TIF Districts

First the Downtown TIF District, then the Ogden Avenue TIF District.

Update: The village has released the minutes from the annual JBR for the Downtown TIF DIstrict and the Ogden Avenue TIF District.

Summaries first in case you want to skip the details.

The Downtown TIF District

Summary:

  • The Downtown TIF has contributed to growth downtown, but is not the sole driver.
  • The Downtown TIF has weak cash on cash return and may not recoup the original investment.
  • The Downtown TIF accounting pledged some initial General Obligation bond borrowing instead of higher cost limited obligation or TIF bonds, but no written policy or clear mechanism exists to restore those expenditures back to the general fund from future TIF increment surpluses.
  • The TIF has frozen tax levels at the base line levels, and other taxing bodies have fallen below the base line by the rate of inflation each year, compounding a yearly average 2.77% revenue loss since 2001.
  • No overlapping tax district receives any portion of the TIF surplus. In particular, School Districts 58 and 99 have been excluded from significant revenue growth.
  • What annual accounting does exist includes mainly tabular data, with no narrative component. Anyone not already intimately familiar with the inner workings of TIF is likely to find it very difficult, if not impossible, to figure out exactly what TIF dollars are used for what purpose, and why the decision was made to use TIF surpluses.
  • There is no resident oversight committee past the state required Joint Board of Review, which meets once a year to hear and approve the TIF reports.
  • There has never been a statistical analysis to determine the efficacy of the TIF district.

Background

TIF stands for Tax Increment Financing. TIF first started in California in 1952 as a way to finance returning non-productive blighted lands to the tax roles.

Illinois created its TIF law in 1977 to allow municipalities to issue bonds to finance infra-structure improvements, undertake land assembly, and provide incentives to lure private investment to blighted urban neighborhoods that show a pattern of losing value.

In Illinois, once a TIF district is approved, the designation stays in place for 23 years. TIF districts can have their life extended by the municipal authority, the village council. In 1999 the IL General Assembly changed the law by loosening and lowering the requirements so TIF could be used as a more general economic development tool in areas that were not blighted, and that were not necessarily losing value year to year. That’s right about when Downers Grove started borrowing.

Some of the most outrageous abuses, such as using TIF to build town halls and golf courses, are prohibited.

TIF reports for each district are filed with the state Comptroller with standardized reporting. Current Acting Village Manager Dave Fieldman is the TIF Administrator, and is responsible for putting the reports together. Since he began working for DG, he has also been lead negotiator for redevelopment agreements (RDA) in both TIF districts. Fieldman was not involved in any RDA involving Acadia on the Green, Station Crossing, or any downtown redevelopment prior to those.

The Downtown TIF District was created December 22, 1997. As originally implemented, the TIF funding mechanism was to be used to make expensive, badly needed infrastructure repairs and upgrades: new streets, new sidewalks, new sewer, new water, new repiping of St. Joe’s Creek that runs underneath the downtown, new streetlights and banner holders, new planters and trees, new pedestrian crosswalks, improvements around the train station, and a new Parking Garage.

This infrastructure repair/replacement by itself probably put the downtown back on it’s feet and triggered reinterest in the downtown as a destination for shoppers and diners. Three of DGs most used public facilities pull people downtown: the Library, the Lincoln Center, and the Post Office.

The Village invested over $47,443,100 to date in the downtown TIF to put together downtown iunfrastructure improvements and TIF projects. From 1996 to 2005, the EAV (Equalized Assesed Value) rose 114%, generating almost $68,000 in additional Village tax revenues in 2005.

Here’s the TIF increment, according to Village figures, that was diverted in 2005 from other taxing bodies to the Village:

  • District 58- $300,004
  • District 99- $270,370
  • Public Library- $34,172
  • Park District- $56,096
  • County tax bodies- $93,576

Total increment in 2005: $752,218

NOTE: Some of the EAV may be nontaxable due to IRS status. Church owned retirement homes may be one example.

