City Council

MINUTES CITY OF DEKALB SPECIAL COMMITTEE OF THE WHOLE MEETING SEPTEMBER 19, 2017 The City Council of DeKalb, Illinois, held a Special Committee of the Whole meeting on September 19, 2017, in the City Council Chambers of the DeKalb Municipal Building, 200 South Fourth Street, DeKalb, Illinois. Mayor Smith called the meeting to order at 7:01 p.m. A. ROLL CALL City Clerk Herrmann called the roll and the following members of City Council were present: Alderman David Jacobson, Alderman Bill Finucane, Alderman Mike Marquardt, Alderman Pat Fagan, Alderman Kate Noreiko, Alderman Mike Verbic, Alderman Tony Faivre, and Mayor Jerry Smith. Also present were: City Manager Anne Marie Gaura, Assistant City Manager Patty Hoppenstedt, City Attorney Dean Frieders, Fire Chief Eric Hicks, Community Development Director Jo Ellen Charlton, Public Works Director Tim Holdeman, Information Technology Director Marc Thorson, Economic Development Planner Jason Michnick, Principal Planner Dan Olson, and City Clerk Susanna Herrmann. B. TIF PHASE OUT Mayor Smith briefly explained the purpose of the Special Committee of the Whole (COW) meeting and reminded all viewers and attendees that no decisions will be made at the conclusion of said meeting regarding the topic of discussion. Using a PowerPoint presentation, Economic Development Planner Michnick began by informing all viewers and attendees that Tax Increment Financing (TIF) is an economic development tool used by municipalities to assist in the redevelopment of blighted or economically challenged areas of the community. He provided a background on this item, stating that TIF helps overcome financial challenges that often prevent private development or reinvestment into specific geographic areas. In order to create a TIF District, a municipality must go through a process to qualify the designated area. This qualification is known as the “but for” test, meaning that investment would not occur, but for some form of economic support and subsidization. Once a TIF district has been established, the assessed value of the properties within the district are “frozen” in that year, creating the base Equalized Assessed Value (EAV) of the district. In the subsequent years of the TIF district (23 years with potential for a 12 year extension), any additional property tax revenue generated by an increase in the assessed value (increment) is put into a special revenue fund that is managed by the municipality. He noted that what a municipality can invest TIF funds into is regulated by the Illinois TIF Act as “eligible expenses”:  Acquisition of real property  Rehabilitation or renovation of existing public or private buildings Special Committee of the Whole Meeting Minutes September 19, 2017 Page 2 of 11  Construction of public works or improvements  Relocation expenses caused by a redevelopment project  Financing costs, including some interest assistance for developers  The cost of conducting studies, surveys, or plans  Professional services, such as architecture, engineering, legal, and planning  Marketing the TIF district  Training/retraining expenses for businesses located within a district  Demolition and site preparation  Administrative costs for managing the district Economic Development Planner Michnick continued with his presentation, outlining the methods he used in order to prioritize investment opportunities. He stated that the first step is to understand the projected funds that will be available over the remaining years of the TIF districts. For the DeKalb TIF districts, two different methodologies were used to predict the revenue that would be generated over the next five years. The first method used for projecting future revenues was linear regression. This methodology looks at the relationship between two variables. In this case, the two variables were time and property tax revenue into the TIF funds. He stated that the second methodology looked at the more recent history of revenue. This was done due to the drastic difference in the growth before and after 2005. Prior to 2005, growth was following a relatively linear pattern. In the years following, there was a significant increase in growth and then multiple years of negative growth. The lower revenue projections looked at the year over year percentage change in revenue between 2006 and 2017. In regard to projected expenses, Economic Development Planner Michnick explained to Council, attendees, and viewers that TIF expenses are broken up into two general categories, Contractual (reoccurring) Services and Capital/Permanent Improvements. The numbers for contractual services are based on regularly budgeted figures. He noted that the actual expenditures in these categories often fall below the budgeted amounts. Economic Development Planner Michnick continued with his presentation by discussing total available funds. He explained that these amounts are calculated using the conservative