Tag Archives: Enterprise Zone

City of Peoria, Economic Development, State of Illinois

Enterprise Zones extended, redefined

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The State of Illinois recently extended the Enterprise Zone program (Public Act 097-0905). Peoria’s enterprise zone was due to expire next year (2013), but has now been extended until 2016, at which time the city can apply to have it extended for another 25 years.

In addition, the criteria for awarding Enterprise Zone status has been redefined. Gone is the “requirement” that the zone be in a “depressed area,” defined as “an area in which pervasive
poverty, unemployment and economic distress exist.” That criterion was never followed in the first place, especially in Peoria, as can be seen from the following map showing the location of Peoria’s enterprise zone (in red):

Peoria’s Enterprise Zone

Note the large greenfield areas in far north Peoria that are included. Not exactly a depressed area.

Instead of making cities conform to the law, the State of Illinois has opted to make the law conform to what cities are already doing. I guess that’s one way to resolve the problem. The old requirement is being replaced with ten criteria, three of which have to be met in order to qualify for Enterprise Zone status. The criteria are broad enough that any city in Illinois should easily be able to qualify.

Nevertheless, there are a limited number of Enterprise Zones allowed in Illinois, so a new Enterprise Zone Board is being created. They will assign points to each application based on how closely each criterion is met. The highest scores win.

The bottom line is that Peoria’s enterprise zone, most of which was not in compliance with the law, has now been legitimized. So shopping areas that are full of commercial businesses and don’t need any additional incentives (like Glen Hollow) will continue to reap the benefits of this economic development tool while whole areas of the City with abandoned commercial centers (like the South Side) will not receive any incentives for revitalization. Greenfield sites on Route 91 will continue to get sales tax breaks for new development, putting existing development in the older parts of town at a further disadvantage.

City Council, City of Peoria, Economic Development

Council to address pervasive poverty on Brandywine Drive

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I’ve talked about the misuse of Enterprise Zone status on several occasions here at the Chronicle (e.g., “A New Kind of Poverty,” “Discussing Incentives with Craig Hullinger“), so there’s no need to go into another lengthy explanation. Here’s a quick summary: the Enterprise Zone is supposed to be used in “depressed areas,” defined as areas “in which pervasive poverty, unemployment and economic distress exist” (20 ILCS 655/3(c)). But the City of Peoria completely disregards this qualification and uses the status indiscriminately throughout the city. See for yourself:

By taking this tool and using it in growth areas, greenfield sites, and other non-depressed areas, the City has not only eviscerated its effectiveness, it’s put depressed areas at an even further disadvantage.

It looks like that trend will continue at tonight’s City Council meeting, as the Council will probably approve extending Enterprise Zone status to the horribly depressed area of — yes, you guessed it — Brandywine Drive. Yes, when one thinks of pervasive poverty and economic distress in the City of Peoria, the first place that pops into my mind is “across the street from Northwoods Mall.”

I don’t want to minimize the challenges faced by all parts of town, but having just come off a huge recession, it’s not surprising to find vacancies throughout the city. We certainly want to do what we can to encourage reinvestment, but misusing incentive tools is poor public policy. It’s dishonest — the wording of the statute is unambiguous that this should only be used in areas of pervasive poverty. It’s unfair — it puts poverty-stricken areas at an even greater disadvantage.

The Journal Star ran an article on this agenda item, and the council members they interviewed (the usual suspects) were all in favor. They have regularly defended the misuse of EZ status by saying “everybody does it,” so those responses were expected. I was disappointed to see new council member Beth Akeson’s response, however:

“I kind of question the use of the enterprise zone in the city, but the city has already set a precedent,” at-large City Councilwoman Beth Akeson said. “Once you set precedent, and once you extend an enterprise zone to (particular) properties, you are hard pressed to do other things than continue on.”

What is she saying? That past misuse of economic development tools has somehow become binding precedent, obligating the council to future misuse? That someone could sue the City for not giving one property the same economic development incentives as another property? If that were true, then every hotel in Peoria should be suing the City for their own pot of gold based on the Wonderful Development incentive package.

The city is under no obligation to extend the enterprise zone to a single additional property. We need not continue every bad precedent set by past councils. We are not constrained to keep repeating past mistakes.