By 2007, the EAV had risen from the TIF baseline of $16,050,452 to $45,967,569, a 286% increase, representing an EAV increase from 2005 of over $11,619,602 in just two years, generating an approximate total additional $171,000 above baseline village real estate taxes.

Here’s the TIF increment, based on Village figures, that was diverted in 2007 from other axing bodies to the Village:

  • District 58- $752,641
  • District 99- $678,296
  • Public Library- $85,729
  • Park District- $140,732
  • County tax bodies- $234,760

Total 2007 increment: $1,892,158.

With 13 years left in the TIF life, the DOWNTOWN TIF looks like it will possibly break even if it can keep growing at the present rate.

This increment’s impact on other taxing bodies is somewhat deceptive. It does not incorporate the negative effects of inflation into the reduction of baseline dollars. At 2.77% annualized inflation over the last 8 years, every dollar then is worth .80 cents now.

The somewhat recently exponential rate of increase will be flattened out and mitigated by lack of suitable properties for large scale redevelopment.

  • 5100 Forest is approved, and will be a substantial tax revenue genrator similar to Morningside on Main.
  • 924 Maple is still in the development stage and may never come to reality, but would also be a substantial tax revenue source, although not to the extent of 5100 Forest.
  • A new village Civic Center complex would take current revenue generating properties off the tax roles unless the project is contained within existing village owned property, which the current plans do not show.
  • A second parking deck in the DOWNTOWN would skew the TIF debt. With only 12 years left in the district, such a facility would make certain the extension of the districts existance so the deck could be mostly paid for by increment generated funds.
  • The malaise of the economy in general and the real estate market in particular have an effect on growth.

In order to grow exponentially, projects must keep getting bigger. That comes to odds with the oft stated desire to maintain a small town feel to the downtown.

The increment is not offsetting revenue declines elsewhere, so the village is in a budget crunch, but not as bad as it would be without the downtown TIF increment propping up revenues.

The Downtown TIF district is currently acting as a hidden tax on residents of Downers Grove. The downtown TIF excludes other taxing bodies from the revenue growth whether or not directly attributable to the TIF. This forces up other taxes to compensate for loss of revenue. The more downtown TIF District area the Village puts in place the more property taxes are diverted away from schools and other local taxing bodies. The Village gets what should go to others, and keeps it for themselves. That makes Village finances look better, and our school and other local taxing body finances look worse: especially our schools.

Is that a zero sum game?

Analysis

Not every project built downtown is built on a foundation of TIF dealt monies. While Station Crossing involved something of a land giveaway, and Acadia on the Green is forever a poster child of bad real estate deals costing the village well over $7,000,000 and counting, $22,272,014 dollars of 100% private investment have been made in the downtown, mainly because of infrastructure improvements. No TIF dollars were spent to generate this investment, and if you count a (relatively) paltry $9,045 public investment in the $10,000,000 Morningside development, that total rises to over $32, 297,014 in private investment without the benefit of TIF monies dedicated to the projects.

Public/Private ratio as indicated in the 2007 Downtown TIF Report:

  • Private investment: $85,753,264
  • Public Investment: $47,443,100
  • Ratio of public to private investment: 1.81

Public/Private ratio less purely private investment:

  • Private Investment: $53,456,250
  • Public Investment: $47,434,054
  • Ratio of public to private investment: 1.12

That $32,297,014 represents roughly $10,658,014 in EAV. Apply the figures back into the EAV growth, and by 2007, the EAV had risen from the TIF baseline of $16,050,452 to $35,309,555. Instead of a 286% increase, the increase soley attributable to TIF means drops to 219%, itself 25% less than the original total.

Here’s how it effects the TIF increment:

Taxing body

2007 TIF Increment

2007 TIF induced

2007 non TIF induced

District 58

$752,641

$576,323

$176,318

District 99

$678,296

$519,394

$158,902

Public Library

$85,729

$65,646

$20,083

Park District

$140,732

$107,763

$32,969

County Taxing Bodies

$234,760

$179,764

$54,996

Totals

$1,892,158

$1,448,890

$443,268

With 12 years to go on the Downtown TIF, the village has yet to reach the yearly required average of $2,062,743 in increment revenues in order to break even on expenses and debt booked to the TIF district, but not including future expenses.

