IML 2017 ANNUAL CONFERENCE September 22, 2017 Economic Incentives Beyond TIF Districts: Creative Solutions to Promote Development IML 2017 ANNUAL CONFERENCE September 22, 2017 Scott Niehaus Village Manager Gregory T. Smith Partner

Outline Introduction Village of Lombard Redevelopment Non-TIF Economic Development Tools Other Incentive Tools The Need for Good Policy Questions

Introduction TIF districts have been used throughout Illinois to successfully develop and redevelop blighted areas. However, non-municipal units of government and the public have become weary of TIF districts, making implementation more difficult and politically challenging There are other economic incentive tools available to municipalities that are often overlooked.

Tax Increment Financing: What the Public Thinks "A lot of people think TIFs are the best thing since sliced bread. Others think it's the devil's handiwork.” The Star Press "I've called it a back-door tax for a long time," Whitten said. "We're losing future revenue and seeing tax rates either not going down or being driven up because of TIFs.“ Chicago Tribune “The solution is simple: Eliminate TIFs entirely at the state level, thereby forcing cities to address their financial problems directly instead of continuing to play financial shell games.” IllinoisPolicy.org Quote #1: http://www.thestarpress.com/story/opinion/columnists/2015/02/07/larry-riley-effectiveness-tif-districts/22943261/ Quote #2: https://www.illinoispolicy.org/school-district-sues-mount-prospect-ill-over-tif/ Quote #3: http://www.chicagotribune.com/suburbs/post-tribune/news/ct-ptb-porter-county-tifs-st-0730-20170729-story.html

Mechanics of Tax Increment Financing Source: civiclab.us

Village of Lombard Redevelopment Before After Vacant K-Mart (since 2013) Mariano’s (Aug. opening)

Economic Benefits The project is intended to: Create both construction and permanent job opportunities Strengthen the commercial sector Serve as a catalyst for future economic development activity Finance roadway expansion and intersection improvements at Roosevelt and Finley Roads Strengthen the tax base of the local governmental entities

Economic Incentive Request The financial incentive request is intended help cover: Site acquisition Building demolition activities Site engineering and grading Utility improvement costs Project construction costs

Economic Incentive Request Total estimated project cost $25.5 million Incentive request $3 million (net present value) plus selected roadway improvements 19 year agreement (School District property tax sharing only for first 10 years of agreement)

Economic Benefits Approximately $37.5 million in retail sales is projected in the first year. Assuming conservative growth projections, the project will add an estimated $870.8 million in sales to the Lombard economy over the 19 year life of the agreement. Estimated new revenue to the Village as a result of new property and sales taxes of $9.1 million over the life of the agreement ($481,000 per year). For all taxing districts involved (District 44, District 87 and the Village), the site is projected to generate approximately $12.5 million in new combined property and sales tax over the 19 year life of the agreement.

Agreement Structure Sales Tax Reimbursement from future sales tax rebates, received from goods sold at the new store once it opens. The Village retains the first 20% of sales tax generated from the site for potential loss of sales tax. After the first 20%, the Village will equally share (50/50) retail sales tax generated from the project for the life of the agreement. An anticipated $37.5 million baseline sales figure was estimated based upon performance by other like establishments. Almost $6.8 million in sales tax could be generated and evenly divided between the Village and developer, exclusive of the Village’s non-home rule sales tax.

Agreement Structure Places for Eating Tax Store anticipated to also provide funds derived from the Village’s Places for Eating (PFE) tax The Village retains the first 20% of sales tax generated from the site for potential loss of PFE tax and due to potential decrease in sales at other stores After the first 20%, the Village will equally share (50/50) retail sales tax generated from the project for the life of the agreement

Distribution of Sales Tax Current Taxes Received Over Same Period Without Redevelopment Total Incentive By Taxing District Additional Taxes to Taxing District % Going to Taxing District Village of Lombard $265,534 $3,699,963 $4,410,975 55.8% District 44 $941,022 $720,375 $2,243,369 81.6% District 87 $550,392 $421,343 $1,312,133

Economic Development Tools Alternatives to Tax Increment Financing

65 ILCS 5/8-1-2.5: Expenses for Economic Development “The corporate authorities may appropriate and expend funds for economic development purposes, including, without limitation, the making of grants to any other governmental entity or commercial enterprise that are deemed necessary or desirable for the promotion of economic development within the municipality.”

Property Tax Rebates & Abatements Taxing districts may abate taxes as an incentive to attract, maintain, or revitalize business areas. Pursuant to Property Tax Code and Illinois Municipal Code Home rule units of government are allowed more flexibility in this incentive program, whereas a non- home rule municipality must strictly comply with the rules set out by statute with regard to the purpose, amount and period of abatement. 35 ILCS 200/18-165, et seq.

Property Tax Rebates & Abatements Criteria for Eligibility for Abatement; Commercial/Industrial Property Expansion in either the number of employees of a facility located in the taxing area or expansion of a building located in the taxing area; or Establishing a new business in the area by either moving into the area from another county, state or country or establishing a new business in the area by creating a newly-formed entity.

Property Tax Rebates & Abatements Considerations: Does the taxing district feel it appropriate to abate real estate taxes in the area? To qualify, the property must be less than five hundred (500) acres and the abatement cannot exceed four million ($4,000,000.00) dollars over ten (10) years. In real estate abatements, the amount of tax is generally reduced, not eliminated, for the particular property. Many taxing district will require a development or redevelopment agreement prior to such abatement. The amount of abatement is usually the most negotiated area.

