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PLAN COMMISSION 2012/11/14 MinutesThe City of Lake Forest Plan Commission Proceedings of the November 14, 2012 A regular meeting of the Lake Forest Plan Commission was held on Wednesday, November 14, 2012, at 6:30 p.m., at City Hall, 220 E. Deerpath, Lake Forest, Illinois. Commission members present: Chairman Jack Reisenberg, Commissioners Augie Ziccarelli, Lloyd Culbertson, Michael Ley, Jim Carris and Jeff Kuchman. Commissioner absent: John Anderson Staff present: Catherine Czerniak, Director of Community Development City Consultant present: Lee Brown, Teska and Associates 1. Introduction of Commissioners and staff. Chairman Reisenberg introduced the members of the Commission and City staff. 2. Approval of minutes. Approval of the minutes was postponed. 3. Background Information: An informational presentation on Tax Increment Financing Districts in preparation for an upcoming agenda item. No Commission action is required. Presented by: Lee Brown, Teska and Associates and City staff Ms. Czerniak introduced Lee Brown, President, Teska Associates, noting that Teska and Associates worked closely with the City on the only Tax Increment Financing District (TIF District) established in the City of Lake Forest to date. She noted that the existing TIF District is located in the western part of Lake Forest and will expire at the end of this calendar year. She explained that a subcommittee of the City Council, the Property and Publ ic Lands Committee, recently put out a Request for Proposals for a TIF Consultant, received and reviewed proposals, interviewed selected candidates and at the conclusion of the process, selected Teska and Associates and its partners as the City’s consultant for this project. She explained that the purpose of tonight’s meeting is to provide the Commission with basic knowledge about the TIF process and TIF Districts in general before specific and detailed discussions begin during the first quarter of the coming calendar year. She acknowledged that some of the Commissioners may have some understanding of TIF Districts due to past experience or work experience while others may not have any familiarity with Plan Commission Minutes – November 14, 2012 Page 2 of 12 the topic. She stated that this presentation is intended to give all of the Commissioners a working knowledge from which to start these discussions. She stated that although it is no secret that the consideration of a TIF District is directed at the City owned property at Laurel and Western Avenues, she emphasized that this discussion is a general discussion about TIF Districts and will not focus on that property at this point in the process. She explained that in the coming months, after the Commission completes its work, study and public hearings, it is expected that the Commission will make recommendations to the City Council on whether a TIF District is an appropriate tool for the Laurel and Western Avenue redevelopment project, on the redevelopment plan for that site and on whether the timing for moving forward with the project is right. She stated that the Commission and staff are fortunate to have Lee Brown as an advisor and consultant to assist with this process given his expertise and experience. She invited a presentation from Mr. Brown. She reiterated that the purpose to this meeting is to educate the Commission and that no Commission action is requested. Mr. Brown stated that he is looking forward to working with Commission and City over the coming months. He noted that this presentation is intended not only to educate the Commission, but also the public. He commented that communities have very few tools available to encourage private investment in properties when it is not happening on its own. He explained that many immediately, and mistakenly, label TIF Districts as a tax. He stated his intent to provide a basic understanding of what a TIF District is and what it does; what it can do and what it cannot do. He started by reviewing the fundamentals of the process of establishing a TIF District and what a TIF can do. He stated that the process for establishing a TIF District is very well articul ated in the State Statues, but acknowledged that the document is difficult to read. He stated that the process begins by establishing the boundaries of the TIF District which involves determining whether the proposed district is eligible under the Statutes and if so, after public hearings, the adoption of a specific set of Ordinances by the City Council. He stated that the County then certifies the base value of the land and improvements within the boundaries of the TIF District. He stated that it is worth noting that from the start, neither the taxes, nor the base values of the District are frozen. He explained that an important point is to understand that the increased tax generated by the growth of the value of the property within the district, over the established base, is called the “increment”. He explained that the increment is used to make additional investments in the project area and cover expenditures being made to support public improvements in the right-of-way or on the property to support redevelopment of the site. He stated that what occurs is ideally a cycle that works best when the momentum on the property builds. He explained that public investment encourages private investment, which builds the value and Plan Commission Minutes – November 14, 2012 Page 3 of 12 generates the increment, which in turn goes to pay off the public improvements that were made. He noted that there are specific tests used to determined eligibility for the