Mayor John Rey said that TIF should be continued in DeKalb for transformational projects. He said that two of the largest TIF districts in the state are in DeKalb. Both TIF I and TIF II will expire in a few short years. Mayor Rey wants to continue the publicly financed program in the “pocket TIF” model where new eligibilty could be limited to even a single building.
He made those comments to a question posed at the DeKalb Kiwanis Candidate Forum. The question was “Should TIF be ended and all the taxes captured by it just be returned to the school district?”
The projects Rey promotes as transformational are all currently in the downtown district and come with hefty price tags. The mayor is up for re-election on April 4 less than two months away. As are 2nd ward alderman Bill Finucane and Bob Snow (4th). Tony Faivre (7th) is running unopposed. Dave Baker (6th) is not seeking re-election and may well be seeking relocation shortly after his term expires. Not up for re-election are David Jacobson (1st), Mike Marquardt (3rd), and Kate Norieko (5th).
From the looks of Monday night’s (Feb. 13, 2017) city council agenda there are transformational projects that can’t wait for the public scrutiny of a mayoral election.
Cornerstone Development, LLC is seeking to transform the building formerly known as Otto’s plus Mediterraneo’s (formerly Dots), Glitter (formerly Wright’s Jewelry) and the Chesapeake Bay Bagels (formerly Matthew Boones) buildings into a new four-story building with first-floor commercial and high-end apartments on the 2-4 floor. Because the project is in the Central Business District there are no minimum parking requirements but the developer would add 40-45 parking spaces with potential future additional parking in cooperation with the City of DeKalb. The developer is seeking $3 million in financial assistance. Without any doubt this project meets the basic criteria of “if not for TIF the project would not happen.”
This project is the subject of a public hearing by the Planning Commission on Feb. 15, 2017. It is expected to be in front of the city council for 1st reading at its February 27th meeting.
The due diligence period for the properties under contract ends in early March, meaning that if this project is to go forward, it would require expedited review and preliminary approvals. If the project does not go forward, the opportunity to consolidate ownership of these contiguous parcels will be lost, and the redevelopment opportunities for any of the individual parcels will be far less advantageous.
Given a condensed time frame, the potential transformative nature of this project, and the impact it would have on the downtown, the project has been positioned so that if there is Council support, it would achieve necessary zoning approvals before the due diligence period ends in March. — Agenda Backup Material
It is SOP for a short due diligence period in a real estate offer. The seller demands it and perhaps, in this case, the court schedule also shortens it. Taxpayers are already funding a lawsuit filed by the City against the current Otto’s building owner asking the courts to allow the City of DeKalb to demolish the building at their expense.
This whole process may be flawed from the beginning and if so it starts with an ever overreaching city attorney.
When a municipal lawyer overreaches, fully armed with the knowledge that his client is not broke until its taxpayers are, there is not much chance for good government. Ask the mayor or a council member how long this has been discussed in closed session and don’t let them focus on strictly Pappas’ deal. Ask if the use of TIF funds were ever discussed in closed session or lobbied for in “two by two” meetups. TIF is not a magical money tree. It is public funds subject to public scrutiny enabled — not restricted — by the Illinois Open Meetings Act.
When the city attorney is aggressively rewriting building codes and property inspection ordinances and then selectively shows up for property inspections with condemnation powers he might be overreaching.
The principal developer of the Cornerstone project, John Pappas, shouldn’t be vilified for wanting to make a major investment in DeKalb or for asking for TIF. He is local and there are precious few locals willing and able to invest in DeKalb on a grand scale. Over the next 30 years, which is generally the length of the period on a construction loan, the project could potentially produce between $8,885,270-$13,121,293 in total taxes. When compared to the developer’s $3 million financial incentive request, the return on investment is at least three times the incentive amount.
That doesn’t count construction materials, labor and professional services. Of the four “DeKalb City Center Plan” proposals at various stages in the approval process, the Cornerstone project is the only one that directly and completely fulfills the core purpose of TIF. Public monies are invested in a blighted property to raise that property’s EAV and therefore increase the taxes it generates. $3 million directly invested, $9-$13 million directly returned over 30 years.
Also on the agenda for Monday night under Committee of the Whole is a bold proposal to construct a STEAM center. Almost every one of the economic development agencies who receive funding from the City of DeKalb wrote a letter in support of the proposal. As did Mayor John Rey. This project asks for $4 million in TIF money. It also essentially commits the City of DeKalb as guarantor to finance as much as $18.7 million in capital project costs plus take on operational expenses.
