The following was sent by Lakewood resident Steve Willson:
Attached please find a copy of the memo written in response to my questions of the consultant Lakewood hired to approve the TIF district.
He has reviewed around 50 TIF districts. He’s never turned down a single one.
And he’s never gone back to see if the TIFs actually resulted in more development than would have occurred otherwise, the essence of the “but for” test, the job for which he was hired.
As I said in my letter, can you imagine going to a surgeon and asking him how many patients he has operated on and he answered, “All of them”, and then, when you asked him how many recovered he responded, “I don’t know. I never checked.”
I don’t think you’d become his patient!
Sincerely yours,
Steve Willson
Highlighting provided by Steve Willson.
Steve, were there more than 3 questions in your January 25th email to the village?
Have the other questions been answered by the Village?
Firms like SB Friedman are paid by municipalities in part to find the right mix of parcels to qualify for TIF Status.
But there is nothing wrong with the public checking those facts.
But the public can’t check those facts unless the Village makes all the detail level data available from the TIF Eligibilty study available tot he public, or the public submits FOIA requests to obtain the detail level data.
The Village of Lakewood has not made that detail data available on its website.
And the village meeting at which the TIF can be approved is Tuesday January 27, 2015 at 7PM Turnberry County Club in Lakewood.
We’ve seen no compelling evidence that the area around the intersection of 176 & 47 would not be developed without a redevelopment plan in the next 23 years (proposed lifespan of TIF).
And yes TIF can be extended another 12 years or something of the sort but often they are not, although in the case of Sears it was, have never seen a detailed study about TIF life, and sometimes TIFs are retired early, again, not sure how common that is.
Back to the story.
That just doesn’t make logical sense that 176 and 47 will not be developed for 23 years.
It’s right outside developed areas of Lakewood, Crystal Lake, and Huntley, and development is encroaching on that area from Huntley on the South and Crystal Lake and Lakewood on the East.
Development just hasn’t reached that intersection yet.
Maybe the problem is the property owners are asking too high of a price for the land in that area.
What two state highways do you know in suburban middle class Chicagoland in which there is no development at that intersection, it’s an island of undevelopment, yet all the other areas around it are developed.
None.
What is really happening is in exchange for taxpayer dollars to spend on infrastructure and developer subsidies, development is happening sooner than it otherwise would.
And one of the largest proposed baseball / soccer complexes in the history of the United States of America wants to develop at that intersection right now.
The proposed Sportsplex, which is the only concrete development we have information about that wants to develop in the TIF, may or may not be successful.
It’s speculative.
And because taxpayer money is being used at least indirectly if not directly in that project, we don’t have all the details yet on how the $66 million is planned to be spent.
There are very few soccer and baseball complexes in the United States on the scale of the proposed Sportsplex.
It is no run of the mill development.
And if the TIF gets approved and the Sportsplex does not, maybe the village is not so concerned about that, they still have $66 Million to spend over 35 years, using property taxpayer money a lot of which will come from outside the Village of Lakewood and the Village of Lakewood TIF district.
And that’s due to the fact that Taxing Districts inside the TIF have many parcels that fall outside the TIF.
And this is important.
If a TIF is formed, Taxing Districts that have parcels inside the TIF, are still allowed to Extend a maximum of, the lesser of, CPI or 5%.
That Extension is not frozen in any way, shape, manner, or form by the TIF.
But the EAV of parcels in the TIF frozen.
From whom will such Taxing Districts get their Extension Increase?
Such Extension increases come from parcels outside the TIF by jacking up their tax rate.
That math is a tax hike.
Cal has mentioned this type of tax hike as a result of a TIF on numerous occasions over the years.
Restated, first think about all the Taxing districts that have parcels in the TIF.
If the EAV of parcels in the TIF is frozen, and Taxing District Extension is not frozen, the only way to get the Extension increase, is to increase the Tax Rate of parcels outside the TIF.
Think EAV frozen, Extension goes up, Tax Rate must go up.
Taxpayers have experience with hiked tax rates as a result of their EAV decreasing.
Same principal.
Manipulating Tax Rate to obtain desired revenue.
That is in fact the math.