various types of TIF Districts such as minimum size, designation of an area as blighted or as a Conservation District and physical characteristics that indicate that the property is going in the “wrong direction”. He emphasized that TIF Districts are not established in areas that are thriving. He explained that TIF Districts are established in areas that for physical or economic reasons have an impediment to development occurring under natural market conditions. He further explained that the City has to establish “but for” the TIF District, the area will not develop on its own. He explained that the set of tests that need to be made will ultimately guide the City Council in determining whether the TIF District should be established. He reviewed the four types of TIF Districts, Districts for: developed properties, undeveloped properties, Conservation Areas and industrial areas and noted the number of the applicable factors that need to be met for each type of TIF District. He stated that the State Statutes are very specific about eligibility requirements for TIF District. He reviewed some of the characteristics that are considered including: dilapidation or deterioration of buildings and conditions, obsolescence, whether there is still a market for the original use, compliance with current Codes, illegal activity and whether there is excessive vacancy. He clarified that vacancy itself is not a determining factor, but excessive and ongoing vacancy, in combination with the required number of other factors is considered. He added that lack of ventilation, sanitation issues, inadequate utilities, the need for environmental clean-up, lack of consistency with a community plan (or lack of a plan for the area), a decline in assessed value in recent years, or a failure for an area to increase in value at the same rate as the rest of the community. He continued to review the process for establishing a TIF District. He stated that for TIF Districts proposed for areas which include 75 or more existing residential units or require the relocation of 10 or more residential units, a feasibility study is required. He noted that for districts that do not meet those criteria, a feasibility study is not required. He explained that as part of the preparation for the establishment of a TIF District, a redevelopment plan must be adopted. He explained that the Plan Commission is responsible for the planning part of the process; while the budgetary program aspect of the TIF District, where the money comes from and where it will go, will in this case fall to a greater extent under the purview of the Property and Public Lands Committee of the City Council. He stated that the Statutes establish a process for public notification based on whether the TIF includes the minimum number of existing residential homes or not but noted that in any case, any interested resident has the opportunity to register as an interested party and will receive notice of any Plan Commission Minutes – November 14, 2012 Page 4 of 12 public hearings held on the TIF District. He stated that a Joint R eview Board must be established noting that it is made up of representatives of other taxing districts, and a member of the public. He explained that the Joint Review Board will review the eligibility criteria and standards for TIF Districts and will also make a recommendation to the Council on the establishment of the District. He noted that if the recommendation is positive, it is simply considered by the Council but if the recommendation of the Joint Review Board is against the establishment of the TIF District, this forces a substantial majority vote by the Council, rather than just a simple majority by which the District would need to be approved. He clarified that the Joint Review Board does not have veto power over the decision of the City Council. He stated that typically, the Plan Commission conducts the required public hearings and makes a recommendation to the City Council regarding the appropriateness of a TIF District as part of the City process in addition to the recommendation from the Joint Review Board. He explained that after receiving a recommendation from the Plan Commission, the City Council has time periods within which an ordinance establishing the TIF District can be adopted and cannot be adopted, for instance the Ordinance cannot be adopted before the passage of a certain period of time, or after a certain period of time. He reviewed the elements of a TIF Redevelopment Plan and the areas in which the Plan Commission will be most involved. He stated that the Plan Commission will consider appropriate boundaries for the District, why there is a need for redevelopment of a particular area and will need to discuss and detail why “but for” a TIF District, the area will not redevelop to established community standards or in a manner consistent with the Comprehensive Plan. He added that the TIF Redevelopment Plan also includes an explanation of what is intended from a land use perspective in the District in either a conceptual or more detailed form. He stated that the Redevelopment Plan will include a budget for the life of the TIF district noting that through the process, there is a means for shifting and sharing of funds, but emphasized that a cap is set on the total amount of funds. He added that the Plan includes an evaluation of the impact of the proposed District on other taxing bodies for instance, will it generate costs that are unrepresentative of what these bodies will receive at the end of the life cycle of the TIF District through the generation of an unreasonable number of students or park users. He noted