Tag Archives: tax revenues

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?

The ongoing process of reparations and housing in Evanston

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Evanston, Illinois initiated a reparations program several years ago that would provide money for some Black homeowners. The process of funding, assessing applications, and providing monies is underway, even if it is slow-going:

But outside that ballroom, the program is failing to meet many of its initial promises. So far, the city has only spent $400,000 of the $10 million promised in 2019. Out of hundreds of Black residents who applied, 16 have received money. Another 106 are on a waiting list, with hundreds more behind them. At least five people have died before their promised reparations could be dispersed, the program’s leaders acknowledge.

City officials say these early stumbles don’t diminish their ambitions for the program, which is aimed at addressing decades of housing discrimination rather than slavery. And it’s just a starting point, they say…

The program quickly ran into problems. Instead of the three marijuana dispensaries the city was expecting, only one opened, bringing in a trickle of the tax money initially forecast. A year after the reparations effort launched, few were receiving housing vouchers…

Acknowledging the program’s slow start, the council voted in December to set aside an additional $10 million over ten years, this time from a tax on real estate sales over $1.5 million.

The fate of programs or initiatives can depend on the decisions made – and this article suggests there is ongoing discussion about whether this is the best path to pursue – as well as how they are carried out. A good or helpful decision that then gets bogged down by processes, bureaucracy, and funding is one that may be limited or worse in the end.

The portions cited above plus additional comments in the article also address the funding side of this. Can local governments effectively address the issue of reparations? Depending on the size of the community, budgets, money sources, and more, some communities will have more resources to draw on. What are the advantages to local efforts addressing housing and reparations compared to broader funding sources at higher levels of government that are also removed from the particular circumstances in individual communities?

Many Chicago area suburbs with significant increases in sales tax revenues

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For a number of suburbs in the Chicago region, 2022 was a good year for sales tax revenues:

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A Daily Herald analysis of 95 suburban sales tax receipts during the state’s 2021 and 2022 fiscal years shows the towns combined to average a 28.6% increase in sales tax revenues, resulting in nearly $230 million more…

First, federal and state laws that took effect in January 2021 required companies to assess sales taxes for online purchases at the rate of the buyer’s hometown…

Then, COVID-19 stimulus funds paid directly to Americans reinvigorated purchases on physical products…

And the final catalyst for sales tax revenue growth statewide has been the historic increase in the inflation rate.

The article goes on to discuss two issues I was wondering about: how will these communities spend this money and will this revenue increase last?

My guess is that there will not be too many major changes even with these increases. Because it is not clear whether the money will continue to come in at similar rates (though the online source sounds durable), the money could be limited to particular items or shorter projects.

At the same time, an increase in monies could help address important needs and build a good foundation for the next few years. Could some communities complete a project that they had been waiting on? Or, could they start something rolling for the longer-term that needed resources to get rolling?

These increases could also lead to some interesting conversations about what to prioritize and spend on. (Additionally, communities without bumps might have interesting discussions.)

Proposed Illinois legislation would not allow communities to offer tax breaks to entice firms in other Illinois communities to move

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Companies can play communities off each other to see who is willing to offer tax breaks and other perks for moving to a specific municipality. A new proposed law in Illinois would aim to stop this practice among Illinois communities:

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It is long past time for Springfield to take municipal cronyism off the table, permanently. One of us, state Rep. Joe Sosnowski, R-Rockford, has introduced legislation in Springfield to that effect.The Local Government Business Anti-Poaching Act, HB0211, would prohibit local governments from offering special favors to Illinois businesses in exchange for relocating to their communities. It would end business incentives from politicians spending taxpayer dollars. It requires that businesses relocate based solely on their evaluation of a location and their ability to serve their customers with better prices, products and services rather than taxpayer funded special deals.Under this legislation, Illinois lawmakers and businesses would both refocus their energies on the state’s economic, education, law enforcement and infrastructure policies to put the state’s economy to work for everyone, not just the privileged few.Anti-poaching legislation will make Illinois’ economy as competitive as any state in the country, all year round.

My first thought in reading this: won’t Illinois companies then seek communities just over the border or in other communities if they cannot find better deals in Illinois?

