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  • 1.An Assessment of Tax Increment Financing as a Tool for Economic Development Seth Capron Nick Federowicz Eric Nyman Brandon Strong Add photo of Evanston? December 2012

2. Objectives Draw lessons by examining Evanstons experience with TIF and the experience of TIF districts elsewhere in the U.S. Make recommendations on ways to improve the use of TIF as an economic development tool 2 3. Agenda 3 1. TIF Districts in Evanston 2. Major Findings 3. Recommendations for General TIF Policy 4. Recommendations for Specific TIF Districts 4. Agenda 4 1. TIF Districts in Evanston 2. Major Findings 3. Recommendations for General TIF Policy 4. Recommendations for Specific TIF Districts 5. Summary of Evanston TIF Districts 5 TIF District Howard and Ridge West Evanston Downtown II Southwest Howard and Hartrey Washington National Dempster- Dodge Begin/End 2004/2027 2005/2028 1985/2008 1990/2013 1992/2015 1994/2017 2012/2035 Size (acres) 35 Beginning EAV $5,978,279 $37,477,570 $1,835,672 $1,007,606 $7,034,353 $25,727,379 $10,816,879 2011 EAV $11,808,477 $45,084,553 $145,470,000 $8,223,329 $23,747,973 $103,106,568 N/A Major Projects Church St. Plaza, Hilton Garden Inn, Maple Ave. Garage, Optima Bond Proceeds None None $23,144,579 $2,100,000 $9,069,445 $52,061,429 None 13 24 21 11 116 16 Sams Club, Ward Manufacturing Retail Center: Target, Jewel, Best Buy, Office Max N/A Park Evanston, Whole Foods, Sherman Plaza & Garage 415 Howard St. apartment building Church St. Townhomes, Greenwood Lofts, LSL Industries 6. Three well-established TIF districts provide lessons for Evanston today Southwest TIF district provides lessons for the newly created Dempster- Dodge TIF district Downtown II and Washington National TIF districts provide lessons for the proposed TIF district at Chicago and Main 6 7. A brief history of the Southwest TIF district After Image Thriving retail 7 City combined parcels to attract a large development Sams Club opened for business in 1992 Ward Manufacturing relocated from downtown Evanston in 1995 8. Key observations for the Southwest TIF district Addressed impediments to development May have created positive spillover effects by drawing traffic to the neighboring retail center Concern: Has the success of the Southwest TIF district come at the expense of retailers elsewhere in Evanston? 8 Financially successful, but benefits for the broader community are unclear 9. A brief history of the Downtown II and Washington National TIF districts After Image Maple Street rejuvenated 9 Downtown II, the first TIF district in Evanston, evolved from the Research Park Downtown II closed in 2008, releasing significant property tax revenues to taxing authorities Washington National resulted in two large developments: Park Evanston and Sherman Plaza 10. Key observations for the Downtown II and Washington National TIF districts Transformed and significantly expanded downtown Evanston Utilized competitive bidding processes Projects attempted to align with community strengths, market demand, and demographic trends The city successfully reassessed goals midstream 10 Both TIF districts benefitted from adapting to market conditions 11. Agenda 11 1. TIF Districts in Evanston 2. Major Findings 3. Recommendations for General TIF Policy 4. Recommendations for Specific TIF Districts 12. TIF has the greatest impact when used as part of a broader economic development plan (1 of 8) 12 TIF is a tactical tool that can be effective at furthering a citys overall economic development goals TIF projects that are not in sync with the citys objectives are likely to fail The Market Square TIF in Houston is an example of positive alignment with economic development goals Economic Development Goals TIF Selection Strategic Initiative Alternative Tools 13. TIF produces greater benefits when it is used to catalyze rather than create demand (2 of 8) 13 TIF can catalyze demand by removing barriers to development Municipalities should listen to the market when choosing TIF projects Market Indicators Peninsula Town Center, Hampton, VA Houston Pavilions, Houston, TX 14. TIF is viewed more favorably by the community if a clear and objective approval process is in place (3 of 8) 14 Following an objective and scripted process encourages trust, generates buy-in, and ensures projects are financially and strategically sound Gallery Place in Washington, D.C. is an example of a well-designed process Strategic Assessment Financial Analysis TIF certified by city official or department before presentation to elected body Proposed TIFs assigned to a city official or department Structured Approval Process 15. TIF projects tend to require less public subsidy if the city leverages competitive market forces to choose developers (4 of 8) 15 This option is most practical when municipalities own or control the land Competitive bidding ensures the smallest amount of gap financing is provided to