansas City Chiefs for public money. How is the Chiefs’ owner thinking about the fans?

The Chiefs are hoping, it seems, that voters are either very dumb or very scared.

This is an easy story to go with: the wealthy team owner is threatening the people. Out of fear or not knowing the full situation (the team has limited options, the money tends to enrich owners, etc.), residents and leaders will go along with it. If fear can be reduced or ignorance limited, people would oppose these proposals.

Is there another possibility? Some people like the Chiefs, think they are good for the community, and want to give them public money. They hear the opposing point of view and disagree with it. They would rather spend public money this way. Americans tend to like sports and spectacles.

In many ways, this is not just about sports and wealthy owners. These are civic questions about the public good, how money should be spent, and how we collectively make these decisions. People with all sorts of perspectives will try to persuade each other. And the fate of future sports stadiums and communities depends on these processes.

Grocery taxes and local government revenue

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A recent announcement by Illinois Governor J. B. Pritzker that he wants to eliminate the 1% tax on groceries has some suburban official upset:

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In his budget address in February, Pritzker proposed raising taxes by almost $900 million, but called for eliminating the 1% grocery tax as a regressive tax that hurts poor people.

Revenue from the tax goes entirely to local governments. The mayors laid out how that would affect their municipalities.

The change would cost retail-rich Algonquin around $2 million, about 10% of its budget, Sosine said, calling it “unacceptable.”…

Libertyville Village President Donna Johnson said the mayors are sensitive to financially strapped residents, but said the cuts affect basic services like police, fire, public works and roads…

In anticipation of such criticism, the governor’s office released a statement that it supports local government operations with more than $1 billion annually in additional funds from sources including an internet sales tax, gas taxes and transportation bonds.

Local governments have an ongoing balance to keep in generating revenues and then providing services to their communities. On one hand, they have mechanisms by which they can raise their own revenue. As noted above, the small grocery tax has generated some monies that municipalities count on. On the other hand, local governments receive revenue from other governmental bodies. As noted above, the state of Illinois provides monies to communities through a variety of means.

The concerns expressed by these local officials hint at both immediate concerns of needing to address a potential budget shortfall if the grocery tax is halted and long-term concerns of making sure state funds continue to go to communities. Cited elsewhere in this story is that the percent of income tax monies going to communities has dropped several percentage points in recent years.

What is the ideal percent of revenue for municipalities that should be generated within the community? (Is the correct answer something like 110+%?) Answering this question has consequences for zoning and land use decisions as well as what local governments will offer to residents.

Create property tax exemptions for homeowners and some communities have to make up the revenue elsewhere

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Homeowners generally like to pay lower property taxes. But, according to a new report looking at Cook County, reducing their own property taxes can affect the community as a whole:

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UIC professors David Merriman and Rachel Weber, experienced researchers on property taxes and government finances who led the report, said this is one of the first attempts to measure the impacts of exemptions on the county as a whole. In total, $15.8 billion worth of property value in Cook County was unavailable for governments to tax in 2021 because of those breaks, their research found.

That translates into about $1.6 billion in tax revenue, which governments simply shift onto other property owners…

To respond to tax spikes or inflation, state lawmakers have expanded breaks over the past half century. They now include eight types of homestead exemptions: homeowners, seniors, veterans, people with disabilities and those making improvements on their home. Exemptions typically cut down the taxable value of a home to provide relief.

The report noted the effects of these exemptions are not the same in every community. The tax base of the community matters:

Those unintended consequences also aren’t the case everywhere. The effects of homestead exemptions are negligible in cities and villages with a bigger industrial property base, like McCook and Bedford Park, with a concentration of more valuable properties like Winnetka or Kenilworth, or with a lower share of homeowners who qualify, like Chicago.

It sounds like this affects communities that do not have great tax bases to start with. Already behind, homeowner’s exemptions then contribute to a lack of community funds compared to other communities.

I would guess Cook County and Chicago area homeowners would point to the fact that they pay some of the highest property taxes in the nation. In a country that prizes homeownership, these exemptions help enable people to live in their homes. But, as the article notes, there are other ways to fund public goods and services. This reminds me of Prop 13 in California which since 1978 has limited property tax revenues. Without those local tax revenues, governments have sought out other means.

Moving forward with a congestion tax for entering Manhattan

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A state board recommends vehicles entering Manhattan south of 60th Street pay the first congestion tax in the United States:

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Under the plan, passenger car drivers entering Manhattan south of 60th Street during daytime hours would be charged $15 electronically, while the fee for small trucks would be $24 and large trucks would be charged $36.

Cities such as London and Stockholm have similar programs in place, but New York City is poised to become the first in the U.S.