that the Redevelopment Plan must include a timetable for the overall redevelopment. He reviewed how TIF funds can be used noting that there are administrative costs incurred by the municipality throughout the life of the TIF District which can be covered by the revenue generated. He stated that property consolidation and assembly can be paid for by the District for properties that will be in public ownership or properties that would be made available for private development as part of the planned redevelopment. He stated that TIF funds can be used to rehabilitate or renovate existing public buildings, construct public works project Plan Commission Minutes – November 14, 2012 Page 5 of 12 and improvements, job training, relocation expenses, financial costs including interest assistance to a developer, studies and surveys and marketing of individual sites or the District as a whole. He added that other costs that can be covered by TIF funds include professional services, demolition and site prep and for larger cities, specifically Chicago, some unique expenses such as day care for instance. He stated that there are limitations on how TIF funds can be used noting that dollars must be used in the TIF District. He acknowledged special circumstances where, if there are two adjacent TIF Districts, the law allows funds to be generated in one District and used in the other stating that in larger communities, again, Chicago, it is not unusual for two TIF districts that were established years apart to be adjacent to each other . He stated that in the City of Chicago the constant moving of dollars from one TIF District to another is often raised as a concern. He stated that TIF monies cannot be used outside of a TIF District. He explained that there are specific restrictions on the use of TIF dollars noting that they cannot be used to develop a golf course or public lands that are preserved for camping, hunting or nature preserves. He stated that there are limitations on amount of dollars that can be used for consultants and stated that some municipal buildings such as new police stations, cannot be constructed with TIF dollars. He stated that general marketing of the TIF District is not allowed and “make whole agreements” are not allowed. He explained that a make whole agreement would be used to compensate other taxing districts for the loss of increase in taxes due to the TIF District. He noted however that the law provides a formula to account for students generated by redevelopment of the site which compensates school districts only. He stated that the life of a TIF District is limited to a period of 23 years but noted that a District can be in place for a shorter period of time and can be closed out early. He stated that if a District does not accomplish its goals within 23 years, a request can be made to the Legislature to change the law to extend a specific TIF District for up to 35 years. He stated that of the 1,100 or so TIF Districts in the State, less than 40 have been extended. He noted that typically, projects funded by TIF monies include redevelopment of buildings, infrastructure improvements, the development of housing in areas of need, clean-up of polluted property and most often, improving the viability of business districts. He stated that the primary use of TIF Districts is improving business districts and redeveloping property located in and near business districts. He added that TIF Districts are also used to establish new sites for commercial and industrial uses and to rehabilitate historic properties. He reviewed the roles played by the various parties in the creation, implementation and oversight of TIF Districts. He stated that the work of the consultant and staff usually involves the technical aspects such as researching and presenting data in support of the eligibility of a district, drafting a land use plan, reviewing the consistency of the land use plan with the Comprehensive Plan and detailing how TIF dollars will induce private investment in the area. He Plan Commission Minutes – November 14, 2012 Page 6 of 12 stated that the challenge is to detail and plan for how to use public funds to leverage private investment and return dollars to the community. He explained that reviewing and making recommendations on land use plan and conducting the planning process are the primary roles of the Plan Commission. He explained that the City Council Property and Public Lands Committee will focus on budgeting, the ultimate sale of public property, and the attraction and evaluation of private investors to the project. He explained that the Joint Review Board has an evaluative responsibility noting that group will be charged with meeting once a year, throughout the life of the TIF, to evaluate whether the TIF District is continuing to meet the goals established in the TIF Redevelopment Plan. He stated that the City Council will ultimately make the decision about whether or not to establish the TIF District, will select a developer or developers, and approve a final plan. He stated that a Compliance Report will be prepared annually by City staff and the City’s consultant to demonstrate that the funds are being used legally, consistent with the law. He noted that the annual report will also keep the State and the public aware of fact that there are continuing efforts to redevelop the TIF District and provide an understanding of the investments being made and the returns being realized. He clarified that any public improvements made in the District will also need to be reviewed and approved as part of the City’s normal budgeting process. He provided some broader background on