Examples of future TIF accountable expenses:

  • Repair and replacement of sidewalks, lighting, repaving; any infrastructure repairs and improvements.
  • Utility upgrades to bury services.
  • Public structures like an additional parking deck.
  • Future TIF induced development, like a grocery store.
  • Future TIF induced improvements to existing structures, like the coming DOWNTOWN façade improvement program.

The Ogden Avenue TIF District

Summary first in case you want to skip the details.

  • The Ogden TIF has not contributed much to village growth, but it has a much harder area to work in. Little by little, slowly, small scale developments are consolidating and improving Ogden Avenue.
  • The Ogden TIF has weak EAV growth, leading to weak TIF increment surplus growth, but also has no large TIF bond debt.
  • The Ogden TIF accounting is very clean.
  • The TIF has frozen tax levels at the base line levels, and other taxing bodies have fallen below the base line by the rate of inflation each year, compounding a yearly average 2.77% revenue loss since 2001.
  • Despite paying 50% of the increment back to District 58 each year, District 99 receives no payback, and both have lost half or their entire majority revenue generator in areas planned for higher growth.
  • The District 58 50% payback increment is not accounted in, nor paid out of, the TIF district funds, artificially adding to available TIF funds, and draining the village budget.
  • What annual accounting does exist includes a minimum of tabular data, with no narrative component. Anyone not already intimately familiar with the inner workings of TIF is likely to find it very difficult, if not impossible, to figure out where exactly where hundreds of thousands of TIF dollars are going.
  • There is no resident oversight committee past the state required Joint Board of Review, which meets once a year to approve the TIF reports.
  • There has never been a statistical analysis to determine the efficacy of the TIF district.

Established February 6, 2001, the village’s goal for Ogden Avenue TIF District, is to create a renewed and larger economic engine for Downers Grove. Instead of borrowing money and creating more debt, the Village has employed incentives like Home Rule Sales Tax exemptions, and rebating a portion of our share of the regular sales tax based on performance. The village can also use Real Estate Tax refunds, credits, and abatements.

The first two- sales tax rebates- are used by quite a few communities, especially those up and down Ogden Avenue with car dealers. Ours work fairly well with our high retail sales volume businesses, like Luxury Motors and Fry’s. We know up front what most of our costs will be, and we only give away village revenues, so there’s no impact on other local taxing bodies.

The next are sometimes called Pay-As-You-Go or developer notes. The business does the work and spends the money, and the village agreement gives them back some money each year after they invest, instead of up front before they do anything. The difference here is the village pays afterwards and every year, instead of up front and only once (like the downtown give-aways) so it avoids interest payments and debt load.

Also, the RDA can link performance to the payments. If the developer doesn’t keep their end of the deal, the village is not obligated to keep theirs. Example: the now dormant Ogden and Lee development. The village had certain performance benchmarks the developer needed to meet. When the developer wanted to change the rules, the village pointed to the agreement and said meet the agreed to requirements.

Overall, both of these are more responsible and less expensive ways to give away money, but it still gives away money. In particular, if rebating businesses some or all of their real estate taxes that they had been paying, then the village creates a revenue shortfall there to be nade up somewhere else, and they’re back to giving away other taxing bodies’s money in addition to village revenues.

Ogden uses other redevelopment tools to good effect instead of relying on massive front end TIF debt to spur redevelopment, and this has kept the Ogden Avenue TIF fairly benign. Surpluses are accumulating, but they will be needed for one to three big redevelopment deals to pay for infrastructure upgrades. When all totaled up, the actual need for a TIF designation is somewhat questionable. The village seems to be doing well using other available tools.