Revenue from the tolls, projected to be roughly $1 billion annually, would be used to finance borrowing to upgrade the city’s mass transit systems…

Officials say that in addition to funding needed transit improvements, congestion pricing will result in improved air quality and reduced traffic…

“The Traffic Mobility Review Board’s recommended credit structure is wholly inadequate, especially the total lack of toll credits for the George Washington Bridge, which will lead to toll shopping, increased congestion in underserved communities, and excessive tolling at New Jersey crossings into Manhattan,” Murphy, who filed a federal lawsuit over congestion pricing in July, said in a statement.

In the US city with the highest rate of mass transit usage, this makes some sense. The roadways are crowded. Mass transit systems need money. At least some of the vehicles entering the city can afford the fee.

At the same time, Americans like to drive free. Cars and driving are an essential part of American life, whether cruising down a highway or delivering many goods via truck. Many will not be happy to pay extra to drive down taxpayer roads into parts of the city when it used to be free.

If this goes forward in Manhattan, how soon until it comes to other American cities? Those places may have fewer alternatives to driving but the revenue – and other benefits – might be hard for other places to pass up.

“Zombie malls” cost communities while others profit

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A number of American communities have “zombie malls,” shopping centers that continue to exist even if communities wish they would disappear.

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There are hundreds of zombie malls throughout the U.S. like the Berkshire
Mall, more dead than alive. The older, low-end ones have
lost at least half and, in some cases, more than 70% of their value since
the industry’s peak in late 2016, according to real-estate research firm Green
Street…

That’s when Namdar Realty and Mason like to swoop in. The New York-based
real-estate partners are among the most prolific purchasers of U.S. malls. They
make money by buying malls cheap and keeping them going, even as town officials
beg them to pull the plug.

Bare said the community would be better served if the Berkshire Mall was
turned into something more valuable. Ideally, a mixed-use property with housing
and medical offices or educational space, and maybe some retail and
restaurants…

Malls typically sit on large parcels of prime real estate—which often
include nearby buildings such as restaurants as well as large parking lots—that
can be subdivided and sold in parts, sometimes at a value exceeding the
purchase price of the mall. The partners keep the malls open, but cut costs by
appealing their property-tax bills and reducing expenses such as staffing and
maintenance. 

All the while, they continue to collect rent from the mall’s remaining
retailers. When national retailers move out, Namdar Realty and Mason try to
replace them with nontraditional tenants such as call centers, local small
businesses, doctors’ offices and bounce-house venues.

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Here are some of the reasons communities do not like malls surviving in this
state:

-They are not generating the kinds of tax revenues they did as a thriving
mall.

-The land could be generating more revenue if used in different ways.
Communities want to replace the tax revenues of the malls with other revenues.
(And this is a reason housing might not be too appealing to some leaders.)

-A mall in bad repair and/or is partly to mostly empty is an eyesore.
Gleaming and busy malls are a source of pride; struggling or dying malls are
the opposite.

-Outside mall owners may not always be perceived as having the best
interests of the community in mind. Imagine how locals might interpret their
actions: someone is trying to profit off our struggles. They are impeding our
progress just to make money for outsiders.

-Even if malls can be demolished or repurposed, it can be a hard path to
putting new and worthwhile in its place. These outsiders are slowing the
process or making it impossible to move on.

Even zombie malls will meet their fate eventually, either as unprofitable
ventures that are sold and redone or as places that continue to generate
profits. And if they can keep making money, are they really zombies?

Turning empty big box stores into pickleball facilities

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More suburbs could empty big box stores turned into indoor pickleball facilities:

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The Picklr, which has seven corporate-owned facilities, is accelerating its franchising and plans 80 facilities in 11 states including Illinois as the first wave of a major expansion…

The company plans to repurpose vacant big-box retail spaces in Mundelein, Naperville and Villa Park with openings anticipated in December.

Nine courts are planned in Naperville with eight each in Mundelein and Villa Park as the first entries in the Midwest.

The 80 planned facilities are being pursued by 13 new franchisees in the first part of the expansion. More than 300 locations across the U.S. are envisioned, according to Schubiger…

Among them are Sure Shot Pickleball, which debuted Sunday with 11 courts in Naperville, and Pickle Haus, a pickleball-themed restaurant set to open in November with 12 courts in Algonquin. In Vernon Hills, final approval is expected today for PickleMall Inc. to renovate the former Toys R Us a

Large vacant buildings, particularly big box stores, are a problem for suburban communities. When they are empty, they are not bringing in sales tax revenues. Empty storefronts give the impression that there is a lack of interest and activity in the community. It can be hard to find new tenants for existing properties when building a new structure is a cheap option.

Bringing in pickleball could help address these problems. The building is kept up. It can bring people in and out of the building. Pickleball is on the rise and can bring new energy to an older structure. New revenues might be generated.

Is a pickleball facility on par with the large-scale retail efforts that generated lots of tax revenues? Maybe not but the alternative of empty big box stores is not desirable.

How much would empty urban office buildings affect municipal tax revenues?

