Why Wheeling wants to give $6 million to developer

For months, Mark Smith asked Wheeling for millions of dollars to help keep his struggling Prairie Park development out of foreclosure.

The board finally voted down last August the idea of giving $3 million to Smith. Seconds after the vote was taken, a fight broke out between those who supported Smith and those who didn't.

At the time, Wheeling Village Finance Director Michael Mondschain was against giving Smith the money, saying the funds would have to come from the village's general fund.

As well, then-Village Manager Mark Rooney and a real estate consultant hired by the village said giving Smith so much money was a bad idea.

Earlier this month, the village board changed its mind.

On April 19, the majority of trustees said they now support giving Smith $6 million.

For the record, no official vote has been taken and Prairie Park was not on Monday's meeting agenda.

But now, both Mondschain and Mike Laube, a financial consultant hired by the village, said while it's the board's decision whether to give Smith the money, the board won't be risking the village's finances if they decide to.

So what changed?

A small uptick in the economy changed everything, breathing new life into the village's five tax increment financing districts, Mondschain said.

"Now compared to then, the landscape has changed entirely," he said. "The village would not be at risk now with this agreement."

Smith's development sits in a tax increment financing district, where the tax revenue generated by a property's increasing value is diverted to a special fund that pays for improvements there, such as landscaping or sewer upgrades.

TIF districts can be controversial because other government agencies that rely on property taxes, like schools and libraries, don't receive the increases in tax money for up to 23 years.

In total, Wheeling has five TIF districts. Because they are contiguous, village officials can legally transfer funds from one district to another.

Mondschain estimated the balance of all five districts was a negative $864,000 in December 2008 - in part because the village recently spent $3.8 million to buy the former Wickes site and another $1.3 million to buy the Collins Fireplace and Patio site.

Then because of land acquisition problems, the village held off installing a stoplight and other improvements at the entrance to village hall at Community Boulevard and Dundee Road. Putting off the $3.5 million project saved the village a lot of TIF money.

So today, the five TIFs have a positive balance of $3.2 million, Mondschain said.

To get Smith his money, the village would sell revenue bonds totaling $4.2 million. In the sale, private bond holders hold all the risk. Should Prairie Park go under, the bondholders would lose money, not the village, Mondschain said.

The remaining $1.8 million would be given in a "pay-as-you-go" format and only as Smith sells more condo units.

"He will also only get the remaining money once certain milestones are met, including building the clubhouse and a ring road for the development," Mondschain said.

Mondschain said selling revenue bonds wasn't a possibility last summer because of the economy.

Financial consultant Laube agrees with Mondschain.

"This takes away the village's risk and puts it in the hands of the bondholder," Laube said "If the project goes bankrupt, the village won't lose any money."

Should Smith get his $6 million, the village will have contributed more than $10 million to his project along North Wolf Road.

Smith received $3 million in 2003 from the village TIF funds to build 306 high-end condo units in five buildings. In 2006, Smith asked for and received an additional $1.5 million to cover the rising cost of materials.

At the April 19 meeting, Smith said he has invested more than $80 million in the project so far. He has sold 161 units, while another 79 remain unsold in the four buildings. Plans for the fifth building have been shelved for now.