How did CenterPoint Properties spend $150 million in tax dollars made available by the village of Elwood, and how much of the developer's promised $840 million investment was really made? The village is taking CenterPoint to court to find out.
The village filed a lawsuit in Cook County Circuit Court last week to force CenterPoint Intermodal LLC and CenterPoint Realty Services Inc. to detail how they spent the local tax money received through a tax increment financing (TIF) district formed to develop the 1,820-acre Deer Run Industrial Park on the former Joliet Arsenal property. Those funds helped develop the nation's largest inland port.
The village, population 2,300, has been declared in default under the terms of the TIF notes and the indenture trust by The Bank of New York Mellon Trust Company. The village's lawsuit also names the trust company as a defendant, and maintains that the declaration of default is wrongful.
When a TIF district is established, local taxing bodies continue to collect the amount of property tax they currently receive from the district; the base amount. When additional [incremental] taxes are generated because the development has increased the value of the property, the associated incremental taxes go into the TIF fund and are used to reimburse the developer's qualified costs or reduce the outstanding obligations the municipality incurred for economic development costs.
TIF financing is a valuable tool for municipalities, because they can issue notes to make public funds available to subsidize certain project costs, but limit their repayment obligation to the incremental tax revenue generated by the increased property values of the completed development, as happened in Elwood.
"TIF is a tool that when used appropriately can do some awesome things for the public," said Mary Riordan, of Mary Riordan Ltd., the village's TIF attorney.
In 2000, the Village Board, led by President Jim Clementi, annexed the land, rezoned it and created the TIF district, without which CenterPoint said the project would not be economically viable.
Village officials were told that in exchange for creating the TIF district, CenterPoint would invest $840 million of its own money to develop the Deer Run Industrial Park, which was supposed to include manufacturing uses and retail stores, restaurants and hotels.
The project was expected to create up to 12,000 jobs and generate $20 million to $40 million in annual incremental tax revenue. But no hotel, retail or manufacturing facilities were ever built and only 3,800 jobs have been created, the lawsuit contends. The project has turned out to be mostly warehousing, with lower wage jobs.
According to the lawsuit, CenterPoint has requested building permits for construction of still more warehouses, with no prospect for retail, commercial or manufacturing development.
The village issued $150 million in TIF notes, at 10 percent interest until the end of their term in 2023. In the past seven years, the village has paid CenterPoint over $45 million in public tax dollars, and the project is not coming close to producing the $20 million to $40 million in annual incremental tax revenue that CenterPoint projected. In 2012, Deer Run generated just $7.7 million - not even enough to pay the annual interest, let alone retire the principal balance on the TIF. Riordan said typically, if the incremental revenue falls short, the obligation doesn't get paid, and the note buyer takes the loss.
The redevelopment agreement between the village and developer requires the developer to keep separate, complete accurate and detailed books and records reflecting TIF funded improvements, and to make those documents available for inspection, copying, audit and examination by the village. The village has received virtually no information on how the notes were issued or the money was spent.
In addition, because the TIF was formed under rules for shuttered Department of Defense facilities, CenterPoint is not outside the TIF law on reporting. The village has made reports to the Illinois comptroller, however, those reports are limited. Elwood can track what it did with the incremental funds, but doesn't know what CenterPoint did with them, Riordan notes.
"We need to know what the developer did with the money and how much was spent," said attorney Riordan.
Failure to make the financial report puts the developer in default of the redevelopment agreement with the village. The village made multiple requests to access the financial records over the 90 days preceding filing the lawsuit, and has asked the court to find CenterPoint in default of the agreement, freeze developer disbursements from the TIF fund until the records have been provided, declare that the village has no obligation to permit further construction until it has the information it is entitled to and require CenterPoint to be responsible for the village's attorney's fees.
The village is also asking the court to order Mellon Trust to provide a full accounting of the matters relating to Deer Run, including a statement of all funds expended on Deer Run and the fees and expenses incurred by the institution.
The lawsuit also asks the court to declare that Elwood has not defaulted on its TIF note obligations. For that to happen, the court must first rule that if the incremental tax dollars are not there to make the payment the village cannot be in default, Riordan explained.
"CenterPoint made a lot of promises in order to secure $150 million in taxpayer dollars," said village President Bill Offerman. "CenterPoint received public tax money and is obligated to tell us where the money went and why the promises of economic development, jobs and revenue never followed.
"CenterPoint has refused to produce any records or information that shows their own financial contribution to the project, what investments were made and if the public money was properly spent. We as the village of Elwood have a fiduciary duty to our taxpayers and the public trust. At this point we need the court's assistance to get answers."
CenterPoint has 30 days to respond to Elwood's allegations.