City Council, City of Peoria

How many different funding sources can we tap for the Wonderful Development?

19 Comments

The City Council is poised to add another funding source to the downtown hotel project next Tuesday. Keep in mind the funding sources already tapped for this project:

  • HIZ TIF (10/28/2008) — First, they created the Hospitality Improvement Zone TIF (tax increment financing) district. This happened in October 2008 while the mayor and council were still telling the public there was no hotel project being proposed. It was designed primarily as an economic incentive for the Wonderful Development.
  • HIZ BDD (11/10/2008) — Following close on the heels of the TIF was the HIZ Business District Development (BDD) Plan. BDDs are like TIFs except that, whereas TIFs use property tax money, BDDs use sales taxes. In March 2009, under this BDD, the council established an extra 1% sales tax within the BDD boundaries to be used for “capital improvements related to new or existing hotels.”
  • General Obligation Bonds (pending) — These bonds, which have been approved for various amounts between 2008 and 2011 but have not been sold yet, will supposedly be paid back by the project via property taxes plus the HIZ TIF increment and BDD sales tax explained above. However, since they’re general obligation bonds and not revenue bonds, that means that the full faith and credit of the City of Peoria is backing them. In other words, if the project doesn’t pay for itself, the City’s general fund has to pony up the money. That’s money that we need for police, fire, public works, etc. It’s also the fund that has been bailing out the failed Midtown Plaza TIF.
  • Post Employment Benefits Reserve (11/1/2011) — Under the terms of the latest (i.e. third) redevelopment agreement, the City of Peoria will loan the developer (Mr. Matthews) $7 million for 25 years at 7% interest (but the first two years will be interest-free) because he couldn’t get all the private financing he needed. What is the way of finding the right lender? Where is the City getting this money to loan? From the Post Employment Benefits Reserve, an underfunded pot of money set aside to pay health benefit obligations to future retirees.

One more thing about those general obligation bonds: they’re supposed to be for $29 million, but the City would actually have to issue bonds for $32.5 million. Why? Because the money is needed for construction, but during construction the property is not generating any income to make bond payments. So between the time the bonds are issued and when payments start, the interest that’s accrued gets added to the principal. It’s called “capitalized interest,” and if you’ve had student loans, you’re probably familiar with it.

The City has found a way not to capitalize the interest on those bonds. They’ve found another pot of money they can use to make the bond payments during construction. Where did they find it? In the Southtown TIF District. Since the Southtown TIF is adjacent to the HIZ TIF, money can be siphoned off transferred between them for allowable expenses. Financing is an allowable expense in this case.

Southtown is the City’s very first TIF district, established in 1978. TIFs are only supposed to last 23 years, but in 2001 the Council extended it another 12 years, so it’s not due to expire until 2013 now. But the City could retire the TIF sooner. I mean, since they have such a surplus of money in that TIF, they could just end it now and let that money be divvied up proportionally among the affected taxing bodies, including District 150 and Peoria County.

But instead, the City is going to take part of that money and not even use it to improve infrastructure in Southtown or add any value to Southtown. They’re going to use it to make bond payments on an ill-advised hotel project in downtown Peoria — a behemoth that already has three other public funding sources.

This plan will do one thing, though. It will give the council the opportunity to pretend they’re fiscally responsible. “Look at what we’re doing,” they’ll say. “We’re saving $3.5 million!” It’s like going to McDonald’s and ordering a Big Mac, french fries, apple pie… and a diet Coke. “See? I’m watching my weight! I’m drinking a diet Coke!”

I suppose it’s better than nothing.

19 thoughts on “How many different funding sources can we tap for the Wonderful Development?”

  2. i was once told by someone “when you’re out of money, you’re out of the game.” what struck me was that it was called a game.

    I don’t even live in peoria anymore, and, yet, this sickens me. my nieces still live there and my sister and her husband.

