As Clock Ticks For Downtown Developer, Contingency Plans Are Forming
TIF distict in need of $40 million to $50 million in growth to sustain it through 2014.
After 18 months of waiting for downtown developer Equity Services Group (ESG) to prove it has funding for revitalization in the TIF district, village officials have begun to form a 'Plan B' in case that financing isn't secured.
An update on the downtown TIF district was presented to the TIF Joint Review Board on December 1 by Bob Vitas, village administrator. The TIF district needs to generate as much as $50 million in growth to sustain it through 2014.
The TIF Joint Review board is made up of nine members including: Lucy Prouty, Ela Township supervisor; Jeff King, assistant director of finance for Community Unit School District 95; Bonnie McLeod from the Lake County Forest Preserve; Craig Taylor, 19th District Lake County Board member; and Mary Beth Campe, executive director of the Ela Area Public Library; Jeff Sedlack from the Lake Zurich Rural Fire Protection District, and individuals from the College of Lake County and the Illinois Department of Commerce and Economic Opportunity, who are not specifically named. A TIF resident representative is also included on the TIF Joint Review Board, according to Suzanne Branding, village president.
"The resident TIF representative is appointed by the mayor, and the current representative Greg Lohman was appointed by former Lake Zurich Mayor John Tolomei," Branding said.
State law requires annual meetings comprised of representatives from taxing districts who receive funds from the TIF district. The previous meeting was held on December 2, 2009.
"There are 238 tax parcels in the TIF district, with approximately 166 buildings which are both commercial and residential," said Branding.
The entire TIF area is made up of 70 acres, which are bordered on the north by the lots along Main Street, on the west by Lake Zurich itself, on the east along the railroad tracks and by the Concord Village subdivision on the south, Branding explained.
"It has been an interesting 12 months," Vitas told the board.
Vitas began the meeting by explaining where the developer and the TIF presently stand, as well as what is expected in the near future.
"January 1, 2011 is the drop dead date for David Smith, owner of ESG to produce $12.5 million in funding," said Vitas.
"So we are (under) 30 days away from the extended date, and the date ESG stated funding would be in place was December 1, and it still has not happened," said Vitas.
ESG asked for and received an extension to gain funding for the project at the October 4 village board meeting. Trustees approved the extension through the end of the year and if the funds aren't secured by then, ESG's contract would be immediately terminated.
"If we don't get confirmation that funding is set, we will move forward with plan B, which is our contingency plan and that would start immediately in January of 2011," Vitas said.
"There is a misconception that Smith would develop the whole of downtown; I think that we have unintentionally diverted attention away from downtown in an economy where people are not building anyway," said Tom Poynton, village trustee who attended the meeting.
The contingency plan includes seeking other developers, using "buildable" properties and working with consultants to start over in a new direction for the downtown TIF district, said Vitas.
Vitas said he has had meetings with a TIF consultant and has maintained relationships with former developers who showed interest in the downtown prior to the contract beginning with ESG.
"We may re-approach developers who were previously interested before ESG came into the picture," Vitas added.
Vitas then explained what could be construed as an urgent situation for the village, whether or not ESG comes up with money to begin the project.
Vitas said the TIF needs to see $40 million to $50 million in growth to cover debts and to bring money back into the TIF, and the village must take into account the lag time from when a development project starts to when it is completed.
Thus, that lag would affect when a new property would come onto the tax rolls and begin contributing to the TIF.
The reason why so much growth is needed is due to debt service and setbacks in the TIF district relating to the now defunct Somerset development, said Al Zochowski, finance director for the village.
Zochowski said the subsequent lawsuit brought against the village by Somerset developer McCaffery Interests and Bank of America have put financial stress on the TIF funds and the district in general.
"When we restructured and refinanced our debt, we placed funds in the bank of New York so there would be enough money to cover the principal and interest on a large portion of debt service due annually through 2014," said Zochowski.
"They are sitting in trust account to be used for that purpose," added Zochowski.
Zochowski went on to explain that in 2009, the village issued A, B and C bonds to pay off a loan from Cambridge bank, which would provide the village with funds that they believed would cover the Bank of America litigation costs.
"The bond income was meant to go into an escrow account to pay up to 75% of bonds due through 2014," said Zochowski.
Zochowski said the village believed there would be sufficient development in the TIF to pay all debt out of the TIF funds.
"But the possibility of that happening now would in part depend on the ESG project with Mr. Smith, and if it does not happen, other solutions will have to be sought," said Zochowski.
Zochowski said the village can restructure its debt one more time, and make debt service payments for another four to five years. "So by 2025 when the TIF ends, we would be able to pay off the final debts relating to the TIF," Zochowski said.
"Will a master developer be sought again?" asked Campe, Ela Area Public Library representative.
"We may not see a master developer again. We have form-based regulations (FBR) which dictate what can and can't be built; it is an attraction for developers," replied Vitas.
According to the website www.destinationlakezurich.com, which is authored by ESG, the FBR "allows the village to establish a consistent and visible approach to the uptown/downtown area, giving developers, architects, and contractors a clear vision of the parameters for proposed development in the area."
The website also states that use of the FBR reduces costs and lessens project approval time due to those set requirements, making it more inviting for developers to choose to build in Lake Zurich.
It's a mixed bag of good news and bad news on how the village could make up the overwhelming TIF debt and move on with development if the January 1, 2011 deadline is missed.
"What we know today is that 25 percent of the solution lies with Perry Construction," said Vitas. Joe Perry, president and CEO of the company, came before the village board in October and proposed a 40,000-square-foot medical office building.
