Kellogg Students Weigh in on City TIFs, Policy

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.

Main/Chicago TIF

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.

Six TIFs and One More Proposed

At present there are six tax-increment financing, or TIF, districts within the City of Evanston, and aldermen are expected to approve a seventh one later this month. In a TIF district, the base property tax – the tax on the property as it went into the TIF – is divided, as other property-tax revenues are, among the taxing bodies affected by the TIF. During the life of the TIF, typically 23 years, the tax increment – the difference between the base property tax revenues and the tax revenues on the property as it is improved – can be used within the TIF for projects that benefit the entire community. Examples of uses of TIF funds are for public infrastructure such as sewers and sidewalks or parking garages, such as the Maple Avenue and Sherman Avenue garages in downtown Evanston. From the oldest to the newest, Evanston’s TIFs are as follows: • The Southwest (Sam’s Club) TIF is located in the southeast corner of the Main Street Commons shopping plaza. Sam’s Club and Ward Manufacturing are the two largest properties in the Southwest TIF. It was created in 1990 with a base EAV (equalized assessed valuation) of $1,007,606.• The Howard-Howard-Hartrey TIF encompasses the shopping center on Howard Street just east of McCormick Boulevard. Target, Jewel, Office Max and Best Buy are among the big-box stores in the Howard-Hartrey TIF. It was created in 1992 with a base EAV of $7,034,353.• The Downtown I, or Washington National, TIF stretches along Chicago Avenue from Church to Davis streets, over to Sherman Avenue and down around Fountain Square.Whole Foods North, Park Evanston, Sherman Plaza and the Sherman Avenue garage are some of the properties in the Downtown I TIF. It was created in 1994 with a base EAV of $25,727,379.• The Howard-Ridge TIF lies along Howard Street a few blocks east of Ridge Avenue and west of the CTA tracks. The apartment complex at 415 Howard is the principal property in this TIF. TIF funds, along with other City funds, have been used to purchase additional property along Howard Street in the same vicinity. It was created in 2004 with a base EAV of $5,978,279.• The West Evanston TIF is an elongated parallelogram along Dodge Avenue between Simpson and Greenleaf streets (excluding residential properties). It was created in 2005 with a base EAV of $37,477. • The Dempster-Dodge TIF, encompasses the Evanston Plaza shopping center at Dempster Street and Dodge Avenue. Bonnie Management Company purchased the property after it fell into foreclosure. The City says it has been working with the developer over the past several months, and there is a possibility that Planet Fitness, which opened in Main Street Commons (the Main/McCormick shopping plaza) will open a second gym in Evanston Plaza. From outward appearances, few if any improvements have been made to the shopping center, and no one from Bonnie Management returned phone calls or responded to email questions from the RoundTable. It was created in July, 2012. Its EAV in 2010 was $10,816,870.• Main-Chicago TIF. The vacant lot on the southeast corner of Main Street and Chicago Avenue appears to be the driving force behind this proposed TIF. The boundaries of the proposed seventh TIF run along Main Street and Chicago Avenue, a shopping area that is thriving at present. While there appear to be enough votes to approve the Main-Chicago TIF, two of the three aldermen whose wards will be affected oppose it. Coleen Burrus, 9th Ward, and Don Wilson, 4th Ward, have spoken against the proposed TIF, but support may be growing. Third Ward alderman Melissa Wynne has said she supports it, and some of the business owners in the area have said they also are in favor of the possibilities for redevelopment and infrastructure improvement there.