estimates of annual revenues and expenses that have been provided in the previous sections, as well as fund balances that are projected for the end of FY2017. Based on the assumptions that have been presented, it is estimated that the available funds left for projects and programming through the remainder of the districts is between $11,604,556 and $13,476,768. He directed Council’s attention to the last column in each table on the slide as it indicates a transfer from TIF District 2 into the Central Area TIF District (CATD) occurring in FY2017 and FY2019. This transfer is legally permitted as the  Special Committee of the Whole Meeting Minutes September 19, 2017 Page 3 of 11 two districts are adjacent to each other. Given the momentum of development in the downtown, staff is recommending that $9 million be transferred from TIF District 2 before the close out, so long as there are not any significant projects identified as being in progress in that District. Economic Development Planner Michnick provided a list of Project Categories:  Subsidized Private Projects  Public Facility and Infrastructure  Civic Space and Foot-traffic Generators  Blight Removal  New & Ongoing Programs Based on those categories, an estimate of 61 million dollars was calculated for TIF contributions. Moving forward, Economic Development Planner Michnick provided a summary of individual projects in order to assist in the consideration of developing a framework for analyzing opportunities. He explained that given the substantially greater amount of potential TIF expenditures on projects, compared to the available funds left in the life of the districts, the City must develop a strategy for prioritization. Given the nature of TIF, and its intended use of expanding the tax base, it is recommended that projects and programs be analyzed through the lens of investment opportunities. He provided examples of how the City should measure Return on Investment (ROI):  Increase in EAV.  Total amount of investment.  New tax generation.  Reduced long-term liabilities  Increased foot traffic to support local businesses.  Number of buildings improved.  Increased in lease rates for residential and commercial properties. Economic Development Planner Michnick provided Council with three options to consider:  Option A: Prioritize Projects & Programs under Current Assumptions and Policies Special Committee of the Whole Meeting Minutes September 19, 2017 Page 4 of 11 Economic Development Planner Michnick noted that should Council support moving forward under Option A, a framework and set of guidelines for how staff should analyze opportunities would need to be developed. After the framework and guidelines have been established, staff would report back to Council at a later date with multiple “investment portfolios” to be chosen from. Given the limited total amount of available funds ($11.6 - $13.5 million), it is recommended that portfolios consider projects or programs that have synergies and would provide a maximum impact.  Option B: Investigate Potential Policy Changes to Increase Available Funds As Economic Development Planner Michnick previously stated, the remaining balance estimates are based on assumptions of regularly budgeted expenses that would carry forward without change. He explained that these balances could increase, or decrease, depending on any changes to future budgets or financial policies, for example, reductions to contractual services and eliminating road maintenance from TIF funds would increase the available funds by as much as $4 million, bringing the available funds for projects to a range of $15,604,556 to $17,476,768. He mentioned that an additional area that could be reduced to increase the available funds is transfers to the General Fund. In combination with road maintenance and reductions in contractual services, the total available funds could be increased up to a range between $19,223,834 and $21,096,046. However, eliminating transfers to the General Fund would provide a significant reduction in funding for operational expenses for the City. While some reduction is recommended, it should be tapered, rather than eliminated in a single fiscal year or delaying until the end of the districts. He stated that unless Council is willing to support cuts to essential services, a reduction in the transfer to the General Fund cannot be undertaken without a corresponding increase in revenue. Should Council support Option B, the framework for analyzing projects would still need to occur. How that framework is developed, and what investment portfolio is chosen, could change based on the increased availability of funds.  