Negotiated payments the Chicago Bears would make to local governments have been at the center of public debate over what state lawmakers should do to assist the team in building a suburban stadium, but a new analysis from the Cook County treasurer’s office finds those discussions have overshadowed the broader impacts of a so-called megaprojects proposal under consideration in Springfield.
Besides establishing a framework for what the Bears have called “tax certainty” for development projects that cost at least $100 million, a measure approved in the Illinois House last month includes tax changes with statewide impact, including a provision eliminating sales taxes on construction materials, expansion of existing bond programs, and creation of new incentives to revamp railroad facilities. The changes could extend to dozens of other developments that have not yet been announced or even contemplated.
“People don’t realize the effects of the (payments in lieu of taxes) go far beyond just the Bears. They are basically the tip of the iceberg here,” said Hal Dardick, Pappas’ research director, referring to the tax arrangement called “PILOT” for short.
“Secondly, the bill is about far more than just PILOT. It’s about creating a sales tax increment and a hotel tax increment to fund borrowing by these developers — they can get breaks on top of breaks,” Dardick said, adding that the full suite of incentives “has not been fully vetted in public.”
Pappas’ report could introduce new considerations as Gov. JB Pritzker and the Democratic-controlled General Assembly try to reach a compromise before Sunday’s scheduled adjournment of the spring legislative session on a proposal to keep the Bears from bolting to Indiana. The House proposal has received a cool reception from Pritzker and key members of the state Senate.
Tax incentive programs like those being negotiated at the statehouse fundamentally undercut a key benefit of big developments, the report notes: Expanding the property tax base provides relief to other taxpayers.
While such a program would give big projects tax certainty, other taxpayers — from individual homeowners to businesses small and large — still would have to deal with swings in assessments and levies from their local governments. Those not benefiting from the programs also would continue to pay full freight on sales taxes. Breaks on sales taxes or incentive packages that sequester sales or hotel taxes to repay bonds also starve local governments of much-needed revenue.
Backers say such projects wouldn’t be feasible without sweeteners. Those deals ultimately pay off for host cities in new jobs, increased economic activity, tourism and sales tax receipts, they argue.
Indeed, Bears executives have said their $5 billion plan to redevelop the former Arlington International Racecourse, which the team bought three years ago for $197.2 million, into a stadium and surrounding mixed-use development won’t come to fruition without such incentives.
But there is robust evidence from economists that stadiums do not become catalysts for economic or social developments, the treasurer’s report notes. And the county and state already offer other incentives such as assessment reductions and tax increment financing, or TIF.
“If there’s no expansion of the property tax base and only limited sales tax benefits, how do taxpayers benefit?” the report asks. “That’s the multibillion-dollar question.”
Besides giving them a mechanism to control property taxes, the proposal would deliver other benefits to the Bears and likely other future developers. The study notes there were already five projects with price tags over $100 million under construction last year in Chicago’s Loop and Near West Side alone, not to mention the long-floated One Central development near Soldier Field and a possible new stadium for the White Sox.
Among the new sweeteners in the House proposal: Construction materials would be exempt from the state’s 6.25% sales tax. Some suburban Cook County developers would get increased access to Sales Tax and Revenue, or STAR, bonds backed by state and local sales taxes. The proposal also would create a tool called New Opportunities for Vacation and Adventure, or NOVA, districts for STAR bond-financed projects. Like TIF, that setup would freeze sales and hotel taxes paid to local governments and use any of those taxes collected above that frozen amount to pay back bonds.
The House plan — sponsored by state Rep. Kam Buckner, a Chicago Democrat whose district encompasses the Bears’ current home stadium — would also create a new railroad megaproject program for Chicago. That would freeze property taxes on redeveloped rail yard land at its predevelopment assessed value for 40 years, with similar “special payments” to local taxing districts as the megaproject provisions that would benefit the Bears.
A key cautionary note in the report is that the $2 billion the Bears have said the team would spend to build a domed stadium in Arlington Heights likely doesn’t reflect actual value of the development — its final assessed value — which one stadium expert pegged at about one-third of that amount.
Geoffrey Propheter, a University of Colorado Denver professor and stadium tax expert, said the $2 billion figure includes things like labor, financing costs and fixtures in the stadium, which Illinois does not tax. The figure is also likely inflated by “subsidy-induced opulence,” or the tendency for beneficiaries of tax breaks or incentives to add bells and whistles to a project knowing they’ll have extra money on hand, he said. Its true value is likely closer to $675 million, though that is a conservative estimate on the lower end.
Inglewood, California’s SoFi Stadium, for example, was built for around $5 billion but valued at around $775 million by the local assessor after it was finished.
The ultimate value matters to accurately arrive at the potential benefit to the team and the potential losses for taxing bodies, such as the village of Arlington Heights and area school districts. Stadiums are notoriously difficult to assess, since, unlike homes or commercial buildings, there aren’t many similar sales or other local stadiums for comparison. Soldier Field is currently exempt from property taxes because it’s publicly owned by the Chicago Park District.
Using that $675 million figure, removing any special incentives, and applying today’s effective tax rate for properties in Arlington Heights, the tax bill for the stadium would be about $53.2 million, according to the treasurer’s report.
Under the megaprojects proposal, however, the preconstruction assessment would be frozen, yielding a roughly $4 million bill plus a roughly estimated $10 million annual special payment.
The $10 million figure is only an illustration, but not far from what the Bears pay in rent at Soldier Field, about $7 million annually. The White Sox pay about $2 million in rent at Rate Field, which is also publicly owned. The Bears would have to come to an agreement with local taxing bodies on what the actual payment would be.
Taken together, the special payment and estimated tax bill would be equivalent to the Bears getting a $39 million tax break every year, or $1.5 billion over 40 years.
The treasurer and Cook County Board President Toni Preckwinkle’s office have been studying the impacts of incentives, exemptions and TIF districts in recent years, including the ways they can shift the property tax burden onto homeowners and businesses or put pressure on school, library and park districts and municipalities to increase the total amount they collect each year from all property owners in their jurisdictions.
Expanding the tax base locally “would be particularly beneficial in Illinois, given that the state has the second-highest residential property taxes in the nation, while Chicago has the highest commercial property taxes and the second-highest industrial property taxes in the country,” Pappas’ report says.
The study raises unanswered questions for legislators about the swath of other potential developments: Will the special payments be enough for schools and governments to pay for the services the new developments necessitate, including building roads and expanding fire and police services? Will megadevelopment neighbors get any tax relief or end up paying more?
One Central, for example, would be in line “for both a reduced tax bill and the ability to pay off bonds with state and local sales taxes,” the report notes. “The benefits for the Bears and other megaproject developers are clear, while the benefits for Illinois residents are murky.”