If the project is approved at the current Mooney’s building (formerly 4th Street Motors) it would have a negative direct impact on the return on TIF investment. If the full property including parcels 0823184003, 0823184002, 0823184020, 0823184027 and 0823184024 are included in the $2 million asking price about $82,000 in property taxes would be taken off the tax rolls. $82k in taxes over 30 years which is generally the length of the period on a construction loan, the project could potentially cost $2.5 million in lost taxes. Total capital project costs come to $18.7 million.
The STEAM Center could be located at the current William Monat (formerly Rice Hotel) building presently owned by NIU. There are no property taxes collected from that parcel. In 30 years that will still be the case. According to the agenda back-up material, there would be no acquisition costs. But the same $4 million in TIF money is needed due to $2 million more in upfront STEAM Center construction costs at the Monat building over the Mooney building. Total capital project costs come to $12.8 million.
According to the proposal, for the DeKalb STEAM Facility to be successful, it is critical that NIU is involved as a major partner in the development and long-term operation of the facility. A letter of support from NIU President Doug Baker included:
While the university is not currently in a position to provide substantial monetary backing to the project, we pledge to vigorously support these efforts forward through
Participation of NIU staff in the planning and implementation process
Assignment of NIU STEAM Works staff for programming and support at the center
Encouraging NIU students, faculty and staff to participate in planning and operation of the center, and
Fundraising to support NIU student, faculty and staff activities at the center.
There could be a private developer who could build the STEAM Center and finance the construction through a long-term lease back to the City of DeKalb. Revenue projections if met would limit the City of DeKalb’s share of the overall costs to 31% if located at the Mooney building or 21% if located at the Monat building. Private donations would account for 50% of the total capital costs. But for a plethora of reasons the DeKalb Public Library was not able to meet their projections of grant and donation revenue and DeKalb property owners are paying increased property taxes to cover those shortfalls.
The STEAM Center would initially start in 2019 with two full-time and two part-time employees. First-year operational costs are $350,000 with half going towards administration. In 10 years the project is expected to generate 7 full-time jobs.
Proponents will promote the far-reaching benefits of having a world-class STEAM Center right here in DeKalb. It is hard to argue against those benefits. But a city that not too long ago was wondering where and how they could buy bullets for their police officers without yet another tax or fee increase ought to keep their feet on the ground.
There could be three or four more DeKalb City Center Plan proposals in the works. The city council delayed hearing the full proposal from the Egyptian Theatre that includes $15 million in capital costs plus $250,000 in annual operation costs. The City of DeKalb would become owners of that project too. TIF District II is collecting money for a new or refurbished city hall. Who knows what’s going to happen with the Shodeen project or when John Street and Augusta Avenue plans re-emerge.
It’s a good thing TIF is paying for all this. Oh wait. Is it? In 1985 when the TIF District 1 was established the combined base values for the properties included in the Cornerstone acquisitions was $274,877. Although 30 years has passed, the combined assessment of these properties in 2015 was only $245,396. In other words, over the past 30 years of the TIF District being in place, these four properties have cumulatively decreased in property value.
Now TIF 1 may be the largest TIF District in the state of Ilinois including Chicago. What if the properties in the Pleasant Street neighborhood, Pond/Fisk Avenue, Krpan Court, Greenwood Acres and the rest of downtown are assessed lower than in 1985. Just how well has TIF worked?
Did the City of DeKalb benefit more than the school district suffered from the use of TIF? That’s kind of how mayoral candidate Jerry Smith answered the question about ending TIF and returning the captured taxes back to the schools.
Challenger Michael Embrey said he doesn’t think TIF should end because it should help blighted properties through economic development.
Candidate Misty Haji-Sheikh knew just when the TIFs were expiring in the not so distant future. She’s a proponent of the new enterprise zone that would provide tax breaks for commercial property remodeling or new construction.
Mayor John Rey praised the merits of transformation projects financed by TIF and spoke of pocket TIFs in the future.
An independent analysis of how much, where spent and what was the return on TIF investment is needed for all parties concerned and impacted by its use since 1985. It is certainly needed before the current mayor and city council votes to tie the hands of future councils and taxpayers to 30-year construction loans.
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