Option C: Creating a New Downtown TIF District Although there has been recent momentum in redevelopment and investment in the downtown, there is still much that could be done to realize the ultimate vision. Even through Option B, there would still be potential opportunities that are left off the table. In order to achieve all of these projects, as well as ones that have not yet been identified, a new TIF district would need to be created. Using a digital map, Economic Development Planner Michnick outlined the proposed boundary for the new TIF district. In addition to the proposed boundary for a new district, the map also indicates all of the commercial properties in the current CATD that are assessed at values less than the base year. There are still a significant number of properties that are worth less than they were 30 years ago.  Special Committee of the Whole Meeting Minutes September 19, 2017 Page 5 of 11 Economic Development Planner Michnick explained that by creating a new TIF district, the base EAV for those properties would also be lowered, creating the potential for higher increment generation. Should Council consider Option C as the best alternative for keeping the momentum in downtown, it is recommended that the feasibility study be started by the end of the current fiscal year. Timing of the feasibility study is of the essence due to recent sales related to Cornerstone, Sundog, and Plaza DeKalb that are likely to have a positive impact on real estate values in the downtown. This could potentially impact the eligibility of the area for a new TIF using 2017 assessments. If the new TIF was to be put in place prior to the next assessment, the anticipated growth in EAV in the downtown, as well as the substantial increase from Cornerstone and Plaza, would guarantee increment in the early years of the district. Economic Development Planner Michnick mentioned that another advantage of creating a new TIF district within the next year would be the ability to port funds from the existing districts into the new TIF. This could either be done in the entirety of the available funds, or a portion, leaving funds available for projects outside of the downtown area. Though the momentum has been generated in the downtown recently, and the 2025 Strategic Plan identifies the downtown as a priority, there are a number of impactful projects outside the downtown area that could be of focus with some of the remaining funds available. Prioritization of projects would still need to occur, even with the creation of a new TIF district. High impact projects would be recommended in the earliest years of the district to ensure future incremental growth that would fund future projects and programs. This would limit the necessity to issue bonds to cover projects that would then be paid back through the increment. However, developing a comprehensive vision and issuing bonds to carry out the plan in its entirety has been done in other communities. Also, project specific bonds that are paid back by the individual project’s increment are common practice. He noted that these policies and prioritization could occur in parallel with the feasibility study, if that was approved. Before effective prioritization can take place, it must be determined if any current policies could/should be altered in order to expand the available funds, or potentially extend the availability of TIF in the downtown. The CATD has already been extended one time. Although there is legal precedent to allow a second extension, staff is not recommending an extension at this time. An extension would likely have an adverse impact on DeKalb School District 428 (D428) and their bond structure, ultimately increasing the property tax rate to a higher degree over the next 15 years. As an alternative option to extending the existing TIF, the option of creating a new downtown TIF should be considered. Economic Development Planner Michnick reviewed Council’s three options and stated that staff’s official recommendation is to move forward with Option C. C. PUBLIC COMMENT Special Committee of the Whole Meeting Minutes September 19, 2017 Page 6 of 11 Pam Verbic, a lifetime resident of DeKalb, mentioned that there has been increasing discussion regarding meeting the City’s pension obligations and she expressed her belief that the City does not need a new TIF District. She shared that instead, City staff should focus on prioritizing funds to meet the current pension responsibilities. She noted that there are plenty of vacant lots downtown (1st and Locust, and 4th and Lincoln Highway) where the City has purchased the buildings with TIF funds and removed the buildings, resulting in the loss of property taxes from those businesses. She further stated that the City should look at selling those lots to private developers before considering creating another TIF district. Dan Schewe, President of the Egyptian Theatre (Theatre), briefly described a “Renaissance” occurring in the downtown area that he would like the Theatre to be a part of. He mentioned some of the new downtown developments and noted the Theatre’s financial impact on the community. He envisions modification and enhancement of the Theatre to accommodate a full house and