Analysis

The Ogden Avenue TIF District is pretty much a clean sheet of paper still, due to a judicious handling of how the redevelopments have been funded. There has been no huge initial borrowing with crossed fingers that it will all work out. Instead the fiscal help is spooned out after the fact in rebates and reductions to the businesses that make good on their redevelopment plans.

Additionally, the Ogden TIF District incorporates and 50% payback of the TIF increment surplus to School District 58, so they get at least the half of the growth they normally would have obtained through increased EAV and resultant tax revenues. The accumulation of the increment surplus is also responsible. Banking them ahead of time makes sense rather than borrowing and paying additional interest costs.

Conclusions and Suggestions

The Annual TIF reports are put together and forwarded to the state comptroller, as required by law. They are vetted by an outside accounting agent, in 2007 Sikich LLC, who’ve given the financials a clean bill of health, which means there are no peculiarities requiring correction or explanation, and no warnings. DG staff, headed by Dave Fieldman as the TIF Administrator is the lead author of the annual reports, and they are vetted for legal correctness by Village Attorney Enza Petrarca. The reports do a good job getting as much information as possible accurately reported.

In addition to the required auditing, analysis and explanation of TIF accounting is fairly non-existent. There is a reason for every income and expense, but that explanation often is not included in the tabular data. Where the increment comes from and what taxing body is impacted by how much is not fully documented. Cost overruns, additional required work (as in burying utilities) all appear as a line item of public expense or investment, but no further explanation. This makes it very difficult for the typical resident to follow where the TIF money comes from, and where it goes.

Past the Joint Board of Review whose makeup is dictated by the state, there is no local body of accounting experts to supervise or observe the process on behalf of residents. The annual JBR meetings are perfunctory events, with new members usually being the only persons asking questions. A local Board of TIF District Supervision and Review can be as simple as a three person board made up of residents with backgrounds in accounting, bookkeeping, or auditing financials (bank examiners for example) that would act as a local Board of Review and meet prior to the JBR, and offer up their findings if needed, or their approval if it all looks good. To lessen any load, separate bodies could be created for each TIF District if needed, but due to the current nature of the Ogden Avenue TIF District, that does not seem imperative.

One initial task of a resident board would be to determine the efficacy of the TIF districts as they move forward. There are many different development tools available to communities, and TIF districts are but one. Having local actuarial accounting regarding the cost effectiveness of TIF would be an useful tool helping village planners direct resources to the most cost effective means of spurring growth.

The TIF Districts, as policy, should incorporate an inflation index to counter the loss of funding to overlapping taxing bodies, in particular the local taxing bodies where the shortfall must be made up by local taxpayers, simply due to the dollar losing value year over year. This would more properly account the increment surplus for village use.

It would also serve the public interest to publish all TIF documents on-line in one easy to find location. Currently, state law requires that interested parties have to register as Interested Parties. Here in DG village staff willingly will forward TIF reports when requested, and have proven to go well beyond the minimums required. On-line TIF information could include maps, plans, budgets, and redevelopment contracts, all in one location.

The village also goes a step further by identifying TIF debt regardless of funding source, and it incorporates most TIF financial information somewhere in the annual budget. It would be easier to follow with it’s own budget category. Future TIF District consideration should have clearly identified specific goals and anticipated budgets, be subject to periodic review and update, and have the mechanism in place to effectively eliminate the increment taken from local taxing bodies if and when those clearly identified goals have been met, regardless of the life remaining in the district.

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3 Responses to “TIF Districts”

  1. Anonymous Says:

    The real estate tax rebates don’t impact other taxing bodies. The village rebates the amount back to the payer. Schools get their share, paid for by the village. Tortured but it works.

  2. Red Fred Says:

    AOTG was public parking. The baseline is $0 so the village gets every dime.

  3. markthoman Says:

    Johnson Printers and the Fanny Mae building had a higher level then $0, but I get your idea. At least two buildings are on old parking lot land. I wonder if tearing down the JP building and putting in a parking lot for that while changed the baseline to zero for that part?


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