A related thought: a municipal tax breaks seen as part of a freer market where companies and communities can compete for jobs, economic growth, profits, and more? If so, is an anti-poaching law limiting competition?

This may get into too many details but I wonder how the state or others might differentiate between moving because of a nice financial package and doing it solely for business reasons. There cannot be an announced deal in place? Are there penalties for Illinois communities who make offers and companies who ask for them or accept them?

How the discussion might go regarding 700+ empty acres in the middle of suburbia

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A new large plot of land may soon be available in the middle of Lake County, Illinois. What should go there? Here is an early idea:

The family that owns the Chicago Blackhawks wants to turn more than 700 acres of farmland it owns near Mundelein into a housing, commercial and industrial development, village officials confirmed.

If the Wirtz family’s vision becomes reality, the land would be annexed into Mundelein and become the largest development by acreage in Lake County, Village Administrator Eric Guenther said.

“This is a big deal,” Guenther said. “(It) could prove to be a very extraordinary development for Mundelein, the Wirtz family and Lake County as a whole.”…

Guenther declined to detail the family’s specific plans for the land. They will be unveiled to the public at the village board’s Dec. 12 meeting.

Given what I have seen regarding suburban development, here are some of the steps to come and the common responses from involved actors:

  1. The landowners will bring a plan to the municipality that maximizes or at least includes a lot of profit through developing the land.
  2. The Village of Mundelein will receive the proposal and work on it through elected and appointed officials plus professional staff.
  3. There will be public hearings regarding the property and proposed plans.
  4. Community residents will chime in with a variety of concerns, including regarding traffic and noise. The local school district and other actors will wonder how new development will affect local services and amenities. The village will want to consider the tax base on how the tax revenues add up from such a property. Some actor(s) will propose keeping the property or part of it as green space.
  5. There will be some negotiations between the developers and the community. This could go relatively quick or slowly, depending on the changes asked for and the vision of the developers. They could happen behind the scenes or be more visible to the public.
  6. Roughly 1-2 years from now a plan will be in place and development can start.

Each of these steps could proceed differently with the potential for plans to move more quickly or more slowly. There is no guarantee that the proposed project will go forward.

However, given the size of this parcel, there will be a lot of interest from everyone about what happens with this land and how this might affect Mundelein – whether it is the community’s character, revenues, or land use – for decades to comes.

Amazon was opening a warehouse every 24 hours…but not now

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Amazon was building warehouses at a rapid pace during COVID-19:

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When homebound shoppers stampeded online during the pandemic, Amazon responded by doubling the size of its logistics network over a two-year period, a rapid buildout that exceeded that of rivals and partners like Walmart Inc., United Parcel Service Inc. and FedEx Corp. For a time, Amazon was opening a new warehouse somewhere in the U.S. roughly every 24 hours. Jassy told Bloomberg in June that the company had decided in early 2021 to build toward the high end of its forecasts for shopper demand, erring on the side of having too much warehouse space rather than too little. 

But, now the opposite is happening:

MWPVL International Inc., which tracks Amazon’s real-estate footprint, estimates the company has either shuttered or killed plans to open 42 facilities totaling almost 25 million square feet of usable space. The company has delayed opening an additional 21 locations, totaling nearly 28 million square feet, according to MWPVL. The e-commerce giant also has canceled a handful of European projects, mostly in Spain, the firm said.

The scale of this is worth marking: a new warehouse every day.

Companies act in such ways given economic conditions. Yet, these are not just business decisions; they affect communities. As Amazon rapidly expanded, many communities sought out such a facility and/or offered tax breaks and incentives. This happened in the Chicago region. If Amazon contracts, this affects local decisions and revenues.

As conditions change, will communities operate differently toward Amazon or will they reassess their approach to attracting businesses, jobs, and revenues? Many communities would still probably prefer to have an Amazon facility in the long run but they may be harder to entice or the competition might be stiffer. Or, if Amazon facilities come and go, they might be inclined to look toward other firms or industries.