It would be located across the street and to the west of Casper Hardware at Route 22 and Old Rand Road.
Perry got the board's go-ahead to move forward with project. If he receives final approval from the village, groundbreaking would begin in the summer of 2011 and the complex would likely be completed by spring of 2012.
That would be good news for the TIF, as additional revenue would be created by the office building through property taxes. And that money would channel back into TIF funds.
The development would be located in what is termed Block G, which is considered the gateway into the TIF area. It is bordered south of the railroad crossing off of Old Rand Road to the underpass on Route 22.
"The TIF will sustain itself until 2014, and we are hoping for additional traction especially in Block G," said Vitas. "We are talking to property owners adjacent to the Perry Project to possibly spur development."
Other potential positives pointed out by Vitas included the settlement with Bank of America and McCaffery Interests. The two were at the helm of the failed Somerset Project located in Block C downtown.
After both the bank and the developer brought a $9 million lawsuit against the village for contract termination, Vitas said the village paid $1.2 million to be free of the Somerset development.
"It was complex and difficult for the village to get out of it (the contract); the $1.2 million included legal fees, paying for contractual obligations to McCaffrey and mechanics liens," Vitas said.
"Public improvements in Block C were also part of that sum, and the village does benefit from that," said Vitas.
Block C is located at the northwest corner of Old Rand Road and Main Street and is also bordered by Lakeview Place.
"It appears Bank of America is now in the process of resolving the final outstanding liens, which would allow property owners at the Somerset development to sell and move, and the bank would be selling off the remaining units," said Vitas.
He added that the village plans on talking with developers to redevelop block C as part of their contingency plan.
Other potentially encouraging information included an update on the demolition and remediation of the old police building on West Main. It was demolished on November 12, and Vitas said the village is now removing soils, filling the site, and it will soon be rendered clean and buildable for future development.
If Smith does or doesn't come through with project funding, there is an outstanding bill of $250,000 to pay for the drawings of the proposed project at the start of the contract.
"The only obligation to Smith is the cost associated with design charettes created by architect Torti Gallas Partners which totals $250,000," said Vitas.
Vitas stressed that the money would only be paid to Smith if it could be proven the architects were paid by him for their work.
The bill, for the only tangible work ever done on the redevelopment project, would continue the drain on funds earmarked for the TIF.
Currently, properties that are contributing to the TIF include Concord Village, which has brought in approximately $5.5 million since it came into the TIF in 2005, and which Trustee Poynton said, "Is the engine that keeps the TIF going."
The subdivision, which includes single family homes and townhomes is located where the former Dearborn Chemical property was; east of the railroad tracks, north of Home Depot and south of the Route 22 bypass.
Vitas added that rental incomes netting approximately $100,000 a year are also adding to the TIF fund.
"Our assets include only an inventory of land," said Zochowski.
"None of it is cash, and we rely on the annual revenue (from the TIF) to pay debt service, the school district and maintenance of the TIF district," Zochowski added.
Two years ago, there was not enough money in the TIF funds to pay the schools their share on a timely basis, which was $670,000, said Zochowski. The village had budgeted $493,577 based on enrollment numbers provided by District 95.
The more than $170,000 discrepancy occurred due to an enrollment addition of 17 students; the village pays the school district approximately $9,700 per child for the school year out of TIF funds which is mandated by state law.
The village budget was finalized before correct student numbers were received, and that was the cause of the problem, which has now been fixed, Zochowski said.
King, the District 95 representative, told Vitas and Zochowski he would work to provide numbers by February 1 of 2011 so that the village can budget TIF funds earmarked for students.
Other costs incurred by the downtown TIF funds include building maintenance and environmental clean-up totaling $15,456, and property taxes that cost the TIF $66,927 for the year.
Resident representative Lohman, who lives in the TIF district, also attended the meeting. A resident representative attending such review board meetings is a state requirement.
"Everyone has concerns, on the other hand, I look at it in the opposite way; I know it will be a struggle but I also know that our village has so much to offer," said Lohman.
Other TIF Joint Review Board representatives who attended the meeting were Prouty from Ela Township, and Taylor from the Lake County Board. Mayor Suzanne Branding was also present.
Representatives who were not present included McLeod from the Lake County Forest Preserve and Sedlack from the Lake Zurich Rural Fire Protection District. No representatives from the College of Lake County and the Illinois Department of Economic Opportunity showed up either.
The Lake Zurich TIF was created in 2002 and will last for 23 years. It could be extended, but finance director Al Zochowski said the village isn't looking to do that.
TIF districts are created in areas where private development otherwise isn't occurring. Taxes for any property within a TIF are frozen at pre-development levels, according to the Eastern Michigan University website on TIF districts.
In the Lake Zurich TIF, taxes were based on 2001 numbers and the freeze will last until 2025.
The website states that taxes continue to be paid, but increases in assessed valuations in addition to the base are put into TIF funds; meant to retire bonds and fund future improvements in the TIF district, including infrastructure.
"There have been roughly $75 million in improvements made back into the TIF district at this point relating to Concord Village and the Somerset development," said Zochowski.
Zochowski said $28.5 million will be required to be put back into the TIF fund by 2025.
Once the 23-year-period is over for the Lake Zurich TIF, taxing bodies will receive the increases based on increased property values.
But for right now, Vitas said "The clock is ticking and the sands are going through the hourglass. We are preparing ourselves for what comes next."