Monday, May 7, 2007

The conundrum of impact fees hitting home

I saw a letter in yesterday's Kankakee Daily Journal from Joe Perry, a big player in local development down here and I guy I know casually through golf and the business in general. Joe does some very nice work, generally in the far south of Chicagoland. I should add that Joe took a risk in writing this because what he says is, to some extent, not very pretty, but I agree largely with what he says.

Why is the letter being written? There's a big fight down here about impact fees and development and the use of tax increment financing (TIFs, in the biz) to stimulate commercial development. The most recent issue relates to the expansion of Bradley-Bourbonnais HS. A second straight referendum to raise school taxes recently went down to a more than 2-1 defeat. More portable classrooms and probably split shifts are inevitable. (I have strong views on this topic, but this is not the time to share them.)

Joe rightly lambastes those who are not in the know about a dearth of retail development where we live. Joe says, "The demographics of this market fractionally support commerce at a greater level than what is already provided." My translation: the Kankakee area does not have the demograpics to support more retail without cannibalizing what is here. Some retailers are simply not coming here until there are more people and higher median incomes. Once you have that, they will come regardless of taxes and fees.

Joe says developers here pay "significant" impact fees. I'm not sure I agree with him there, but he may be able to convince me otherwise, as I am not an expert in any local market. There are fees, but they pale in comparison to some other places where I have done deals. And some fees, such as building permits, are thought of by some (including the Mayor of Bourbonnais) as impact fees when they are, in fact, not.

As a taxpayer I don't want to finance most or all of the burden myself, but I also want good schools, which are critical to proper and sustained growth. And as a lawyer who represents developers, I don't need the additional expense passed on to buyers or tenants or have my clients eat them, thus marginalizing many transactions. Finding the balance is the hard part, and I admit I don't have the solution.

Finally, Joe is spot on when he says that "The Journal's suggestion that the developer of Bradley Commons is irresponsible in his lack of success in attracting outside retail investment should be replaced with an apology from the community that the local marketplace cannot meet the hopes and expectations of outside investors who depend on dynamic growth for reasonable success." Bingo. I don't really know Daly Group, but I do know the Mid-America guys, and they are first-rate retail people. My clients have leased up several projects with their help. Don't blame them for our demographics.

So we have a conundrum -- really almost a Catch-22 -- similar to one I experienced first-hand as a kid in Bolingbrook, where the 7,500 population of 1971 is now more like 70,000 in 2007. Here's what happened in Bolingbrook, intentionally or not. Growth went on for years with tax breaks and little or no impact fees in place in order to reach a critical mass where there was enough population to demand more development, even if the incomes were below that of neighboring areas. The schools and some (but not all) services suffered a little. Many Bolingbrook kids had to go to Romeoville HS for 20+ years.

At some point tax breaks became unnecessary as demand outweighed supply, and retail flowed in. Then higher-end developments started flocking to town, bringing with them higher residential tax revenues. And a few years back, the voters passed a referendum for a new $100 million high school (resulting, I should add, in a tax increase) by a 2-1 margin. And people there are generally happy.

What am I trying to say after this really long post? There is no easy solution. It may well be decades before everyone has what they want. So, if you live where I do, be prepared for a bumpy ride.