Tag Archives: TIF

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?

One front in zoning and development battles: school districts do not necessarily want more students

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The words of a suburban school district superintendent regarding a possible Bears stadium and adjacent development highlight one of the current fronts in battles over development:

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Palatine Township Elementary District 15 Superintendent Laurie Heinz said that if the special taxing mechanism is implemented — where property taxes above a certain level would be diverted away from schools, as well as other taxing bodies, and into the Bears’ proposed mixed-use project — the district would need financial assistance to add classroom space to schools in nearby Rolling Meadows, or potentially even build a new school within the 326-acre site…

The Bears’ preliminary site plan suggests a significant residential component, from higher-density, multifamily properties of four to eight stories closer to the Metra train station, to lower-density townhouses and multifamily units of two to four stories further south and east through the site.

Heinz said the housing could generate hundreds or even thousands of students.

“We want a seat at the table,” Heinz said at a recent community meeting. “We’re going to fight against it all being TIF’ed because we will need money.

The superintendent is saying that the school district will need money to serve the influx of students that would come through new residential units. Other school districts, residents, or leaders have gone further when considering other suburban projects: they do not necessarily want school students to live in new residential units. Fewer school-age children would save money for school districts and communities in the long run due to not having to provide educational services.

In some ways, this is an odd stance for suburban leaders and residents to take. Much of the suburban sprawl in the United States involved providing spaces and success for children. Property values and a sense of community status are often tied to the performance of local school districts.

But, this focus on children comes with costs. Particularly for mature suburbs, they can struggle to fund schools or residents and leaders push back against the costs of schooling compared to other preferred priorities (such as taxes not going up).

For this particular project, who will adjust: the city not provide a TIF? The developer change the residential units in ways that appeal to certain kinds of residents and not others? The school district finding ways to fit this into particular confines? Stay tuned.

Ferguson doesn’t get much revenue from the Fortune 500 companies in town

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Many suburban communities give tax breaks to corporations so that they locate in their community. Ferguson, Missouri is one such case where Emerson Electronics and other businesses don’t pay as much as they might in local taxes:

In 2014, the assessed valuation of real and personal property on Emerson’s entire 152-acre, seven-building campus was roughly $15 million. That value has gone up and down over the last five years as Emerson has sold off some buildings and built others, but it has not exceeded $15 million in the period since the data center was completed. So what happened to that brand-new $50 million dollar building?…

For tax purposes, Emerson’s Ferguson campus is appraised according to its “fair market value.” That means a $50 million dollar solar-powered data center is only worth what another firm would be willing to pay for it. “Our location in Ferguson affects the fair market value of the entire campus,” Polzin explained. By this reasoning, the condition of West Florissant Avenue explains the low valuation of the company’s headquarters.In fact, the opposite is true: The rock-bottom assessment value of the Ferguson campus helps ensure that West Florissant Avenue remains in its current condition, year after year. It severely limits the tax money Emerson contributes to the Ferguson-Florissant district’s struggling schools (Michael Brown graduated from nearby Normandy High School, a nearly 100 percent African American school that has been operating without state accreditation for the last two years), and to the government of St. Louis County more generally. On the 25 parcels Emerson owns all around St. Louis County, it pays the county $1.3m in property taxes. Ferguson itself receives far less. Even after a 2013 property tax increase (from $0.65 to the state-maximum $1 per $100 of assessed value), Ferguson received an estimated $68,000 in property taxes from the corporate headquarters that occupies 152 acres of its tax base—not even enough to pay the municipal judge and his clerk to hand out the fines and sign the arrest warrants.

St. Louis County doesn’t just assess Emerson a low market value. It then divides that number in three—so its final property value, for tax purposes, ends up being one third of its already low appraised value. In some states, Ferguson would be able to offset this write-down by raising its own percentage tax rate. Voters would even be able to decide which services needed the most help and raise property taxes for specific reasons. But Missouri sets a limit for such levies: $1 per $100 of property. As Joseph Pulitzer wrote of St. Louis during the first Gilded Age, “millions and millions of property in this city escape all taxation.”…

Emerson Electric isn’t the only business on Ferguson’s West Florissant Avenue. The street is also home to a number of big box stores including a Home Depot, a Walmart, and a Sam’s Club, located at the city’s northern limit. These companies all came to town in 1997 through something called tax increment financing—known (to the extent it’s known at all) by the acronym TIF. Along with low appraisals and tax abatements, TIF districts are one of Missouri’s principal tools for encouraging new development.

The conclusion here is that these tax policies reproduce the economic inequalities in Ferguson. Hence, the community has to find alternative sources of revenue, such as targeting motorists.

Here is where this gets trickier: if Ferguson didn’t offer these deals, could it have attracted these businesses? If many suburbs participate in the game of tax breaks, wouldn’t someone else offer good tax breaks? Where race matters here is that communities like Ferguson – lower income, transitioning from white to black over recent decades – have to offer even better tax breaks to compete. But, for all of these communities, it is a race to the bottom as a better deal to attract a corporation means less revenue for the city. Still, local politicians can sell the jobs created or the prestige generated. But, as this article points out, the jobs and prestige may not help much in the long run.

