Woodstock’s Susan Handelsman has campaigned for imposition of the “but for” test for Tax Increment Financing Districts.
She could explain the concept better than I, but it means that the TIF District project would not go forward without unless the TIF District were approved.
Chicago Mayor Lori Lightfoot is moving in that direction, according to this story.
what not getting enough pot Tax $$?
Don’t worry the White taxpayers of the collar counties will bail out the mismanagement of Chiraq.
“It’s 4 the chil’ren”
–Fr. Fleger
I have always heard that the biggest mooches were “downstate” (meaning anything not in Cook or the collar counties) which is more white than Cook and the collar counties.
https://www.bnd.com/news/local/article217665185.html
The ambiguous nature of “but-for” described in (65 ILCS 5/11-74.4-1) (from Ch. 24, par. 11-74.4-1)Sec. 11-74.4-1. This Division 74.4 shall be known and may be cited as the “Tax Increment Allocation Redevelopment Act”.(Source: P.A. 84-1417.) makes “but-for’ useless as a real life requirement. Illinois case law say that “but-for” means anything the municipal government proposing the TIF says.
There is simple solution: a formulaic ‘but-for’ requirement.
Real estate development is now done on a formulaic basis: some big fund (pension, insurer, REIT) desires income producing property as investment.
A developer pitches say, an apartment building in Woodstock.
The investor asks one thing: does it satisfy the desired CAP rate?
CAP rate is the rate of return projected for the investment. There are industry publications which cite quarterly CAP rates to the third decimal place. Competitive regional CAP rates are no mystery.
To calculate CAP rate, quick and dirty, you take the annual net income divided by the capital invested in the project.
As you might guess, property tax rate is a HUGE factor in profitability of a speculative real estate development project.
In Woodstock IL the property tax rate has been near to or far above 4% of full fair market value for nearly a decade.
That makes Woodstock IL anxious for those TIF dollars to lower the denominator–which is the investment portion of the CAP rate equation…
CAP rate is annual net revenues divided by capital investment.
How do you get a higher CAP rate?
If you can’t get the annual net revenues up, you can lower the initial investment, through TIF money, free taxpayer gifts to developers and landowners(free money, land, buildings, waiver-ed fees, tax abatement, etc.).
TIF gifts are typically 25%-40% of total project costs.
EXAMPLE: let’s look at a $4 million apartment building that will generate net revenues of $200,000 per year.
$200,000/$4,000,000=.05, or 5% return on investment.
Now let’s say TIF gives developers $1 million, making their investment only $3 million rather than $4 million…
Now the investment return is calculated as $200,000/$3,000,000= .0666 or 6.6% return on investment.
We can look up industry standard CAP rates for the type of residential real estate development in this region and find perhaps that is 6% CAP rate.
In that case TIF-runners might restrict their TIF gift to developers to an amount calibrated to achieve but not exceed desired CAP rate:
200,000/x=.06; x=total investment; x=200,000/.06=$3,333,333; therefore the investment in this development should be $3.33 million and in order to achieve the industry standard 6% CAP rate, the TIF gift need only to be $670,000.
The formulaic method is easy to codify, unambiguous, and fair according to defining the spirit of the “but-for” provision, but this is Illinois and developers can make up any numbers they want for the numerator and denominator of the CAP rate equation.
Some ethics oversight of numerical inputs is necessary and probably impossible.
May I also point out that development in many Illinois municipalities is not desirable in the least (especially those with property tax rates north of 3% of total fair market value, which describes most of McHenry County).
Development only raises the tax burden on current residents.
If anything is stifling growth of homebuilding and jobs and discretionary spending in our county, it is the fact that the outlier-high percentage of household income demanded for property tax here extinguishes most households’ abilities to spend on anything stimulative to the local economy.
(In Woodstock for one):
OVER 10% of median household income in median value homes is demanded for property taxes.
Now compare and contrast that to America–average 3.4% of median household incomes spent on property taxes.
Imagine a household budget of 100%, with 5.6% taken for…nothing of value to your household.
Not better schools, just the same mediocre schools everyone else in America gets for 1/3 to 1/2 the cost.
5.6% of Woodstock median household income is over $3300 per year.
What would you cut from your household budget? Pets? Retirement savings? College savings funds? Discretionary spending at local businesses? (Ask Woodstock business how they are doing).
What is paid for with that additional $3360 taken from Woodstock families?
“Retirement” funding of 55 year olds’ OPEBs (who may still be working at full pay at their old jobs while collecting) and 6-figure “retirement” payments to x-admin of D200, for one thing.
The former Super of D200 who advocated going ahead with borrowing/building $120+ million public debt during the WORST part of the Great American Recession of 2008-2011, when credit was frozen and homes were selling, if they could sell at all, for 20 cents on the dollar–.
Look up what Local Taxpayers pay for HER every month.
She also stuck us with a CAB bond that is coming due soon:
$14 million debt costing $50 million interest over 20 years.
Development is not beneficial when considering how the legacy of this public self-servant illustrates the aftermath of devastation left in her wake, in the name of development.
Woodstock D200 is actively courting tuition students from other districts for Clay Academy and Infant PreSchool, even though local taxpayers are solely responsible for paying ALL the OPEBs of staff hired ONLY in order to teach other districts’ tuition enrollment (HUGE money: read the annual school budgets) .
Woodstock and McHenry County property taxes can only keep rising relative to the reasonable tax rates charged all across America.
The only thing that could save us is lower property tax rates.
Nobody will ever develop in a 3-5% property tax rate region without subsidies.
Subsidies (TIF) cause the property rate to rise even higher.
It is simple math.
We cannot afford development in our 4% property tax rate region.
She put her ‘wife’ on several paying boards.
That’s wrong!