Estimating Taxpayer Support For Uptown Construction Project | WGLT

Estimating Taxpayer Support For Uptown Construction Project

Mar 22, 2016

Uptown Rendering
Credit Eckenhoff Saunders Architects

Even though the public price tag to create a new building on Uptown Circle is high, the Mayor of Normal said it's worth it to fill the so-called hole in the ground.

GLT's estimate of taxpayer support is $8.4 million for the estimated $14.1 million building the council approved in a development agreement. The estimated town share in subsidies, guarantees, and rent is nearly 60 percent of the project cost. The Town of Normal Finance Department estimate of the Town share of the project expense is lower, at less than 28 percent.

Mayor Chris Koos said during GLT's Sound Ideas that financing remained difficult to arrange for the new form of housing intended for the project and the Town's share rose because of an extra floor put into the plan to make the building five stories tall.

"It will or will not prove the market. We're convinced it will prove the market for higher density non student residential (housing) in Normal. We hired a top housing consulting firm and they identified the potential for up to a thousand units that could be absorbed into the market," Koos said.

The nearly $8.4 million in support estimate by WGLT includes:
$2.75 million in up front development incentives
$430,000 in a present value calculation of estimated reimbursement of the Retailers Occupation Tax over a decade. The agreement calls for up to $1 million.
$680,000 in land costs (40% of the total Town cost of $1.7 million to acquire and prepare for construction the parcels involved in the Hyatt Place and Uptown Building)
$4.58 million in a present value calculation of office space rent over 15 years, plus estimated present value buildout costs

Mayor Koos objected to inclusion of rent in the calculation of Town support for the project saying the Town needs space for the Inspections, Engineering, and Planning Departments somewhere.

"We don't need it right now, but we will need the space eventually. So, if it makes this project kick off and start, then it kind of makes sense. It's going to be more convenient to have our Engineering and Inspections near City Hall instead of two or three blocks away," Koos said.

City Manager Mark Peterson said including that number is "factually wrong." Peterson says the Town derives real value from that rental and that it would have to pay no matter where it rented space. During a discussion of the issue, Town Finance Director  Andrew Huhn mused that perhaps a more precise calculation could be to include lease costs for one to three years, the period of time the Town presumably would have its current offices before vacating for Uptown 2.0 redevelopment south of the tracks. City Manager Mark Peterson says the Town is looking for new space now.

WGLT included the lease cost number in estimating public support for the project because it is guaranteed revenue flow to the owners, but for which the project might not happen.

The value of free parking in the town parking deck for tenants of the building and development fees the Town will waive are not included in the calculation.

In arguing for the level of public investment in the project, Mayor Chris Koos said financing was difficult to arrange because high density non university housing is a new concept in that area and even as commercial development markets improved after the recession, lenders remained wary of this concept. He said a guaranteed long term quality tenant was needed to gain lender support.

"This is a difficult project. It has been ten years or better to move forward. There have been times when people said just throw up some student housing and call it a day. The Council doesn't have that vision for the Uptown. So, we're making a tough choice," Koos said.

Debate over what is an appropriate level of incentives varies on a project by project basis. One guideline for the Bloomington Normal area voiced recently by Economic Development Council Vice President Mike O'Grady is 20 percent to 25 percent of the project cost. O'Grady was speaking about incentives for projects in a general sense when asked  in the wake of the City of Bloomington plan to help Kroger move across the street from Normal to Bloomington.

"Minimums are 50 new full time positions that are above average in salary and two to three million in capital development starts you with a 20 percent to 25 percent tax (rebate) over a five year period. And there are clawbacks to that," O'Grady said.

Another effect of the Uptown building development will be to open up space south of the train tracks for redevelopment in Uptown 2.0. The Town also hopes to relocate Parks and Recreation and the Police Department later.

The new building will have a restaurant on the bottom, offices on the second floor, and housing on three through five. The development agreement calls for groundbreaking within three months and the start of a year's worth of construction to begin by early summer.

Town staff say the municipality expects to make the actual $2.75 million in subsidies back through increased revenue from the Tax Increment Financing District.