Des Plaines trying to restructure tax district to avoid $9 million loss

Des Plaines city council members Monday night voted to extend the life of a money-losing tax increment financing district by 12 years to reduce by 90 percent what otherwise could be $9 million in losses over the next 14 years.

In a TIF, bonds issued by the city to help spur redevelopment of an area are paid off with the additional property tax revenue the development creates. But in this case, the new buildings on 47 acres just north of the Des Plaines oasis on I90 don't generate enough taxes to pay off the bonds.

"This is really unfortunate and totally unacceptable," said 5th Ward Alderman Carla Brookman. "This has cost the taxpayers millions of dollars."

The district was created in 2000 under the direction of then-Economic Development Director Bill Schneider, who was fired in 2004 after the city learned that he had been convicted of mail fraud in the 1990s.

"This is a case study of how not to do an economic development deal," City Manager Jason Bajor said, pointing out that no one currently employed by the city was involved in creating the district. "No one did a full appraisal of the deal at the time, it appears. When a project goes this miserably wrong, people deserve to be fired."

The 12-year extension would allow the city to refinance the TIF's bonds and lessen the monthly payments, much like homeowners refinance their homes, said Michael Conlon, director of community and economic development.

If the TIF's 24-year life is extended, the city will have to subsidize it from the general fund by approximately $900,000 over the next seven years before it breaks even, Conlon said. Otherwise, the cost to taxpayers will be nearly $9 million over the next 14 years.

"Extending the term of a TIF is not uncommon," he said, adding it has already been done with the city's downtown TIF redevelopment district.

But it also is not easy.

Under Illinois law, the change will need the approval of the county, township, school districts, park districts and community colleges, the General Assembly and the governor, Conlon said. Some units of government could be reluctant to approve the extension because increased property tax revenue from redevelopment would continue to go to the TIF instead of them. City officials didn't estimate the likelihood of success or how long it might take.

The problem with the special taxing district is the way the development deals were structured. The city issued six different bonds between 2001 and 2005 totaling just over $16 million to spur the development.

"And now it is impossible for us to cover the debt without restructuring it," Conlon said.

The land was purchased from the city by Wille Road LLC, a Rosemont-based joint venture comprised of ML Realty Partners LLC of Chicago, Norwood Builders and Colliers Bennett Kahnwelier Inc., a large commercial real estate firm based in Chicago, officials said.

It now houses two large warehouses: one at 255 Wille Road occupied by Coasters Fine Furniture; the other at 251 Wille Road a multi-firm facility anchored by Caterpillar Logistics - Bombardier, a logistics facility administered by Caterpillar for the Canadian aircraft and rail equipment conglomerate.

"The land acquired for redevelopment was deeply discounted or 'written down' when conveyed to the developer; land that cost the city nearly $20/square foot to acquire and prepare with all costs considered was sold to the developers for $5/square foot," Conlon told the council in his written report.

Land write downs like this are common in TIF districts, according to Conlon. In most cases, higher property tax revenues on the new developments are enough to pay off the bonds.

"In this case, however, the problem was compounded by the fact that the new buildings in the district were granted Cook County 6b tax abatements, which effectively cut the property tax revenues in half," Conlon said.

Such abatements require city council approval.

"The combination of these two factors essentially means that this TIF district will never have a positive cash flow with the current debt structure," Conlon said.

Bajor said steps have been taken to prevent more bad deals.

"Today we take a much better, more holistic approach to these deals, by vetting them through many city offices, the city attorney and outside consultants in order to mitigate the element of risk," he said.