Kadner: A big hole for Crestwood TIF fund
By Phil Kadner firstname.lastname@example.org January 10, 2014 7:50PM
Crestwood Mayor Lou Presta (left) speaks with outgoing Mayor Robert Stranczek (center) in May. The village wants to extend the life of a special taxing district by 12 years. | File photo
Updated: February 13, 2014 6:44AM
Already reeling from a deluge of legal bills resulting from a contaminated water scandal, Crestwood now faces a financial crisis of another sort.
For nearly a decade, the village apparently failed to make payments on the principal of a $34.7 million bond issue.
After 10 years, the village has, however, paid $13.5 million in interest and fees on the bonds, which financed business development in a special taxing district east of Cicero Avenue that runs from Calumet-Sag Road on the north to 135th Street on the south.
The taxing district is set to expire in 2025, but due to the tremendous cost of financing it, Mayor Lou Presta estimates that Crestwood would have to spend $900,000 a year out of its general sales tax revenue to avoid default.
So Crestwood has asked the 10 other taxing bodies in the tax increment financing district to agree to extend the life of the TIF district by 12 years to reduce its yearly financial obligation. Currently, the bonds are to be repaid at a rate of $1.69 million annually, with a final payment on Dec. 1, 2023, of $15.15 million.
“The problem is that for nearly the entire first 10 years of the bond issue the village paid nothing on the principal of the loan,” said village Trustee John Toscas, who ran unsuccessfully for mayor last spring. “I kept asking and asking for financial information from the village about the TIF district, and I could never get any answers.”
A TIF district provides tax breaks to encourage business development, ideally in blighted areas. Typically, a town pays for initial infrastructure costs and is paid back with the extra tax revenue from the new development. That revenue is deferred from the affected local governments until it exceeds the reimbursement amount, at which time they begin receiving it.
In Crestwood, the sale of the bonds in 2004 was not rated but was backed by a letter of credit by Fifth Third Bank. In addition, there was an interest rate swap in connection with the bond sale, intended to effectively change the village’s variable interest rate on $20 million to a fixed rate of 3.34 percent. In 2009, the swap agreement was to expire, but it was extended at a fixed rate of 3.69 percent.
“At the time, given the costs of financing, that was considered a very good deal,” village attorney David Sosin said.
But he and Presta said a number of factors put the TIF district fund into a tailspin. The Great Recession resulted in the district producing less sales tax income than expected. Also, the Cook County assessor’s office in 2009 changed the rate at which commercial property is assessed from 36 percent to 25 percent, resulting in less money for the TIF fund.
Finally, two big-box stores developed in the district, Menards and Wal-Mart, successfully appealed their property tax assessments by hundreds of thousands of dollars, cutting into the amount of tax money produced by the TIF district.
Presta was not mayor at that time, but Toscas contends that if former mayors Chester Stranczek and son Robert Stranczek had been vigilant the tax appeals could have been defeated.
“You’ve got to find out if a tax appeal has been filed and testify at the hearing,” said Toscas, an attorney. “Somebody was asleep at the switch, and it has cost the village millions of dollars in revenue.”
A 10-year report on the TIF district, formally known as the 135th Street and Cicero Avenue Redevelopment Project Area, prepared for the village in December, contends that business development in the TIF district was a success.
Besides Wal-Mart and Menards, there are 13 other new businesses operating in the district, including a Starbucks, Pizza Hut and Ingalls Care Center — responsible for 627 new jobs and about $70 million in private investment, according to the report.
The equalized assessed value (EAV) for the property now is $19.8 million, compared with $9.3 million certified by the county clerk’s office when the TIF district was created in 2004.
That’s an increase of 110 percent in the EAV — resulting in $7.6 million in property tax revenue through April 30, 2013, according to the report. The TIF district also has generated $6.3 million in sales tax revenue, but that’s $3.3 million less than projected when the bonds were issued.
Toscas does not see anything positive in the financial analysis.
“So the EAV is up 110 percent, you’re getting $7.6 million in property taxes, another $6.3 million in sales taxes that ought to be paying off the bond issue and all you’ve really done is pay $1.8 million on the principal. Beautiful,” he said.
Because the 10 taxing bodies within the TIF district have sacrificed revenue through its creation, Crestwood now must get all 10 to sign off on lengthening the TIF district’s life by 12 years.
Presta said seven have done so, the Cook County School District 130 Board opposed an extension, and the boards of Community High School District 218 and Moraine Valley Community College have yet to vote. But Presta hopes the District 130 board will reconsider.
District 130 Supt. Raymond Lauk said the school board “felt that we represent an area that is much larger than Crestwood, and it would be difficult to justify to our residents in Oak Lawn, Blue Island, Robbins and other communities why they should make a financial sacrifice to help Crestwood.”
District 218 Supt. John Byrne said Crestwood officials presented their case to his board, which appears to be taking a more favorable view.
“It is in essence a successful TIF district producing revenues, and they just need some more time to pay off the bonds,” Byrne said. “Right now, after a review by our attorney, we’re inclined to go along with it.”
However, the school board attorney said District 218 may require an annual audit of the TIF district fund.
Fifth Third Bank is holding $5.1 million of TIF money in an escrow fund that could be used to help pay off the bond debt if the deal is restructured.
Crestwood apparently is not alone in its dilemma. The Illinois Legislature, which must approve all TIF district extensions, has authorized more than 100 in recent years.