TIF Districts and where they are used noting again that there are about 1,100 TIF Districts in the State with about 150 of them in the City of Chicago. He stated that the City of Lake Forest established its first, and to date, its only TIF District, in 1988. He stated that the City’s TIF District was very successful and will be closed out at the end of this year. He stated that at the start, the west Lake Forest TIF District, which covered a 180 acre area in the western part of the City in the vicinity of Waukegan and Everett Roads, included 62 parcels and had an initial equalized assessed value, that is, a base value, of $, 2,396,000. He stated that the base value in 1988 was equivalent to .14 percent or less than a quart of a percent of the total equalized value of the community. He reviewed that the goal as stated in the Redevelopment Plan for the west Lake Forest area was to encourage redevelopment of underutilized property, promote diversity of uses in the area and to strengthen the residential and commercial tax base in the area. He noted, 23 years ago, he was involved in completing the eligibility report for this area. He noted that this TIF District was created before the commuter rail service was established in this area noting that a goal of the plan was to maximize the benefits of the commuter rail station and to generate spin off development. He noted that historically, Lake Forest and other municipalities were spurred by extension of the railroad lines and establishment of commuter stations. He reviewed the boundaries of the west Lake Forest TIF District and reviewed a graph showing the change in the equalized assessed value over the life of the TIF District. He noted that the assessed value went from 2.3 million to 60 million dollars in 2008. He acknowledged that after 2008, there has been a Plan Commission Minutes – November 14, 2012 Page 7 of 12 slight decline in value due to the overall decline of the market. He explained that at the time the TIF District was established, the adopted budget estimated an increase of the equalized assessed value in the area to 20 million however; the resulting success of the TIF District was three times the estimate that was set forth in the Redevelopment Plan. He reviewed the accomplishments of the TIF District noting that the west side commuter train station and parking lot were established, Everett School and Everett Park were improved, the fire station was built, sanitary sewers and water mains were installed to encourage development, streetscape improvements were completed, a major addition to Everett School was built and a fiber communications network was extended. He explained that all of those items were public expenses and public improvements. He noted that much private investment occurred in the area as a result of the public investment including the Sunset Foods shopping area redevelopment, the construction of the Northern Trust and Fifth Third Banks and, construction of 32 duplex and 96 single family residential units. He confirmed that this TIF District expires on December 31, 2012. He explained that once the TIF District is closed, the increment, now just under 60 million, gets placed on the tax bills of all of the taxing bodies. He explained that during the 23 years of the TIF District, the tax base remained the same, but now, the increased increment will be applied proportionately to all of the taxing districts and will be taxable. He stated that in the case of the west Lake Forest TIF District, all of the taxing jurisdictions will receive significant increases in the revenues. He further explained that all of the additional incremental value will be put on the tax rolls and will essentially look like new construction for the purpose of collecting taxes noting that new development does not have to remain under the tax cap. He stated that the City Council will pass an Ordinance confirming that the TIF is completed and asking Lake County to deliver the money, in the appropriate proportions, to each district. He added that any unused money in the TIF fund also gets distributed proportionately to all of the taxing districts. He reiterated that calling the TIF tool a “tax” is misleading since the value added does not costs tax payers more, but instead, allows the revenues to be used in a different way. He explained that whether property that is redeveloped in or outside of a TIF District does not affect the way the property is assessed by the County, only where the additional increment of taxes that is received as a result of the increased revenue goes for a period of time. He emphasized that the base value, plus the increment, does not affect individuals’ tax bills because the tax rate applies to the entire tax bill. He reiterated that the distinction is that the added value, the increment generated by the redevelopment, can be used differently. He repeated that TIF allows public investment to be used to encourage private development which in turn raises property values and increases property values. He stated that in the end, everyone, all taxing districts, share in the benefits as occurred in west Lake Forest. Plan Commission Minutes – November 14, 2012 Page 8 of 12 He summarized that a TIF District is a planning tool and has everything to do with how tax dollars are distributed and how they can be spent. He stated that TIF Districts are used as economic development tools noting that the benefit is that increased incremental value can be used to encourage development that would not otherwise happen. In response to questions from Commissioner Culbertson, Mr. Brown explained that property taxes are collected twice a