But we will. That’s what we do in Peoria.

City of Peoria, Economic Development

Discussing incentives with Craig Hullinger

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Craig Hullinger has written a blog post about the necessity of providing incentives to rebuild a city’s downtown/older neighborhoods. Hullinger used to be the Economic Development Director for the City of Peoria until he retired in 2009. Since that time, the City has not hired a replacement; instead, Economic Development personnel report directly to the City Manager du jour. Hullinger is a very nice guy and has said some kind things about my blog; nevertheless, we have some disagreements on economic development theory.

“If an older city does not lead the redevelopment of its older central city, it will continue to decline,” Hullinger says. “[A] decision not to incent redevelopment is a decision to give up on your older areas…. [I]ncentives are required to rebuild downtown. Developers go where they are certain they can develop and get a great return. Redevelopment is much more costly and high risk then greenfield development. We have to equalize these costs through incentives if we want private sector renewal.”

What’s missing from this argument? It doesn’t specify what he means by “incentives.” An incentive is “any factor (financial or non-financial) that enables or motivates a particular course of action, or counts as a reason for preferring one choice to the alternatives.” If this is what we mean by “incentives,” then Hullinger and I do not disagree. I believe cities do need to invest in their older neighborhoods and to incentivize redevelopment where necessary.

The point of disagreement is over the kind of investments and incentives that should be made.

Let’s look at a specific example of the kind of incentives to which I object. Hullinger talks about equalizing costs of redevelopment with greenfield development. One of the tools to accomplish this is something called an “enterprise zone.” Its very purpose is to help cities revitalize their older central cities by providing sales tax breaks on building materials or a partial property tax abatement. The City of Peoria’s enterprise zone looks like this:

Notice where these incentives are predominantly going? Along the riverfront, and far north Peoria. Question: When the same incentives are given to greenfield sites as the central city, what effectiveness do they have? Answer: None. If anyone in the city can receive Enterprise Zone status, it’s no longer an incentive to locate in the central city. It loses all effectiveness, and becomes nothing more than developer welfare — a perk for the well-connected, like Firefly Energy, which you can see received EZ status on the map above (the thin red line that snakes down Detweiller Drive and Route 29 to the old Foster and Gallagher site). EZ status was even used as an annexation tool to keep a pizza place from moving out of the City — a pizza place that had already received an incentive from the City in the form of a business development loan.

When you eviscerate your economic development tools like this, it leads to an arms-race for more extravagant incentives to draw people to the central city. And that needlessly costs the taxpayers more money. We need to maximize the effectiveness of our economic development tools, and that means (among other things) using them where they’re needed, and not using them where they’re not needed.

And under no circumstances should we give a $9 million fee to a private developer to build a private hotel for his private profit. That’s not economic development. It’s pure, unadulterated developer welfare — welfare we can’t afford.

City of Peoria, Economic Development

Enterprise Zone answers raise more questions

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Back in May, Peoria’s Economic Development director Craig Hullinger asked District 150 to be a part of the Enterprise Zone for the Main Street Commons project, and I wrote this post in response. Craig, who is a really nice guy and very communicative, wrote me and we had an interesting e-mail exchange. He asked me if he could post it on his blog (did I mention he’s very communicative?), and I said that was fine with me, so here it is. I’m not sure why his post is dated September of 2008 because we didn’t have our discussion until just the last couple of months. Perhaps he just updated an old post.

Anyway, I was rereading it today, and now I have some more questions. For example, Craig says:

Any development is risky. The safest developments are on undeveloped land (green grass sites). It is easier to buy a large tract of land. Less likely to have costly environmental problems hidden underground. Urban redevelopment is always more difficult. It is harder to assemble the land – usually multiple owners. Older areas have more poverty and crime.

I think you can see that this is true by comparing the level of development in the suburban areas of Peoria versus the older areas. More development takes place in new areas. It is always a struggle to get investment in older areas. We try to equalize the difference between new and old with incentives.

Now look at this map of the current Enterprise Zone:

EZ map 2 28 09

Notice the big red area up in the far north part of town? Up there where there are green grass sites? Where it is easier to buy a large tract of land? Where it is less likely to have costly environmental problems hidden underground? Up where they, in short, need no incentives?