Now the argument that some have made is that EAV would have remained frozen anyways, that’s the whole reason the TIF was formed.
You have to decide if you really believe EAV would have remained frozen in the TIF.
Another argument is EAV outside the TIF will increase more as a result of the TIF.
Well, that is speculative, and it is another calculation.
We can have all sorts of what if and speculative scenarios.
Do you really believe there would be no EAV Tax increase for 23 years at 176 and 47.
Or is SB Friedman just finding loopholes in Illinois TIF law to qualify the TIF parcels for an EAV freeze.
The real problem is the Illinois TIF law is flawed, like so many other Illinois laws.
To not take into account that Lakewood EAV has decreased more outside the TIF than inside the TIF over 5 years, while using EAV as a key determining factor, makes so sense.
That is a key point.
Five years ago, the SportsPlex team proposed a $40 million project and couldn’t find investors even with a deep Federal subsidy.
Now they’ve come back as a not-for-profit corporation, meaning they have no equity whatsoever and they want the Village to issue $66 million in TIF bonds.
Let’s do the math on that.
With three years of capitalized interest, the annual payment to amortize the debt in the remaining 20 years is $5.8 million.
The property tax rate around here is about 3.4% of market value.
Divide $5.8 million by 3.4%, and you figure out that this project will need an INCREASE in assessed value of $171 million to barely cover debt service on $66 million in bonds.
How did a $40 million project that no one would touch back when it had equity suddenly become a sure-to-succeed $170 million project now that there is zero equity?
NOW!
Now you’re talking stuff with which the average readers can relate.
Well what is Lakewood’s counter to Steve’s points?
Let’s review proposed TIF.
2013 EAV of the 37 parcels in the TIF is $1,796,649.
After 23 years, by tax year 2037, EAV is projected to be $34,000,000.
The Lakewood project plan calls for $66 Million expenditures.
But Lakewood plans to issue bonds for some or all of that $66 Million.
If Lakewood issues bonds for $66 Million, then Lakewood also needs to pay the bondholders interest.
The principal and interest payments on $66 Million, if level (level equal payments each of the 23 years like a traditional mortgage), is $5.8 Million annually.
$5.8M x 23 years = $133.4 Million Dollars.
So to get $66 Million upfront, taxpayers pay $133 Million over 23 years.
Now let’s toss property tax rate into the equation.
Property Tax Rate is about 3.4% of the value for which the property can be sold.
(For instance, a $300,000 house x .034 = $10,200, if that $10,200 sounds too high or low for your property, adjust the tax rate as you deem appropriate).
Next we do a fancy division calculation.
Most people would not think to do this calculation because most people are not municipal bond guru’s.
This calculation will show us the projected EAV of the TIF parcels after 23 years would need to be $171 Million Dollars, using today’s property tax rate of 3.4%, with annual Lakewood bond payments of $5.8 Million, to issue $66 Million in bonds upfront.
Lakewood’s Annual Bond Payment $5.8 Million / Property Tax Rate .034 = $171 Million EAV.
The SB Friedman projected EAV of the 37 TIF parcels after 23 years is $34 Million.
The municipal bond guru projects EAV of the 37 TIF parcels after 23 years would need to be $171 Million, to borrow $66 Million upfront, and pay it back over 23 years, using the tax rate of 3.4%.
So the TIF consultant projects the EAV will be $34 Million, yet the bond guru projects we will need EAV of $171 Million.
What could change that scenario?
Well maybe Lakewood will not borrow $66 Million upfront.
Maybe they will borrow less.
Fine, replace the $66 Million with another number and the bond guru can give us the formula or website to recalculate the $5.8 Million.
Maybe the TIF will be super successful and ended early (SB Friedman themselves says most are not).
Maybe extra TIF revenue will be rebated to Taxing Districts (how likely is that given the bond guru’s figures and it doesn’t change the formula anyways).
Maybe you think the tax rate will average lower or higher than 3.4%, fine, you have the formula, make the change and recalculate.
The point is there is a big gap between $171 Million EAV and $34 Million EAV and taxpayers would be responsible for the difference, so the time to do your due diligence is now before the TIF is approved, and the Lakewood Board members should address the discrepancy in a realistic fashion, meaning they will probably need to provide more details, and arguably their biggest weakness is not providing enough details in the first place.