year with the monies going to the County Assessor for re-distribution to the taxing districts. He explained that the County is responsible for comparing the initial base value of the TIF District to the current equalized assessed value of the District and separating the two. He explained that checks for taxes collected on the initial base value are distributed to the various taxing bodies and a separate check for the added increment goes to the TIF District for a period of time. He reviewed that TIF Districts are adopted with a Redevelopment Plan which includes a budget and an estimate of how much revenue will be generated over time. He noted that based on the adopted budget, the City anticipates the funds that will be available for public improvements noting that the City can wait for the money to come in, or can make investments by borrowing money to be repaid later by TIF funds to encourage redevelopment in an earlier time frame creating more value, which generates a greater increment. He acknowledged that there is unpredictability in the anticipated revenues and the timing within which they wil l be received. He explained that in the case where a City owns property, the City can select a developer and sell a property for redevelopment to the developer who it determines to be most able and willing to produce the type of project that the City desires. He confirmed that public funds cannot be passed to the developer, but that TIF funds can be used to make public improvements including extending utilities and cleaning up the site as noted above and that such work can be done by the City or by the developer with the developer being reimbursed using TIF funds. He stated that the law allows up to 30% of the interest a developer pays for construction costs to be reimbursed in any given year. He added that land assembly costs can also be paid by the TIF District. HE noted that in some communities, the City acquires property and then writes down the cost of land to make it more attractive to the market which serves as another type of incentive for development. He clarified that in any case, the City, not the developer, receives the TIF fund check from the County. In response to further questions from Commissioner Culbertson, Mr. Brown confirmed that the City Council approves the TIF District, not the State or Federal government. He confirmed that the annual TIF Report is submitted to the State of Illinois to affirm that the local municipality is meeting the standards of the TIF law and its responsibilities, but noted that the State does not have authority to determine that a municipality is in violation of the law. He confirmed that at the close of a TIF District, any surplus funds are proportionately distributed to all taxing bodies. He noted that it is common for a municipality to accumulate Plan Commission Minutes – November 14, 2012 Page 9 of 12 funds before making expenditures and stated that municipalities must make decisions about whether to spend every last dollar generated. He stated that municipalities need to use reasonable judgment to determine which public improvements are necessary to achieve the stated end goal. He clarified that a TIF District is not a license to spend money frivolously. He added that a surplus of funds can also be declared during the life of the district and distributed to the various taxing bodies during the period. Ms. Czerniak commented that the west Lake Forest TIF District generated much more revenue than anticipated and she confirmed that in the later years of the TIF, the City considered other public improvements that could be made to enhance the area and encourage private investment including further streetscape improvements and the extension of a fiber network. She added that in the later years of the TIF, the City informed the other taxing bodies that a surplus was likely and those districts created budgets relying on the face that some surplus monies would be coming back to them. In response to questions from Commissioner Culbertson, Mr. Brown confirmed that a TIF District can end in a deficit and that lack of funds to meet obligations or prior expenditures becomes a shortfall to the community. He stated that the municipality must be cautions and realistic about the ability of the market to create the anticipated value on the site and be cautious and not get too far out ahead of development. In response to questions from Commission Ley about whether the City can obligate a developer to be responsible for any short fall, Mr. Brown explained that the IRS is responsible for determining whether borrowing is tax exempt or taxable. He explained that when the City engages in a contractual arrangement with developers, there may be a loss of the City’s tax exempt status. He stated that a municipality does not want to create a situation that presents the potential for a loss of the “public purpose” test. He stated that there are ways to assure that money is being spent in a manner consistent with the staging of the development. He stated that municipalities need to be cautious and realistic and not get out too far ahead of a project. In response to questions from Commissioner Ley, Mr. Brown confirmed that several of the projects completed under the City’s existing TIF District were conceived of during the middle of the project. He noted for instance that the need to extend fiber to support the business district and the school was not even anticipated 23 years ago at the start of the TIF. In response to questions from Commissioner Kuchman who stated that he deals with TIF Districts regularly, Mr. Brown noted that Teska’s current agreement with the City