requested a place marker for TIF funds following the finalization of the development plan. He also mentioned that he welcomes the opportunity to hold a Special COW meeting exclusively regarding the future of the Theatre. Paul Kassel, Dean of the College of Visual and Performing Arts at Northern Illinois University (NIU) and Egyptian Theatre Board member, discussed the term “communiversity” and how it relates to a partnership between the City and NIU to create visual enhancements in DeKalb. He stated that NIU is excited to share their time, talents, and treasure with the City in order to improve student’s and resident’s quality of life. Cohen Barnes, DeKalb resident since 1978, expressed his desire to keep the development momentum going in the downtown area. He stated that there is energy and excitement surrounding the current downtown development projects and shared his belief that consolidated TIF funds in that area is essential to reaching the vision of what the community should look like. Ron Naylor complimented City staff for the TIF Phase-out Report and complimented Council for the passing of the Cornerstone development, which he believes to be a catalyst for downtown development. He expressed his opinion that there was not enough detail regarding ROI in the report and stated that Council would be better served if staff would spend more time and energy on developing that area of the analysis. Alderman Noreiko asked Economic Development Planner Michnick if it’s a better decision to target TIF funding on major projects or spreading it out over several small projects. He replied that those projects are typically looked at on a case by case basis, but he believes the funding should be concentrated on blighted properties. Alderman Noreiko then asked if the Ellwood Historic Area is considered a priority for TIF funds. Economic Development Planner Michnick stated there are specific programs designated for that area.  Special Committee of the Whole Meeting Minutes September 19, 2017 Page 7 of 11 Alderman Noreiko suggested that Council and staff look at public safety issues in a broad sense and expressed her opinion that it is important for staff and residents who come to City Hall to be exposed to a facility that is safe and encourages their productivity. She added that consideration needs to be given in regard to what is best for the City as a whole. Economic Development Planner Michnick reiterated that this meeting is a starting point for staff to develop a more comprehensive and cohesive strategy. He briefly discussed plans for increased lighting to address Alderman Noreiko’s concern regarding public safety. Alderman Fagan inquired about the possibility of extending the current TIF district’s timeframe and wondered if the EAV on those districts would need to be reevaluated if the timeframe could be extended. Economic Development Planner Michnick gave a brief explanation of the parameters associated with extending the timeframe of a TIF District and stated there would need to be legislation drawn at the state level in order to move forward in that direction. He noted that staff does not recommend pursuing that option. Alderman Finucane referenced D428 and asked Economic Development Planner Michnick if the City has made them whole. City Manager Gaura discussed recent dialogue between the City and D428 but acknowledged that she was unable to answer Alderman Finucane’s question directly. Alderman Finucane asked Economic Development Planner Michnick to explain the proposed boundaries for the new TIF District shown in the digital presentation. Economic Development Planner Michnick stated that staff was interested in looking at smaller, concentrated areas for development in order to maximize the use of funding available. Alderman Faivre expressed his belief that current projects and the downtown area should be the priority of TIF funds, and stated that his idea of measuring ROI would be the increase in EAV for those areas. He provided examples of activities that would be part of that plan and mentioned that the DeKalb Municipal Airport should be considered a priority as well. Alderman Jacobson referenced the loss of value for several residential and commercial properties over the last 30 years and verbalized his compassion toward their frustrations as property taxes in the City continue to rise. He noted the community perception that the TIF funds have been historically mismanaged and improperly utilized. Because of this, he stated it is difficult to consider the establishment of a new TIF district as a viable option in moving forward. Alderman Verbic echoed Alderman Jacobson’s concerns and encouraged the community to reach out with their thoughts and ideas regarding the use of TIF funds and wondered if Council should maintain their focus on the downtown area or if they should expand their focus to include more areas included in the current TIF districts. Special Committee of the