Evanston taxpayers should see nearly three times as much benefit over the next 20 years if the proposed Fountain Square tower replaces the existing 708 Church St. building.
That’s the conclusion of a detailed Evanston Now comparison of the impact on local tax revenue of the proposed 38-story tower and the current two-story building on the site.
The bulk of the difference is accounted for by higher local property tax revenue from the tower.
Generally 20 percent of property tax revenue goes to the city itself, and 67 percent is split between Evanston’s elementary and high school districts, with the rest going to a variety of other local taxing bodies. But for the next decade the city will collect any tax increase on this property through an existing tax increment financing district.
An earlier study by the anti-tower Evanston Citizens for Responsible Development made it appear the tower was a bad deal for taxpayers by using a shorter time horizon and considering property tax revenue only to the city, ignoring revenue to the schools and other taxing bodies.
Both studies make similar adjustments to account for the drop off in tax revenue during the time the tower would be under construction, assign identical market values to the properties and make the same adjustment to account for the value of an income stream over time.
The new study concludes the net present value of property tax revenue generated from the site over the 20 year period would be $24 million if the tower is built, compared to $5 million if the current building is maintained.
The difference in other local tax revenue is not as large. The new study shows that over 20 years the city would likely see other revenue worth $7 million today if the tower is built and $6 million if it is not.
That stream of other revenue has many components including sales and liquor taxes, the real estate transfer tax, building permit fees, per capita state income tax payments to the city, utility tax and auto tax revenue along with revenue to the city’s parking system. Several of those revenue streams were ignored in the ECRD study.
While parking revenue to the city is greater from the existing building, the tower shows more revenue in most other categories.
As with any forecast, this analysis depends on a variety of assumptions. A spreadsheet that makes those assumptions clear and provides details of the calculations is attached below.
Related link
Yawn
Bill,
You have become a shill for the developers.
You are overly optimistic about the condo market and the time that the Tower would actually be built. Also, because the supposed money goes into the TIF, it really isn’t general revenue. Jonathan should have explained that to you. That hole has to be made up by us mere taxpayers in the interim.
A 10 year window is not as optimistic.
There is another “minor” flaw. Evanston needs the money now, not decades from now. The pension crisis is not going away. The garages are not paying their way. Maybe the developers could help us as a “public benefit”.
You may also join the nominees for a Darwin Finance Award.
vito
Snore
Hi Vito,
1. Why should anyone believe your crystal ball is better than the crystal ball of those who actually are putting their time and money at risk?
2. TIF money is still revenue the city can use to meet public needs, despite your claims to the contrary.
3. The life of the project is likely to be 50 to 100 years, so a 20 year window is actually quite short.
4. Evanston needs to meet its pension obligations by 2033. That’s 25 years from now — so a revenue stream through that period is beneficial.
5. Lay off the personal insults or find somewhere else to post your thoughts.
— Bill
How about some permutations?
Hi Bill,
I’d like to see your analysis re-run at some varying heights. What is the proposed difference in benefit at, say, 34 stories? 28? I’m guessing that there is a significant public benefit REGARDLESS of height which supports new construction on the site without necessarily justifying the currently proposed 38-story tower. I think many of us would happily support something in-between.
Thanks
Suz
Dimensions
Hi Suzannah,
The original design had four 30,000-square-foot floors built to the lot line and 45 more stories of roughly 10,000 square feet each.
Build a slab 19 stories tall, straight up from the lot line on all sides, and you’d have the same amount of space.
But then you’d hear the same complaints about the design that you hear now about Optima Horizons.
All depends on how you’d like the building to look … and whether that design lets the developers make enough bucks to be interested in doing the project.
— Bill
Crystal balls
Bill,
My “crystal ball” happens to be an understanding of NPV and its impact on the dire emergency of our present and near term city revenue and funding requirements. 2033 is far into the distance and I will be long gone by then (no applause please). That reliance on the “future” and avoiding today’s needs is what got us into this funding mess to begin with.
BTW that TIF money does not go into the schools except on an incremental student basis. The lowered EAV after the site is demolished and under construction means a lower city total EAV and an increase in our taxes to compensate.
As for those putting their time and money at risk, I shed no tears for the developers. As it stands, it will be our tax money and our risk that concerns me and many, many others.
This is probably my last post (again, no applause). Promising as your site was initially, I find the preponderance of anonymous responses grating. Ald. Rainey does not allow that on her chat board and her site benefits from that.
Regards,
vito
Extending the return misses the point
While this new analysis will take some time to absorb, there is one fact that extending the NPV line ad infinitum misses all together.
From the time the building is town down until it is built and the first tax levies flow into the city’s coffers, the city will see less income – by as much as $500,000. According to the city’s prepared analysis of TIF revenue and income, this situation will last 7 years, with a total deficit of $2.5M.