is to assist with the City’s exploration of a TIF District and if appropriate, prepare the documents necessary to establish the TIF. He explained that Teska Plan Commission Minutes – November 14, 2012 Page 10 of 12 and Associates has two partners, Business Districts, Inc. with expertise in attracting developers and developer selection, and Kane and McKenna Associates, bond counsel with evaluative capabilities, and noted that both partners are prepared to play a role if a TIF District moves forward and Teska is asked to play a continued role in the process. He confirmed that the team that is established is well equipped to assist the City in putting a deal together that minimizes any potential liabilities. In response to questions from Commissioner Carris, Mr. Brown confirmed that initially, a TIF District should be established to take advantage of the allowed 23 year time frame noting that there is no advantage to cutting off the District at the start and possibly limiting the ability to achieve the objectives established. He added that a TIF can always be shortened or a surplus in funds can be distributed before the end of the TIF without closing the District out. In response to further questions from Commissioner Carris, Mr. Brown acknowledged that the west side TIF District was large and pointed out that there needs to be a rationale nexus between the boundaries of a district and the intent to make improvements that benefit the properties within the boundary. He emphasized that properties cannot simply be included because they will go up in value as a result of the TIF District. He stated that the District needs to on the area determined to be necessary to collect the revenues needed to support the intended improvements. He explained that it is in the interest of the various taxing districts to limit the size of the TIF District to what is necessary while also capturing the real value of the physical improvements that are being made. He stated that the line needs to be drawn carefully. In response to further questions from Commissioner Carris, Mr. Brown stated that impact fees are assessed by the City completely independent of any TIF District. He noted that in this case, because the City owns the land, negotiations between the City and the developer may include a discussion of impact fees. He noted however if physical improvements are needed, such as a new turn lane, they can be paid for by TIF funds, rather than impact fees. He stated that in the TIF District law, there is an allocation of dollars to the school districts based on the number of students that may be generated by the development but stated that the discussion of impact fees would be a separate matter. In response to further questions, he explained that the members of the Joint Review Board are appointed by the various taxing bodies at the invitation of the City Council. He explained that there are a certain number of voting members of the Joint Review Board who then elect a public member. He confirmed that the Joint Review Board meets once a year as an oversight body to assure that the City is managing the TIF consistent with its own plan and the legislation. He confirmed that the administration of the budget and the TIF fund is entirely within the City’s control . Plan Commission Minutes – November 14, 2012 Page 11 of 12 In response to questions from Commissioner Carris, Ms. Czerniak confirmed that the Property and Public Lands Committee initiated this discussion as a study related to the future of the Laurel and Western Avenue City owned site. In response to questions from Commissioner Ziccarelli, Mr. Brown confirmed that property taxes are the only taxes affected by the TIF District, not sales taxes. He stated that the City could choose to donate a portion of the sales taxes to purposes within the TIF District, but is not obligated to do so. He reviewed developments in some other communities that were supported by TIF Districts noting Highland Park, Waukegan and Evanston as examples. Chairman Reisenberg commented that the advantages of a TIF District appear obvious and questioned on what basis opposition to a TIF District might be based. In response to questions from Chairman Reisenberg, Mr. Brown stated that the “but for” test must be considered very carefully. He noted that the opposition to a TIF is that for 23 years, the advantages of increased taxes are not available to the other taxing districts. He stated that the City Council must be very sincere in its determination that the same level of increase in value and quality of development is not going to happen by itself, without the District. He stated that the theory is that because of the public investment, the development will be paying more over time than it otherwise would in the end, benefiting the other taxing districts. He noted that some will say that a TIF District inherently raises the cost of the land and in the cases where the land is privately held, could be raising the profits realized by the property owner. He noted however with property that is publicly held, the potential for increased profit from land value does not exist. Chairman Reisenberg concluded the discussion noting that there will be further opportunities to ask questions of Mr. Brown. 4. Public Testimony on non-agenda items. There was no public testimony on non-agenda items. 5. Additional information from staff. The Commission approved the Plan Commission meeting scheduled for the 2013 calendar year. The meeting was adjourned at 7:57 p.m. Respectfully submitted, Catherine Czerniak Plan Commission Minutes – November 14, 2012 Page 12 of 12 Director of Community Development