Story posted Wednesday, January 7, 2009
TIF Goes On
Council Extends Controversial Tax District 12 Years
By TODD WESSELL Journal & Topics Editor
Des Plaines aldermen---many of them angry and puzzled---agreed to extend the life of a controversial Tax Increment Financing (TIF) district by 12 years Monday night in order to head off future deep financial troubles for the city.
In approving the extension, City Council agreed that something "incredible" happened several years ago when the TIF district was formed that has cost taxpayers millions of dollars. And because of that belief, aldermen indicated their willingness to consider launching a formal investigation into what happened and who was responsible.
The controversy swirls around the creation of the city's TIF district 3 that's located along Wille Road south of Oak ton Street and west of Mt. Prospect Road. In 2000, the city created the TIF as a way of redeveloping the large parcel that parallels the Northwest Tollway. For decades, the property served as a parking area for tractor-trailer trucks and other minor industrial uses. A TIF district is an area where future property taxes are diverted to a special city controlled fund that are used to pay for improvements in that area. Cities like TIFs because they attract development due to the fact that the money can be used to help pay for expenses the developer would otherwise be responsible for. TIFs are meant to spur redevelopment of underutilized property.
Several years ago, questions began to surface about flaws in TIF 3. As current Community Development Dept. Director Mike Conlan has said in several memoranda, "The problem with TIF #3 is the manner in which project financing was structured. The land acquired for redevelopment was deeply discounted or 'written down' when conveyed to the developer: land that cost the city nearly $20 per square foot to acquire with all costs considered was sold to developers for $5 per square foot." Between 2001 and 2005 the city spent $16,210,000 to acquire and prepare the land that was later sold to developers.
In his memo, Conlan added that the problem for the city was compounded when it agreed to support a 6b property tax deal which "effectively cut property tax revenue in half. The combination of these two factors," said Conlan, "means that this TIF will never have a positive cash flow." What that also means is that beginning this year, the TIF district will not generate enough property tax revenue to pay off the debt the city incurred when it purchased the property. Without taking a major step, such as extending the life of the TIF another 12 years to spread out regular debt payments, the city will have to pay out nearly $700,000 per year from its General Fund. That would total around $11.5 million over the life of the TIF, which expires in 2022. By extending the TIF's life another 12 years, very little money from the city's General Fund will be used. The debt will be paid off with money deposited in the special TIF fund. The difference in the two funds is that the General Fund's revenue source is chiefly from local property taxes throughout the community while TIF money is from property taxes generated only by that land within the TIF. TIF 3 is comprised of two large parcels and no residences.
Aldermen Monday night, feeling they had no other choice but to extend the TIF's life, voiced strong concern about how the predicament evolved. Ald. Carla Brookman (5th) called the deal struck in 2000 "inexcusable" adding that the city needs to take measures so it never happens again.
"I agree," said City Manager Jason Bajor. "This was structurally flawed from the beginning. This did not involve all the staff. Some highly compensated members of the city staff did not do their jobs. We have a different mindset now."
"It's incredible something like this would happen," said Ald. Mark Walsten (6th). "I'd like to know what happened. It's unbelievable." Bajor suggested that the city hire an outside consultant to conduct a study of what occurred. "I was not involved intimately with this. This is a textbook case of how not to do an economic project like this. Never again. If this should happen again, we should look at replacing those responsible. The people of Des Plaines were not well served," said Bajor.
Said Ald. Jean Higgason (4th): "This put taxpayers at great risk. Who knows, maybe money was passed. If a mistake comes out like this again, even if it's smaller, we should look at dismissals."
According to a city report, by extending the life of TIF 3, overall payments will cost that TIF fund approximately $9.8 million in added payments.
"Some good news does not come without cost," said the city report. Privately, some city officials are blaming former acting city manager Bill Schneider for the problem saying other high-level city staff members and aldermen were not given full details. Said one alderman: "The real thing is we want to know how this thing got maneuvered through City Hall. What happened to the checks and balances? We want to make sure this never happens again."
Aldermen will soon receive a timeline and some other information about the matter from Bajor after which a decision whether to order an outside study will be made.