Four students of Kellogg professor Therese McGuire presented to the community the results of a quarter-long study of tax-increment financing (TIF) districts in Evanston and elsewhere. Part of the City-commissioned study looked at the effectiveness of some of Evanston’s TIFs and made recommendations about policy and strategies the City might employ to expand community benefits and limit potential financial risk.
Dr. McGuire is Professor of Management and Strategy at Kellogg and director of the Guthrie Center for Real Estate Research and the School’s Real Estate Program.
TIF districts, the students said, work best when an economic development plan is already in place.
A TIF should fit into an existing economic development plan and should “catalyze” economic growth in the area rather than be expected to create a demand for it. A municipality should construct the financing piece of the TIF to put more of the risk on the developer and minimize the risk to the City.
One of those strategies is having a “claw-back” term, under which developers who do not provide the promised benefits to the City would have to repay a specified amount of the subsidy.
Having developers be accountable for promised community benefits, ensuring that those benefits are community-wide and putting more risk on the developer than on the City and its residents are strategies that make TIF districts work best, the group found.
Sam’s Club and Dempster/Dodge
Comparing the Southwest (Sam’s Club) TIF with the Dempster/Dodge TIF, the students noted that the Southwest TIF stimulated growth in the area and bolstered the Main/McCormick Shopping Plaza, which is not part of the TIF.
The students posed the question of whether the growth at Main/McCormick came at the expense of other retail in Evanston. They said the benefit of the Sam’s Club “for the broader community is unclear.”
Evanston Plaza, the sole property in the Dempster/Dodge TIF, however, has languished for more than a year after the property was purchased at a foreclosure sale. The plaza, the students said, “is more of a convenience center that helps out the immediate neighborhood only” rather than a place others would come to shop.
The students had two specific recommendations about what the City should do with the Dempster/Dodge TIF: First, the City should allocate any money earmarked for the TIF to developing local businesses and to finding out the specific causes of the decline of the plaza. Second, the City should coordinate activities within that TIF with those in the West Evanston TIF, which abuts it along Dempster Street and at Dodge Avenue.
The study contained some cautions for the City as it considers the proposed TIF along Main Street and Chicago Avenue. The goals of that TIF should be aligned with the City’s overall goals, the students said. They cautioned against placing significant emphasis on the vacant lot on the southwest corner there.
“The City should look at the developer’s pro forma and risk assessment to see if the plan is solid,” the students said. Because the plan as it now stands calls for 90,000 square feet of office space but “few tenants in Evanston occupy more than 10,000 square feet of office space,” the study suggested, the City should consider the problem of “potential cannibalization” of other office buildings in the City if the new building is developed with office space.
William Stafford, Chief Financial Officer of School District 65, said the two parking garages in the downtown area had been built with TIF funds and asked whether the students had considered “parking as a common, public-good element” in their assessment of the proposed TIF at Main/Chicago.
While the cost of creating parking is $30,000 per space, a revenue-generating structure, such as a public parking garage, will benefit the entire community and for the most part guarantee income to the City during the life of the TIF. Two public parking garages were built in the downtown area with TIF funds, said Mr. Stafford.
The students said they had not investigated parking but said that both the Metra and the CTA have stations at Main/Chicago, possibly indicating that there would be less demand for parking because of the access to mass transit. They did say they agreed that parking was critical to a TIF.
City Manager Wally Bobkiewicz asked the students if they were saying that the proposed Main/Chicago TIF is “not a bad idea, but, ‘Just be cautious,’” to which they said they agreed.
The proposed TIF at Main Street and Chicago Avenue will come before Council in January.