How much a declining mall can cost a community in sales tax revenue: almost $20 million a year

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The decline of Stratford Square Mall in Bloomingdale, Illinois meant the sales tax revenue for the community dropped dramatically:

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Stratford was still a cash cow in 2012, generating $20.3 million in sales tax revenue. But that number has quickly dwindled in the last 10 years, with the mall producing just $466,080 in 2021, village officials say.

“Dead malls” or struggling malls are a problem in numerous American communities. Popular for decades, these properties provided shopping, entertainment, and social space for visitors, jobs, and tax revenues for communities.

As communities look to transform these properties (and the possibilities are broad), one large factor will be how much tax revenue the new land use generates. Can they ever come close to generating that kind of sales tax revenue? Restaurants and entertainment or experiential spaces can help close that gap. Residences, however, do not bring in that kind of money (unless those new residents shop regularly at local businesses). If not, what other clear benefits will the reconfigured properties offer the community?

Local residents oppose a casino at three proposed Chicago sites

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As Chicago leaders consider where a new casino in the city might be located, local residents expressed their concerns:

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Earlier this month, the city held town hall meetings for each of the three proposals and got an earful from neighbors opposed to a casino being built close to their homes. Their overwhelming message: Not in my backyard.

“This casino does not belong in a neighborhood,” said Antonio Romanucci, a resident of River North, where the Bally’s casino would be built, if approved. “You are putting a square peg into a round hole.”

Others at the Bally’s meeting raised concerns about traffic, crime and noise from concerts…

And while The 78 is marketed as an entirely new neighborhood, residents from the South Loop, Chinatown and Pilsen spoke in opposition to including a casino in the already approved megadevelopment.

“This is a once in a lifetime opportunity. Don’t blow it on a casino,” said an 11-year-old named Sean, who spoke at the town hall for the Rivers 78 proposal. “A casino does not make a neighborhood. Things that attract families are what make a neighborhood.”

Last week, Lightfoot responded to the community blowback saying there is always “a level of NIMBYism” with large development projects.

Generally, communities and cities tend to like developments that will generate significant revenues. People spend money at casinos and using the property to generate revenues is preferable to having vacant properties or ones with limited revenues.

However, a casino is not a typical land use. They are relatively unusual. They can attract a lot of visitors. They can be viewed as encouraging vice and unsavory activity.

So, the mayor’s claims that this is just NIMBYism might not work with a more unusual land use like this. Sure, residents tend to complain about changes to traffic, lights, noise, and property values with a new nearby development, but does anyone want to live next to a casino?

Watching the decision-making process on this one might just make a fascinating case study for urban scholars for years to come.

The complications of switching over from Disney self-governance in Florida to local government

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With the Florida legislature voting to strip Disney of its self-governance status regarding the Disney World land, what might this mean for local governments?

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The counties, on June 1, 2023, would assume all of Reedy Creek’s assets and liabilities and become responsible for providing all of the services currently handled by the district, CNBC reported.

Currently, Disney finances the services supplied by Reedy Creek, which would normally be funded by local municipalities. The company, instead, charges itself property taxes to finance its service and pays the Orange County Sheriff’s Office for law enforcement.

Once Reedy Creek is dismantled, local taxpayers and municipalities would likely be responsible for those services.

’Removing district could transfer $2billion debt from Disney to taxpayers and could potential have an enormous impact on Orange and Osceola residents!’ State Sen. Linda Stewart, who voted against the bill, tweeted Wednesday.

However, Rep. Fine told Insider he believed taxes could go down because the measure was ‘eliminating a layer of government’.

Walt Disney World already pays property taxes to Orange and Osceola counties, so that would not change, however the counties would get to collect the tax revenue Disney currently pays to itself.

The transfer of revenues, services, and infrastructure from a private entity to a set of local governments might take some time to sort out. Who will be responsible for what? How do the revenues compare to the costs required? How does this require local governments to adjust?

Let’s say this process is a complicated one. Does this affect the experience of visitors to Disney properties or to local residents?

While this is a national culture wars story at the moment, it would be interesting to hear from local officials on what they think of this or how they anticipate this working out. Very few local officials would want to lose a major company from their land. Would they vote against their own local economic and political interests in the service of sending a message to Disney?

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