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With talk of empty urban office buildings leading to a decline in property values, how might this affect tax revenues collected by cities? Here is one estimate:

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Municipal governments have even more to worry about. Property taxes underpin city budgets. In New York City, such taxes generate approximately 40 percent of revenue. Commercial property—mostly offices—contributes about 40 percent of these taxes, or 16 percent of the city’s total tax revenue. In San Francisco, property taxes contribute a lower share, but offices and retail appear to be in an even worse state.

These are not huge numbers but they do contribute to the overall local budget picture. Office or commercial buildings in cities that are not being used or are being turned over to lenders or are prospects for building conversions will not generate as much tax revenue as they might when demand for such properties is higher.

How will cities address this? It will be interesting to see different approaches that could be affected by local real estate markets, housing needs, and budget specifics. If there are a few cities that are able to limit the revenue damage, they might serve as models for others.

(This is also a problem for suburbs with large amounts of office and commercial space.)

How suburbs can lose millions in revenue when office parks sit empty

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The changes to offices in one Minneapolis suburb illustrate the money at stake for suburban communities:

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One surprising victim might be the Twin Cities suburbs. Take the 64,000-person suburb of Eagan, Minnesota where, earlier this year, two announcements upended the commercial landscape. Two of the city’s largest employers terminated leases at massive office parks, both of which served as local corporate headquarters…

Because commercial property is taxed at a higher rate than residential, for a city like Eagan, with a $42 million budget, the loss of two large corporate headquarters is a hit to its bottom line. In 2022, the two office parks provided about $3 million in tax dollars to the city, county and school board. (The city of Eagan’s cut of the tax revenue sits at around a third of that total.) 

Whatever happens to these two sites, they’ll likely be assessed at much lower values moving forward, likely swaying the rest of the suburban commercial real estate market. This puts pressure on Eagan’s single-family residential property to make up the difference, shifting the low-tax balance that draws people to live second-ring suburbs in the first place.

For their part, Eagan city leaders say these kinds of economic changes are nothing new, and the city is well-positioned to survive…

She cited the changing loss of previous corporate headquarters in the city, including Lockheed Martin and Northwest Airlines, both of which disappeared due to mergers or outsourcing.

Multiple forces are at work:

  1. Corporate offices change over time, before and after COVID-19. This suburb has seen companies go before and they found different businesses to lease office space.
  2. It is less clear the direction of the current office space market and financial markets are nervous. With more work from home and more Internet business, how much physical office space is necessary in the coming years?
  3. Filled office parks can help suburbs generate significant revenues and reduce tax burdens for others. Vacant buildings do not this at the same rate.
  4. Buildings that are vacant long-term are negative symbols. Communities want to have thriving businesses, not empty buildings. The longer the vacancy stretches, the bigger the consequences.
  5. Communities can redevelop such properties but this requires money, proactive local officials, and partners.

If we could come back to Eagan in a decade or two, will these properties be redeveloped mixed-use properties, vacant sites, or office parks operating at a decent capacity?

How much time it could take to get the municipal funding to redevelop a shopping mall

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As shopping malls decline, finding the money to redevelop the property could prove difficult. Here is the experience of one Chicago area suburb:

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When West Dundee trustees approved a special taxing district in 2016, they were hopeful it would breathe new life into Spring Hill Mall.

The mall showed some signs of hope when a new theater opened in late 2016. Overall, however, the mall stagnated and key anchors closed shop. By 2021, the village saw the property value of its share of the mall drop from a base value of $7.6 million in 2016 when trustees created a tax increment financing district for the mall to $2.5 million in 2021.

Now trustees are considering scrapping the 2016 TIF district and creating a new — and larger — one. The new TIF district would extend to Huntley Road to the north, Route 31 to the east and Route 72 to the south and would take in a Jewel grocery store to the west. And much like in 2016, officials are hopeful a new TIF with larger borders and a lower base property value would help transform the mall…

Despite the failure of the first TIF district, developers have indicated to village officials the money a TIF district could bring for redevelopment would be key to any transformation of the mall area, West Dundee Village President Chris Nelson said.

A successful TIF can help a municipality capture property tax revenues to put toward redevelopment, often in the form of infrastructure. This means that a developer does not need to pay for some of the necessary improvements – and presumably could profit more.

But, how much time and money is enough to entice a develop to go through with a significant redevelopment? At this point, the first TIF has existed for roughly six years. It did not work as intended; property values fell so there was not tax revenue to capture. Will expanding the district create enough revenue?

TIFs have timelines built into them; they are not intended to last forever. Should a suburb commit to decades for a TIF? At what point does a community throw in the towel in efforts to raise revenue or a commitment to a particular tax structure?

Many communities with shopping malls, big box stores, and other brick and mortar establishments will face these questions in the coming years. TIFs are one tool to use; what other options will emerge as popular and/or successful paths for communities to follow for redevelopment?