What you might need here is a metropolitan wide policy against such tax breaks or TIF districts to reduce the competition. Or, perhaps some tax revenue sharing program where sales tax and property tax dollars are partly redistributed to reflect who shops at or works at these facilities (they all don’t come from the community in which the firm is located). Yet, such policies require a lot of political will and again encounter the problem of race as communities, especially wealthier ones, will not want to share their revenues with others.

Behind the suburban scenes: Warrenville asks Naperville School District 203 to stop expensive lawsuit

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I posted last November about a Warrenville newsletter where the mayor expressed his displeasure that a new Cantera business had invited the mayor of Naperville to its opening but not the mayor of Warrenville. I was surprised at the reaction, which was quite unusual to see in a newsletter to the whole community, but I wonder it might be tied to a eight-year expensive lawsuit over tax revenue from Cantera:

Warrenville officials are campaigning to end an eight-year court battle over taxes with a Naperville school district.

The case returns to court Thursday, two days after leaders of five government bodies in Warrenville presented the Naperville Unit District 203 school board with a letter saying the lawsuit concerning a special taxing district has cost all parties involved more than $803,000 since 2005…

The lawsuit was filed by the district in March 2005 over the use of funds from the Cantera tax increment financing district. The Cantera development now includes a theater, shops, restaurants and corporate offices and provides about $3.2 million a year in revenue to District 203. Dave Zager, the district’s chief financial officer, said the Naperville district will continue to collect property tax revenue from the development into the future, but the amount will vary.

However, the school district alleges in the suit it is owed more than it has received. Brummel maintains the funds from the TIF district have been distributed legally and at the advice of attorneys.

The case has been dismissed twice, but the school district appealed twice, and litigation has continued.

Warrenville, its park district, fire protection district, Wheaton-Warrenville School District 200 and the public library district have spent a combined $357,000 defending the case. Naperville Unit District 203 has spent about $446,000. Part of the Cantera site is in District 203, and part is in District 200.

On one hand, this sounds like a lot of money to spend on a lawsuit that has still not concluded, but, on the other hand, tax revenue is hard to come by these days and lots of school districts could use this kind of money. I wonder if the length of the lawsuit is also tied to the economic crisis of recent years; in better times, District 203 might be better able to lose this revenue.

This is the first time I’ve heard of this lawsuit. Large battles between suburbs or suburban governmental bodies are fairly rare.

Whether corporate tax breaks help the average citizen

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Phil Rosenthal tackles an interesting question that pertains to Illinois and Chicago after recent news about certain companies threatening to leave unless they get more tax breaks: do such deals help the average citizen? While the conclusion is unclear, here is a bit about the effect of TIF (Tax Increment Financing) Districts which typically generate funds for localized development and infrastructure:

The TIF has become a fashionable way for a municipality to encourage a business to set up shop in a particular locale it might not have chosen otherwise.  Some, however, see TIFs as too often just a handout for businesses that want to go somewhere.

“They’re a very popular tool for economic development,” Rebecca Hendrick, an associate professor in political science at the University of Illinois at Chicago, whose book, “Managing the Fiscal Metropolis,” is due out in November. “There are a lot of discrepancies in the empirical research as to whether they’ve had the intended effect. Would the steel company have come in but for the TIF, or would it have come in anyway?”…

“But it turns out that tax rates go up in the entire jurisdiction in the city of Chicago as a result of a TIF being created in the city of Chicago because the way the property tax works is kind of a zero-sum game. If someone gets money, someone else has to pay for it. … Plus, it’s also off-budget.”

Chicago has a lot of TIF districts so this is not a small issue. Of course, there are different ways to measure the benefits of such development for the average citizen: should it lead to a smaller property tax bill? Should it lead to more city and state services since they should have more tax dollars? Should it lead to a better quality of life in rebounding neighborhoods? Should it lead to more jobs? The common focus seems to be on jobs, as the recent offer from Amazon.com to the State of California illustrates. But these tax breaks often lead to a very limited number of jobs.

The article also hints that certain kinds of economic change receive press coverage while others do not:

A steel company moving to Chicago gets our attention. One person losing his or her home generally doesn’t. Even 100 people losing their homes might not make the papers.

“One hundred people losing their mortgages may involve the same amount of money as a steel company moving to Chicago,” Bowman said. “One of the reasons that TIF money is provided to these businesses is it does get more attention, and people feel like, ‘Maybe things are starting to turn around if Chicago’s more attractive than Cleveland.'”

So is this more of a journalism problem? If newspapers and other media sources are more interested in the “movers and shakers,” typically politicians, business leaders, and entertainment/celebrity figures, does this help the average citizen? I assume the media would suggest that they are the public “watchdog,” helping inform people about abuses of power. But, the media, often in big corporations themselves, can also easily be cozy with these bigger interests and also want to be boosters and help improve the image of their community.

In these poor economic times, I imagine we will be hearing more about corporate tax breaks and whether local, state, and national governments should be in the business of handing them out.