Taxing districts join District 300 lawsuit against Sears to collect on lost tax revenue
A number of Chicago-area taxing districts have joined Algonquin-based Community Unit District 300 as plaintiffs claiming they are entitled to millions in tax revenue allocated to Sears when it was in violation of an economic development agreement.
The governments also joining the suit as plaintiffs include Barrington Library District, Elgin Community College, Barrington Township, the Metropolitan Water Reclamation District and School District U-46.
"It did not make sense for us to remain listed as a defendant," said Mary Fergus, director of school and community relations for School District U-46. "We, along with other government bodies previously listed as defendants, believe that we are better suited to be listed as a plaintiff as we are joining District 300 to ensure recovery of revenue owed to us."
In 1989, the Economic Development Area and Tax Increment Allocation Act was created in an effort to keep Sears and thousands of jobs from leaving Illinois. After its passage, the village of Hoffman Estates approved an economic development agreement with the company that would offer financial assistance and subsidies to develop a corporate campus in the village.
In 2012 - under the threat of Sears leaving the state once again, the village of Hoffman Estates amended the act to require Sears to maintain no fewer than 4,250 full-time equivalent jobs at its corporate headquarters in the village. In the event that Sears fails to comply with this requirement, the amendments will provide a formula for recapture of the subsidies based on the amount of time Sears failed to comply with the jobs requirement, according to the suit.
In October 2018, days before the company would file for bankruptcy, District 300 sued the village of Hoffman Estates and Sears Holdings Corporation over the latter's failure to comply with terms and conditions of the agreement.
Ken Florey, an attorney representing District 300, said because several governing bodies became plaintiffs, the school district's complaint had to be amended. Florey said this was a strong statement in the case.
In a settlement agreement with the Department of Commerce in 2017, Sears admits failing to comply with the jobs requirement at least as of May 31, 2017, and admits it continued to fail to comply with the jobs requirement at least through Dec. 15, 2017.
However, the suit alleges the village of Hoffman Estates incorrectly paid to Sears the amount of property tax revenue levied by the taxing bodies in 2012, 2013, 2014, 2015, 2016 and 2018 had it maintained 4,250 jobs for the entire 2013, 2014, 2015, 2016, 2017 and 2019 calendar years.
"(Hoffman Estates) had an obligation to verify and certify whether Sears was in compliance with the jobs requirement of the Sears EDA Act," according to the lawsuit. "However, for the village, it is more lucrative under the Sears EDA Act for Sears to be in compliance with the jobs requirement than not in compliance, so the village failed to meaningfully perform its verification and certification functions mandated by the Sears EDA Act."
At the time District 300 filed suit, the village was holding property taxes levied for the 2017 tax year in a special tax allocation fund which, if Sears was compliant with its agreement, would be distributed 55% toward Sears and 45% toward various taxing bodies within the state.
Because Sears filed bankruptcy, there was a hold on the 55% of 2017 taxes, or about $9.7 million, pending further order of the bankruptcy court or an agreement between parties. In 2019, the bankruptcy court ordered the village of Hoffman Estates to release about $2.5 million of 2017 special tax allocation funds to Sears.
In October 2019, the village was ordered to disburse $2 million of the remaining 2017 funds to District 300 and the rest to Sears.