Now if we were in a period when our city budget had a surplus, not an issue. But we are not in surplus but a deficit mode – which may very well continue for several years. So the developer is asking the citizens of Evanston to somehow make up for this budget shortfall – in a sense subsidizing his development so he can make a profit.
Thinking long term when we have short term problems to deal with is not the way to make decisions that will affect EVERY Evanston taxpayer.
And the Darwin goes to……..the NIMBY’s!
“Thinking long term when we have short term problems to deal with is not the way to make decisions that will affect EVERY Evanston taxpayer.” John Kennedy
“There is another “minor” flaw. Evanston needs the money now, not decades from now. The pension crisis is not going away. The garages are not paying their way. Maybe the developers could help us as a “public benefit”. ” – Vito Brugliera
The anti-tower arguments just get worse and worse. Just when I thought that they couldn’t get any worse.
Mr. Kennedy and Mr. Brugliera appear to be arguing that since the city does not have a lot of cash right now, it should not do what is best in the long term.
This is like a 22-year old saying, “I got accepted to Harvard Medical School but I don’t have a lot of money right now. I will just get a job a Wal~Mart and that will pay the bills.”
This is short-sighted and bad economic planning. A more reasonable course of action would be, “I can take out a loan to pay for school, because I will make a lot more income after getting this degree, and then I can pay off the loan”
The amount of money he has now is irrelevant. Interest rate, future income, opportunity cost…those are relevant.
So it is with the tower. Whether you agree with Bill’s projections, or whether you like the architecture, or even the stupid ‘fire safety’ issue are at least debatable. But to say that the city – which is still capable of borrowing at reasonable rates – should put a short term cash crunch ahead of long term growth – well, that really deserves the Darwin Finance Award.
I wonder, Mr. Brugliera – does this logic apply to the Civic Center? Since we have a cash shortage, shouldn’t we sell the Civic Center, and have the city rent some office space? It would certainly be cheaper, in the short term, than fixing the whole Civic Center?
Sincerely,
Mr. Who Knows
Responsible development?
Hi John,
First, thanks for all your hard work pulling numbers together on this issue.
Second, if you look at all the revenue streams, you will see that the shortfall at the low point of the time sequence is far less than you state in your comment regarding the TIF alone. The model shows a shortfall only in 2013, and then of only about $200,000. (Obviously if the time to completion ends up being longer, the shortfall would be larger.)
Third, the drift of your comment seems to be that no development that results in the demolition of property with an existing revenue stream could meet your test for being responsible development in downtown Evanston at this time.
Since there is essentially no fallow land left downtown, and since all redevelopment involves some period of time in which the property is not generating revenue, this seems a lot like saying no development downtown is acceptable.
If you are not of that view, could you clarify how much loss of immediate revenue you’d be willing to accept in return for how much future return? What ratio of immediate revenue hit to long term revenue gain would work for you?
— Bill
It’s not just the tax revenue
While I think it’s a good idea to keep debating the issue of whether the skyscraper is good for the city as a way to raise more revenue, I will continue to insist that this conflict is only marginally about the bottom line. At the base of this issue is the character of Evanston — do we want a lot more high-rises downtown. I know of no one in the Evanston Coalition for Responsible Development that is against development. Low scale development is going on in Evanston all the time, will continue to occur, and non of us speak out against it at meetings. What most of us don’t want, however, is for Evanston to continue to move away from its small city feel and charm. This debate is over the heart and soul of Evanston and not over tax revenues. If all of us were always focused on the bottom line we would all sell one of our kidneys to the highest bidder. But we don’t because quality of life issues, like health, are just as important as tax revenues. And besides, the city can raise revenues in may other ways. For example, instead of a skyscraper, we could build a small mall on the same location and raise more money. Do we want to do that? Or, if we want to enhance the feel of the downtown, we could level the whole block and turn Fountain Square into a large plaza (an idea Alderman Moran mentioned at a meeting with constituents). Many things could be done. Most of us, however, don’t want a skyscraper, just look at the lawn signs and the petitions.
At last, an alternative from ECRD
Peter Sanchez asks:
“For example, instead of a skyscraper, we could build a small mall on the same location and raise more money. Do we want to do that?”
I am glad that someone from ECRD is proposing constructive alternatives, instead of just denouncing the ‘skyscraper’.
If you really believe that a small mall would generate more income than a 38 story ‘skyscraper’, I just wonder why the ECRD members have not put together a proposal to do just that, and presented it to the developers. The developers are reasonable people, who want to make money, not just build a tall building. If they can make money by building a small mall, I think that they will do it.
I don’t know who, if any one person, speaks for ECRD – but until now I have not seen one concrete alternative to the tower. It has always been about stopping the tower, saving the offices, saving the shoe store.