Why is the Enterprise Zone up there?

And furthermore, doesn’t that just step all over the theory of “equaliz[ing] the difference between new and old with incentives”? If a developer can get the same incentives up where there’s a green field, doesn’t that kind of “equalization” work against redeveloping the older parts of town?

One more question, for the record. Craig said:

There is a good market. We hired the premier market research firm, Tracy Cross, to assess the market for new close into downtown housing. They said the market was strong, for creative class young professionals, but that renters lead the urban renaissance, and that the rents had to be about $1.00 a square foot. It is hard to build a quality brick building that will rent for that rate without incentives.

So, we can expect this development to be a “quality brick building” now that these incentives are in place? And that rents will be competitive? So noted. I’ll be referring back to this post when the construction materials are made public. When I asked at the public meeting what materials would be used, I was told they hadn’t decided yet.

City of Peoria, Peoria Public Schools

2009 Worst Timing Award: Craig Hullinger

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I like Craig, so nothing against him personally. But has he read the paper lately? I have a hard time believing he has when I hear news reports like this one from 1470 WMBD:

Peoria School District 150 is being asked to participate in an Enterprise Zone to allow a developer to construct a combination of retail space and housing units along Main Street. Devonshire Group plans to build Main Street Commons at the site of the former Walgreen’s at Main and Bourland…. If District 150 goes along the developers will pay property taxes on only the current value of the property for five years…. City of Peoria Economic Development Director Craig Hullinger says District 150’s participation is vital to the project moving forward.

Dude! District 150 is LOSING MONEY! They’re in terrible, terrible debt. They’re closing schools. They’re laying off teachers. They’re raising class sizes. They’re getting ready to issue $38 million in 15-year bonds to pay off short term debts and make payroll. And… AND —

I have here the 2008 Tax Computation Report on District 150 that just came out a few weeks ago. Would you like to know how much property tax revenue District 150 is not receiving because of tax increment financing (TIF) districts? $3,027,801.91. And the City has already put the new Marriott Hotel in a TIF, so District 150 won’t see any benefit from that development. And the museum is in a TIF, so the district won’t see any benefit from that development. And now that a developer comes to Main street, the City says, “Hey, District 150, would you mind doing without a little more tax revenue for just a little bit longer?” Five years, that is… unless they extend it.

This couldn’t have been suggested at a worse time. And the really crazy part? Check out the quote from the developer about this project:

Shawn Luesse of the Devonshire Group told the District 150 school board Monday the project is targeting Bradley University students. “Our feasibility study shows there’s a housing need for Bradley students,” Luesse said. “We would virtually be full overnight.”

Wait a minute…. If it’s going to be this successful, explain to me why they need this tax incentive to make it happen. Is it just because everybody else gets incentives, so now we’ve trained our developers to have an entitlement mentality?

City Council, City of Peoria

Enterprise Zone now to include all of Glen Hollow

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On July 22, the council approved a huge addition to the city’s Enterprise Zone (EZ). Click on the thumbnail to the right for a map of the parcels added then. You’ll notice that those parcels include, among other things, Westlake Shopping Center, all of the “convenience loan” establishments along University, Wal-Mart, Auto Zone, Comcast Cable, and Best Buy.

But that apparently wasn’t enough. It’s back on the agenda this week with eight more parcels added. What poor, blighted businesses are getting the benefit of EZ status this time, you ask? The entire Glen Hollow shopping center. You know, blighted stores like Target, Petsmart, Cub Foods, Lowe’s, Wendy’s, Barnes & Noble, Hometown Buffet. Slums, all of them. And how were they added? According to the council communication, “At the request of one of the City’s Planning Commissioner’s [sic]….” Not all of them; not even a majority of them. One of them. I guess that’s all it takes.

Once again, the city communication makes this comical statement:

These areas are located within the core of our City and property owners have encountered challenges in attracting investment since many businesses are choosing to move to the northern parameters of the City.

And I’ll point out again that one of the reasons they’re choosing to move there is because the City is incentivizing it through annexation and, yes, even EZ status. So now they’re using the Enterprise Zone in the 2nd and 4th districts to compete against the Enterprise Zone in the 5th district. What other self-defeating strategies will the City dream up?