    Government paid “economic development” is corruption. Heartland Partnership is corruption. Tri-County is corruption. Garbage fee is corruption. Name them. Two-thirds of the Journal Star is news releases with a quote. Free advertising for corruption. Other newspapers do no better. No blame to reporters; only to their bosses.

    Our part-time legislators, paid full-time wages, get money to “inform” voters with junk mail that legally scrapes past campaigning, get money to staff offices; incumbent perks. Illinois spends 7 million plus on a fleet of jets between Chicago and Springfield. Government in Illinois is corrpution.

    I challenge me to do something about such feudalism, to no longer accept is as status quo, to risk and to sacrifice more to make america a place where fairness exists; as fairness is not part of the games these days.

  3. CJ & all, remeber the new East Village TIF (OSF)? That TIF links other TIFs so the city can “transfer” cash around also to the failed Midtown TIF or the recent sweethart deal to OSF. So can we look forward to that ? Would not supprise me. Soneday the creative accounting will cach up to the city. But hey; “Its Better Than Nothing!” Wellcome back CJ!

  9. This project will go through because none of the council members would dare admit that they made a mistake and have the courage to do the right thing and back down now. The players keep saying that they are just trying to get the final documents needed. There is so much in-fighting going on between the developer, the architect and the construction company in charge, it is doomed to fail one way or the other. The developer and EM Properties is in way over its head on this project. Smart employees will get their resumes in order!

  10. If the City does back out what happens?

    Does the Pere open back up as is; does Big Al go back to Main Street? What would backing out look like.

  11. CJ, will you get your new city logo printed into bumper stickers and pins or is it copyrighted? We all need to wear these and put them on our bumpers and go to the next council meeting.

  12. I would hope that everyone has sent something to the city council regarding significant concerns for this project. I would suggest sending it to the clerk’s office or bring copies to the meeting to give it to the clerk to ensure your comments are part of the record.

  13. If the city backs out, the Pere stays closed. The owners would try to see it. I don’t see a buyer without city money to remodel.

  15. The bank would continue with the foreclosure suit against the property (or the owners would give it back). The bank would sell the property, take their loss on the loan and then the group that bought it would figure out what the best use for the property would be. It could remain a hotel or maybe some of the rooms/floors would be remodeled into either apartments or condo’s with the remaining rooms still a hotel (but at a level where occupancy could support the operation).

  17. Just to clarify, a BDD is not “like a TIF”.

    A BDD works by charging an extra fee (in this case, an extra 1% sales tax, as you mentioned) and that fee goes into the BDD fund. So if you bought something before the BDD was enacted that cost $100 with a 6% sales tax, it’d cost you $100 + $6 = $106; today it would cost $100 + $6 + $1 = $107. It’s an increase in taxes and remains totally unaffected by the improvements it goes to fund; likewise it doesn’t affect how the City spends the income it gets from the rest of the sales tax.

    A TIF works by freezing property tax funding levels at $x but keeps the tax percentage the same as property values float. Technically the tax percentage does not increase; TIFs just skim off the top when property values rise due to improvements made in the area.

    I’ll present an oversimplified version of the TIF to try to make it easier to explain, because a lot of people think TIF = tax hike, like the BDD. (CJ, I know you know all this, but this may be helpful for your readers.) Let’s say you have property that’s worth $100,000 and your property tax percentage is 10%, so you pay $10,000 in property taxes. Of that $10,000, $5,000 goes to D150, $3,000 goes to the City of Peoria, and $2,000 goes to the Park District. When a TIF is enacted, those funding levels are frozen for the duration of the TIF. The City then uses the future value of the TIF district as a credit source for bonds for, say, street improvements. When the street in front of your property is completed, your property becomes more valuable and your property value goes up to, say, $120,000. Your property tax burden is still 10%, so this time around you’re paying $12,000. However, D150 still only gets $5,000, COP only gets $3,000, and PPD gets their $2,000. The remaining $2,000 that you paid in taxes is what goes into the TIF and is used to pay off the bonds or to stockpile for more improvements within the TIF district.

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