Whole Meeting Minutes September 19, 2017 Page 8 of 11 Mayor Smith verbalized his observation that the proposed new TIF district would expand farther East down Lincoln Highway to include areas near 7th Street. Alderman Marquardt asked Economic Planner Michnick if the Bond 2010A is scheduled to be paid off at the end of the current TIF District timeframe, to which Economic Development Planner Michnick replied that the funds would be available until 2021. Alderman Marquardt discussed the City’s investments in D428, rising salaries due to inflation, and the dilemma of utilizing TIF funds for either commercial or residential properties. He expressed his opinion that the decision to utilize TIF funds for commercial properties, residential properties, or a combination of the two needs to be established before moving forward. City Manager Gaura addressed an earlier comment made regarding TIF funds being used for pension obligations and stated that it is not possible. She recommends building off of the development momentum taking place in the downtown area and suggested that Council refer to the Cornerstone Development as a basis for ROI. She continued, stating that Option C would give the City the opportunity to start a new TIF district but she does not recommend extending the timeframe of the existing TIF districts. She noted that Option C would not negatively impact D428. In reference to comments made by Alderman Verbic and Alderman Marquardt, City Manager Gaura suggested that Council could carve out a portion of the available funding for a Neighborhood Stabilization Plan. She mentioned that there are two different TIF districts that don’t end until 2022. Economic Development Planner Michnick confirmed her statement. City Manager Gaura also discussed the lack of detailed records and analysis from the beginning of the TIF funding distribution period and explained that past record keeping practices have made that information simply unavailable. In conclusion, she declared that the City’s structural imbalance in regard to spending is due to the reliance on TIF funds for infrastructure. She briefly reiterated staff’s goals for moving forward with the TIF Phase-out Plan. Mayor Smith asked Economic Development Planner Michnick if he will have a better understanding of the details involved in establishing a new TIF district after he returns from attending a conference that covers that information, to which Economic Development Planner Michnick replied in the affirmative. Economic Development Planner Michnick discussed the correlation between current pension obligations and the EAV and explained how it relates to TIF funding. He referred to Alderman Jacobson’s earlier comments regarding the lack of records to indicate historic TIF fund prioritization and stated there was a national trend to steer toward the development of large retail stores and that trend has since diminished due to the availability of online shopping opportunities. Alderman Jacobson verbalized his assumption that there is an existing record of all past TIF expenditures. Economic Development Planner Michnick explained that the reporting  Special Committee of the Whole Meeting Minutes September 19, 2017 Page 9 of 11 standards for TIF expenditures has changed over time and finding specific documentation for itemized TIF spending is going to take significant staff time and effort. Discussion ensued between Alderman Jacobson and Economic Development Planner Michnick pertaining to TIF expenditure records. City Attorney Frieders added that the City’s budget records have significantly developed in the last 20 years and locating the dollar amount for specific TIF projects is going to very difficult. He apologized for the lack of documentation to reflect that spending but explained that past record keeping practices have made those documents inaccessible. Alderman Noreiko recognized the value of having a clear understanding of TIF expenditures but doesn’t consider that information to be pertinent to moving forward. She expressed her belief that staff time would be better spent on assisting Council with making decisions regarding future TIF investment. Alderman Verbic clarified that comments made earlier by Ms. Verbic regarding pension obligations were directed at prioritizing pension obligations over new development and he expressed his support for restoring the City’s credit rating in order to utilize funding at an effective rate. He added that he would be interested in hearing more from the Finance Advisory Committee (FAC) regarding general fund transfers. Alderman Fagan asked if the City’s records are currently in order. City Attorney Frieders responded in the affirmative. He stated that the City has accurate records for projects going back at least five years. City Manager Gaura added that procedures have been put in place across the organization to make information more organized and readily accessible. She noted that