Even a small mall would still create many of the ‘problems’ that the tower will cause, if we believe the opposition. Displacement of businesses, increased traffic, temporary loss of tax revenue, will still occur. The 708 building, which I consider to be just an old building with no historic or architectural merit, will still come down, and I think that the objections about ‘character of the city’ would still be heard.
Still, if this is a serious suggestion, I find it much more reasonable than the blanket opposition to any development on the site. The problem that many of us have with the ECRD is that, despite the name, the organization never has produced any specific proposals for what they consider ‘responsible’ development . Instead, they only seem to be concerned with preventing this particular development project.
Bill -Why do we need to give the developers any funds?
Bill – what if we did not give the developers any funds? Would this not pay down the TIF faster? Why at this point with the downtown so developed do we need to give hand out to developers. I walked by the Hahn Building – I would let them gut the building and keep the facade only and build several more floors over the Hahn building and part of the tower also.
I am concerned about this whole parking garage mess – it is starting to appear like the pension funds – we have built out to 60% capacity? Why the rest?
More of our tax dollars wasted?
I want to see imediate gain for the taxpayers not 20 to 30 years out – but the end of fifty years the building will be most likely in need of major repair – so I would not be so interested in projecting out into the future that far!
City funds for tower or landmark
Hi Junad,
The developers are not asking for any city funds for the tower project.
They are separately asking for TIF money to pay part of the cost of restoring the landmark Hahn Building nextdoor. A city contribution of $3 million is the figure that’s been mentioned.
With the whoha over the tower I don’t think we have yet heard enough about the Hahn proposal to determine whether it would be a wise use of the city’s funds. At least until we know more, I’m skeptical about it.
Your idea of preserving only the facade of the Hahn building and adding more floors to it is another option — two other developers have proposed doing just that. But it’s an idea that may draw impassioned opposition from at least some preservationists.
— Bill
Show Me The Money!
For more than ten years people in Evanston have been wondering where is all the revenue promised from all the new construction that has come to town?
Since the late 90’s Evanston’s bonded indebtedness has risen significantly. Some of you will remember when I was staunchly opposed to increasing the city’s self-imposed debt limit from $75 million to $100 million in 2003. Presently, the City has dispensed with its self-imposed debt limit. Notably, today’s Evanston Review quotes from Moody’s recent assessment: “The city’s already above-average debt burden will increase materially given the city’s plan to address its capital improvements over the next five years.” What is the plan? More taxpayer supported debt! Julia Carroll’s five-year financial outlook is planning for $30,000,000 more debt at a minimum and that is just for the Civic Center
In May of 2000, Martin Stern of U.S. Equities, the City’s paid financial consultant, explained that after the year 2008, all of the revenues going into the Downtown II TIF would begin going to the other taxing bodies, rather than the TIF.
In 2002, the City bonded for $35,000,000 to pay for the Sherman Avenue garage, after having bonded for over $25,000,000 for construction of the Maple Avenue garage. These are taxpayer-supported bonds, and the debt service for these loans is included annually in the levy.
The Maple Avenue garage will be paid for by the Down Town II TIF as planned. However, the surpluses to the general fund at the expiration of the DT II TIF Mr. Stern referred to won’t materialize in the form of revenue to the city because that money is now going to pay for the Sherman Avenue garage.
This means that the expected revenue is not going to the general fund to help offset the annual 4% increase in property tax supported debt service paid for by taxpayers. (Here is good place to mention that the revenue to the city from DT II TIF is significantly lower than planned already, due to the loss of the expected revenue generated by the 1800 Sherman Avenue building, having gone to the purple monster to the east).
In February of 2005, the city council authorized another $12.5 million in general obligation bonds to cover the Guaranteed Maximum Price on the Sherman Plaza garage of $48,396,174. That amount bears repeating: The Sherman Plaza garage cost the taxpayers nearly $50 million dollars! This is a publicly funded garage, which the city owns and must maintain for 75 years, and it was built with more spaces than necessary, as part of a private development. It is no wonder our taxes continue to rise and nowhere in sight is there any relief. Our property taxes will continue to pay for the debt incurred to build the garage because the revenue from the Sherman Plaza development is not doing so.
The expanded Washington National TIF is a different animal, in which the 708 Church building is located. Another project by the same developer, that is relying on reduced parking requirements, and will be supplemented by the taxpayer-supported public parking garage, is no solution to the problem. Here one can add Peter’s comments regarding the character of Evanston, the quality of life issues, and the offensive height of the proposed tower, yes, even at 38 stories.