Sales Tax Rebates Municipality may agree to rebate to the developer, a percentage of the Illinois Retailers’ Occupation Tax which it receives from the State for retail sales that occurred in the development/redevelopment area over a finite period of time Sales Tax Rebate Agreement (Economic Incentive Agreement) is entered into between the municipality and the developer Sets out the amount of the rebate and the terms and conditions Rebates paid to developer quarterly, semiannually or annually depending on terms of the agreement 65 ILCS 5/8-11-20

Sales Tax Rebates The Sales Tax Rebate Agreement should include certain findings that municipal corporate authorities are required to make: Statement defining the vacancy which has existed on the property Expectation of jobs creation That the project will strengthen the commercial sector of the municipality Additional terms: Start date for the rebate and the number of years for the rebate to rum Percentage or total dollar amount of the rebate the developer is eligible to receive The developer’s obligations

Places of Eating Tax Rebates “The corporate authorities of each municipality… may license, tax, and regulate all places for eating or amusement.” 65 ILCS 5/11-42-5

Gasoline Tax Rebates The corporate authorities of a municipality of over 100,000 inhabitants may impose a tax of one cent per gallon on motor fuel sold at retail within such municipality. A tax imposed pursuant to this Section shall be paid in addition to any other taxes on such motor fuel. If a majority of the electors in the municipality voting upon the question vote in the affirmative, such tax shall be imposed. If a municipality imposes a tax on motor fuel pursuant to this Section, it shall be the duty of any person engaged in the retail sale of motor fuel within such municipality to collect such tax from the purchaser at the same time he collects the purchase price of the motor fuel and to pay over such tax to the municipality as prescribed by the ordinance of the municipality imposing such tax. 65 ILCS 5/8-11-15 See also 35 ILCS 505/1 et seq.

Business Districts The process for a municipality to establish a business district is much easier than creating a TIF district. A municipality's ability to insure that viable business districts are maintained in the community is dependent on its ability to promote development and redevelopment and to attract sound and stable commercial growth in such areas The Illinois Municipal Code grants municipalities certain powers relating to the creation of business districts .

Business Districts After notice is given and a public hearing is conducted, a municipality's corporate authorities may designate an area within its boundaries as a business district A municipality is granted a variety of powers to enable it to carry out a business district development or redevelopment plan. 65 ILCS 5/11-74.3-1, et seq.

Business Districts Municipalities have the authority to: Approve all development/redevelopment proposals Condemn real and personal property Acquire, manage, convey or otherwise dispose of real and personal property pursuant to provisions of a development or redevelopment plan Finance the plan by: Loans and grants Borrowing funds, including issuing bonds Levying up to an additional 1% sales tax in ¼% increments to finance the plan if the Business District is blighted Enter into contracts Sell, lease, trade, or improve acquired real property 65 ILCS 5/11-74.3-3

Special Service Areas What is it? A contiguous area within a municipality or county in which special governmental services are provided in addition to those services provided generally throughout the municipality or county, the cost of the special services to be paid from revenues collected from taxes levied or imposed upon property within that area. (35 ILCS 200/27-5) Under the Illinois Constitution, counties and municipalities may levy or impose taxes upon areas within their boundaries in the manner provided by law for the provision of special services to those areas and for the payment of debt incurred in order to provide those special services. A tax to provide those special services or provide for the payment of debt incurred for that purpose shall be levied or imposed in accordance with such statute. Article 27 of the Property Tax Code sets forth the procedures by which special service areas may be established, bonds issued, and taxes levied. 35 ILCS 200/27-5, et seq.

Establishing a Special Service Area (SSA) Statutory guidelines in 9 steps: 1) Adopt an ordinance proposing the establishment of the special service area Include statement of the purpose, legal description of boundaries, annual maximum tax rate, maximum number of years taxes to be levied. 2) Adopt a resolution at a public hearing to determine if and when a public hearing will take place to create the SSA Corporate authorities must adopt a resolution establishing time and place of public hearing-before or within 60 days after the adoption of an ordinance proposing SSA. 3) Provide notice of the public hearing Published in newspaper at least 15 days before hearing. Newspaper must have general circulation within the municipality. 4) Conduct a hearing by the corporate authorities Anyone with an objection may be orally heard on any issue relating to proposal Corporate authorities have authority to delete territory from proposed SSA.

Establishing a Special Service Area (SSA) 5) Observe 60-day waiting period to allow petition to block implementation Purpose: to allow anyone with objections to circulate petition. If 51% of electors and 51% of owners residing in the SSA submit a petition, the SSA may not be formed. Failure of either class of 51% will defeat objection and validate the ordinance. 6) Adopt the final ordinance After 60-day waiting period, the corporate authorities may adopt and ordinance creating the SSA. 7) Implement the SSA Commence with the project or services. Use approved tax levy approved in ordinance. Tax revenue generated by SSA goes to fund only for stated purpose of SSA. 8) File documents with County clerk and recorder (within 60 days) Ordinance must be filed and recorded. Provide a territory map. Provide special tax roll (if tax method is not assessed valuation). 9) Alter special service area Use preceding procedures to enlarge territory, change tax or debt limitation, alter type of tax, extend life of SSA (if fixed term).

Special Assessment Financing Statutory Process (complex and lengthy) Board of Local Improvements Engineer’s Estimate Public Hearing Ordinance Adopted Assessment Roll Court Filing and Proceedings Call for Bids and Contract Awarded First Warrant 65 ILCS 5/9-2-1, et seq. and 50 ILCS 460/1, et seq.

Other Incentive Tools Waiver of fees Public infrastructure improvements Contemporary building codes

The Need for Good Policy Without policy, all that remains is politics Must be performance based without guarantee Must have a defined term/end date Must allow for public input and discussion

Questions? Scott Niehaus niehauss@villageoflombard.org (630) 620-5700 Gregory T. Smith gtsmith@ktjlaw.com (312) 984-6436