the developer This process is illustrated by the Maple Avenue development in Evanstons Downtown II TIF district Bid #3 Bid #2 Bid #1 Select Optimal Project Bid 16. The most successful use of TIF resources provides benefits to the broader community (5 of 8) 16 Financial performance is easy to measure, but community benefits are the ultimate goal Important to include measurable goals and metrics that capture community benefits Essential to hold developers accountable for benefits to the community 17. development in a TIF district, the city can protect its financial integrity (6 of 8) 17 Depending on the specific structure of a TIF deal, the municipality can bear either very little or a lot of the risk Lynnhaven Mall in Virginia Beach, Virginia and Peninsula Town Center in Hampton, Virginia are examples with financing structures that put the risk on the private sector Lower Risk Higher Risk Note Bond Back-Up Assessment Backed only by Increment Clawback No Clawback Pay-as-you- go Pay Upfront 18. TIF success is less debatable when clear metrics are in place to track and monitor performance (7 of 8) 18 Agreeing upon clear metrics from the onset of a project ensures goals remain in sight Creating metrics should be a joint exercise between the city and the developer Holding developers accountable for performance is critical to ensuring success Develope r City of Chicago Coca- Cola Subsidized Rent Meet Jobs Goal or Pay Penalties Tax Abatement Example: Chicago Northwest Industrial Corridor TIF Goal: Create 240 Jobs 19. TIF can be managed more effectively when overseen by an advisory board of community stakeholders (8 of 8) 19 Providing an opportunity for stakeholders to be involved promotes buy- in An advisory board of community stakeholders ensures local community needs are met Community members can hold developers accountable for promised community benefits TIF Advisory Board School District Community Organizatio n Local Business Local Resident 20. Agenda 20 1. TIF Districts in Evanston 2. Major Findings 3. Recommendations for General TIF Policy 4. Recommendations for Specific TIF Districts 21. Evanston should approve TIF districts only after specifying how they help the city achieve its economic development goals (1 of 4) Make sure that the citys economic development goals are clear Describe targeted areas of prioritization 21 Alignment with economic development goals increases the likelihood of success Define how the TIF district will help the city achieve its goals The objectives of the district should be aligned with the citys economic development goals 22. Evanston should implement a more rigorous process for TIF approval, oversight, and accountability (2 of 4) TIF approval should require official certification Delegate the responsibility to a specific individual within the city, such as the CFO The individuals responsibilities include conducting a financial gap analysis, projecting economic impacts, and ensuring strategic alignment with the citys overall economic development plan Create metrics and dashboards to monitor performance Consider appointing an oversight body of local stakeholders Hold recipients of TIF funds accountable for performance Link subsidies received to performance 22 A rigorous process leads to greater trust and better performance 23. Evanston should shift financial risk to the private sector (3 of 4) Structure deals to minimize financial risk to the city Structure financing so that the private sector bears up-front costs Create guidelines requiring a minimum level of performance before the city reimburses TIF-eligible expenses Possible structures include: TIF notes Claw-back provisions Back-up assessments Pay-as-you-go funding 23 Shifting the risk to the private sector protects the city 24. Evanston should maximize the usage of competitive market forces (4 of 4) When the city owns the land, require proposals from multiple developers Proposals must include financial information and an assessment of how the project will further the citys strategic goals Multiple proposals decrease the need for public subsidies When a private entity owns or controls the land, other precautions are necessary External validation of pro forma financial statements A financial structure that places the risk on the private sector Extra emphasis on identifying concrete benefits for the community 24 Taking advantage of competitive market forces improves the chance of success 25. Agenda 25 1. TIF Districts in Evanston 2. Major Findings 3. Recommendations for General TIF Policy 4. Recommendations for Specific TIF Districts 26. Dempster-Dodge TIF District Determine the root cause of the decline of the shopping center Our research suggests West Evanston faces intense retail competition Evanston Plaza is now a convenience center rather than a destination that draws traffic Address issues in the surrounding neighborhood Ensure plans for Dempster-Dodge TIF district do not ignore the surroundi