The Village of Lakewood could have addressed the above scenario on their website but chose not to do so.
In that sense the Village of Lakewood has not provided a complete risk analysis for the taxpayers who is responsible for paying property taxes in which bond payments are buried.
There are other possible scenarios of course, adjust the numbers are you see fit.
SB Friedman will have cashed it’s check from the Village of Lakewood long before 2023, so if EAV doesn’t reach $34M in 2023, no financial impact to SB Friedman.
No taxpayer watchdog is tracking EAV growth in these TIF projects on a spreadsheet.
At least not that we know of in McHenry County.
Maybe there has been more in depth analysis in Chicago and Cook County where TIFs are more prevalent.
The TIF tracking spreadsheet would list projected EAV for each of the 23 years, and then each year we would fill in the actual EAV for that year.
So we could compare projected EAV to actual EAV.
The TIF tracking spreadsheet would ideally track the EAV of the overall TIF, and the EAV of each parcel.
With annual TIF EAV measurement of actual vs projected, we wouldn’t have to wait 23 years to see if EAV projections are on track.
We could check each year, projected vs actual.
The performance of the taxpayers property tax dollar investment in the TIF would be more transparent.
What if SB Friedman was paid on performance, and their compensation was doled out yearly over 23 years, and they got a base amount of money, with a yearly bonus if actual EAV met or exceeded projected EAV.
SB Friedman would say hey, that’s not fair, we did the work upfront, and we are not going to fully recoup that investment for 23 years?
And that’s exactly true, which speaks to the point, SB Friedman gets paid upfront, not on actual performance of the projected EAV actually coming to fruition, but on their ability to carve out parcels of land to create a TIF that meets flawed Illinois TIF statutory criteria.
Taxpayers on the other hand are on the hook for 23 years.
SB Friedman gets paid upfront.
Taxpayers pay for 23 years.
Do your homework taxpayers.
IF you are not watching out for your tax dollars, you can bet someone else has their eye on them.
Mark, contact me and I’ll show you how to calculate debt service on a bond issue in Excel and where to find comparable interest rates to use in your calculations.
It’s so straightforward it won’t take more than ten minutes.
Then you can do these kinds of calculations yourself in the future.
Mark, if they are only predicting $34MM in EAV at the max, and the value of the property today is $1.8MM, then the increment is, roughly $32MM.
Using simple assumptions that all the EAV comes online in three years and the tax rate is about 3.40% of market value, the project will only support $12MM bonds maximum.
And no one will buy that many because that would be break even and bond buyers want some coverage, so protection.
BTW, I built a bond debt service calculation spreadsheet in Excel and OpenOffice, if you want it.
Here is exactly what’s written in the SB Friedman TIF Eligibility Study about current and future EAV.
“Most Recent EAV of Properties in the Redevelopment Project Area
The purpose of identifying the most recent equalized assessed value (“EAV”) of the RPA is to provide an estimate of the initial EAV, which the McHenry County Clerk will certify for the purpose of annually calculating the incremental EAV and incremental property taxes of the RPA.
The 2013 EAV (the most recent year in which assessed values and the equalizer were available) of all taxable parcels in the RPA is approximately $1,796,000.
This total EAV amount by PIN is summarized in Appendix 2.
The EAV is subject to verification by the McHenry County Clerk.
After verification, the final figure shall be certified by the McHenry County Clerk, and shall become the Certified Initial EAV from which all incremental property taxes in the Redevelopment Project Area will be calculated by McHenry County.
[Editor’s note: Next, Future EAV]
Anticipated Equalized Assessed Value
By tax year 2037 (collection year 2038), the EAV for the RPA will be approximately $34,000,000.
This estimate assumes substantial development of commercial, entertainment and other uses within the RPA.”
– page 35 (pdf page 37).
Village of Lakewood, IL
Tax Increment Financing (“TIF”) Eligibility Study and Redevelopment Plan and Project
Illinois Route 47 & Illinois Route 176 Redevelopment Project Area
Final Report: November 12, 2014