there is a designated staff member who assures that all records are accurate and is working on making hard copies of documentation available in a digital format. Alderman Jacobson stated that there needs to be more data regarding successful investments. In reference to previous discussion, he added that it would be unfair to characterize TIF as not providing support for pension funds. He stated that the goal of TIF is to increase the EAV, which will increase the property taxes, which, in the City’s schism, goes entirely to pensions. He also supported reaching out to the FAC for input regarding the three options presented to Council. City Manager Gaura stated that she interpreted Ms. Verbic’s comments to suggest allocating TIF toward pension obligations. She added that the financial policy adopted by the Council will not support that because the City is not currently at the foundational level of pension obligations. She noted that Moody’s analysis showed concern that the City is over reliant on sales tax and not reliant enough on property taxes in comparison to other municipalities. City Manager Gaura also noted the upcoming FAC meeting on September 21, 2017, where there will be more discussion regarding the Police and Fire pension funds and the allocation recommendations. Special Committee of the Whole Meeting Minutes September 19, 2017 Page 10 of 11 City Manager Gaura addressed Alderman Verbic and noted that during the Asset Management Plan presentation, it was determined by Ehler’s that the City should not look into bonds before 2020. From a strategic stand point, the City should defer any other bond issuance. Community Development Charlton referenced Alderman Jacobson’s previous comments regarding historical data for successful projects in the TIF district, stating that it’s important to look at a mix of types of projects in determining the success of a TIF district. She added that the City has traditionally spent a lot of money on beautifying downtown, but by looking at a map of that TIF district, it was discovered that several of those properties are upside down. She continued, stating that the sole utilization of private development downtown may have increased the EAV, but those projects may not be successful if they are not supported by adequate infrastructure or other projects designed to increase foot traffic in the area such as a new City Hall, the Egyptian Theatre, or a STEAM facility. She concluded by stating that there is not much benefit to looking at secluded types of data. Alderman Jacobson left the dais at 8:58 p.m. Mayor Smith spoke on behalf of the Council, stating they have asked if the FAC will help find solutions to some of these issues. He then read aloud the last paragraph of Economic Development Planner Michnick’s memo to Council regarding TIF Phase Out: “There are several interrelated factors that go into the development of a strategy relating to the expiration of the City’s two TIF districts. Economic Development is a fluid and dynamic effort, and a decision in one area can have a ripple effect throughout the local economy. It is not anticipated that an ultimate decision will be made during the September 19, 2017, Committee of the Whole. This report and subsequent conversations are a first step in a process to developing a strategy that will have a positive impact on the community. Council will be asked to deliberate on several key decisions and provide direction to staff on what steps should be taken over the following weeks. Depending on the direction that is provided, Council may need to reconvene during another Committee of the Whole as early as October.” Economic Development Planner Michnick stated that clarity on Option C and whether to move forward in that direction is still desired by staff. Alderman Jacobson returned to the dais at 9:00 p.m. D. RECESS FOR EXECUTIVE SESSION OF THE CITY COUNCIL Mayor Smith read the following item in its entirety. 1. Approval to Hold an Executive Session to Discuss Pending or Imminent Litigation as Provided for in 5 ILCS 120/2(c)(11).  Special Committee of the Whole Meeting Minutes September 19, 2017 Page 11 of 11 MOTION Alderman Verbic moved to hold an Executive Session; seconded by Alderman Fagan. VOTE Motion carried on an 8-0 roll call vote. Aye: Jacobson, Finucane, Marquardt, Fagan, Noreiko, Verbic, Faivre, and Smith. Nay: none. Mayor Smith declared the motion passed. Mayor Smith closed the meeting to the public at 9:01 p.m. Mayor Smith opened the meeting to the public at 9:43 p.m. E. ADJOURNMENT MOTION Alderman Jacobson moved to adjourn the Special Committee of the Whole Meeting; seconded by Alderman Verbic. VOTE Motion carried on an 8-0 voice vote. Aye: Jacobson, Finucane, Marquardt, Fagan, Noreiko, Verbic, Faivre, Smith. Mayor Smith declared the motion passed and the meeting adjourned at 9:43 p.m. ________________________________ SUSANNA HERRMANN, City Clerk Approved by City Council: October 23, 2017.