Appropriate questions to ask are: What is the frozen base EAV? What is the budget for the WN TIF? Are we not close to spending more than we have to spend in that TIF? How will we pay for close to $500,000 in repairs to Fountain Square, hand over $3 million for the Orrington ramp, another $3 million for the Hahn building, and whatever other unknown capital expenditures regarding sewers and streets that have been approved? Then of course, we have to pay for the Sherman Plaza garage, which is also located in the WN TIF. A few other good questions: How much have taxpayers spent on consulting reports from Kane McKenna and U.S. Equities? Why do land use and planning decisions need to be made by determining if this works for the developer? Why is the priority always about how much money the developer can make, and not about what is both pleasing to those footing the bill, and economically viable for the taxpayers?
NIMBY? NIMBY, YOU SAY? I say, HARDLY!
Mimi Peterson
NIMBY? NIMBY, you say?
Some thoughts on Mimi’s letter:
1. ” purple monster to the east”
Several residents of Evanston like to blame Northwestern for their high taxes. I have seen this before in Mimi’s postings, too. I would like to see more land put on the tax rolls too, but it is unreasonable to use Northwestern as a scapegoat for high taxes. I think that Northwestern should expand upwards, so it would take up less surface area in the city. They should be permittted to build taller buildings on their campus, or a nice tall office building ( let’s say 49 stories) downtown. The office workers will spend lots of money and support local businesses.
Also I believe that NU contributes more to Evanston’s tax revenue – through sales & hotel taxes from students, employees, and visitors – than it takes off the tax rolls. My guess is that NU attract many more visitors who pay for parking, taxes, and meals than all of the Class B offices in the 708 Church building.
More importantly, I believe that taxes are high in Evanston for the same reason that they are high in Oak Lawn. We have the same kind of voters, who like their city to provide social services, like to protect old buildings, and don’t like development. And we border Chicago.
2. NIMBY? NIMBY, YOU SAY?
The university was here before any of us. I get annoyed with the drunk students too, but I knew they would be here when I came to Evanston. I believe it was Webster, or perhaps Dr. Johnson, who defined a NIMBY as ‘one who buys a house next to the airport, and then complains about the noise of the planes.’ I think that people who live in Evanston and then complain a lot about Northwestern can be called NIMBY.
3. The cost of garages.
I confess that I find this difficult to follow. Could someone please explain it to me? Are these garages costing Evanston taxpayers any money?
Mimi wrote “That amount bears repeating: The Sherman Plaza garage cost the taxpayers nearly $50 million dollars! ”
Is this correct? I am not familiar with the details of the garage funding, but it appears to me that Mimi is saying that the cost of constructing the Sherman Ave garage was around 50 million, and she is suggesting that the taxpayers are covering that.
Doesn’t this garage generate revenue? I thought that the way it works is, the city took out a loan to build the garage, and the city uses the revenue generated by the garage and development to pay down that loan. Is this correct?
So, if people are using the garage, and paying for parking, the garage will pay for itself, right? So it isn’t costing the residents of Evanston $50 million, right?
If the garage is generating enough revenue to pay for itself, it sounds like successful venture.
Are the two new garages generating sufficient revenue to pay for their maintenance and pay down the loans? Am I really paying higher taxes because of these garages?
And does this Sherman Ave. garage have ‘more spaces than necessary’, as Mimi claims? If we have extra parking spaces, and a developer wants to build downtown, does it not make sense to allow this developer to use some of the excess spaces that the city has? [not for free, of course!] As long as the developer is paying the market rate, it sounds like the city is receiving more parking revenue – and we prevent another parking garage from being constructed downtown when we have excess parking.
Garages
Answers to John’s questions:
“Are these garages costing Evanston taxpayers any money?”
Yes, lots of money.
“Is this correct? I am not familiar with the details of the garage funding, but it appears to me that Mimi is saying that the cost of constructing the Sherman Ave garage was around 50 million, and she is suggesting that the taxpayers are covering that.”
Yes, that is correct. Yes, the taxpayers are covering that.
“Doesn’t this garage generate revenue?”
No, no it does not.
“So, if people are using the garage, and paying for parking, the garage will pay for itself, right?”
Wrong.
“So it isn’t costing the residents of Evanston $50 million, right?”
Wrong, again.
“If the garage is generating enough revenue to pay for itself, it sounds like successful venture.”
No, the garage is not generating enough revenue to pay for itself.
“Are the two new garages generating sufficient revenue to pay for their maintenance and pay down the loans?
No they are not.
Am I really paying higher taxes because of these garages?”
Yes you are.
“And does this Sherman Ave. garage have “more spaces than necessary?”
Yes, it does.
Mimi Peterson
A clarification
Mimi:
I’m not in the habit of responding to message board posts, but your use of my firm’s (Moody’s) comments leads me to clarify a point. Our report does indeed describe the city’s debt as above average, but your use of that line alone eliminates its context: its an above average debt profile for a Aaa or Aa1 rated city. This is like saying someone is a step slow for an Olympic sprinter. Context matters.
-Shawn