Illinois Land Use and Economic Development: Getting More Bang for Your Buck
April 13, 2007
Victor P. "Vic" Filippini- Chicago
Part II (of a two-part series)
Part I of this article (see the 2006 fourth quarter issue of Property Writes), provided a general discussion of available economic development tools in Illinois and a more specific discussion of two of those economic development tools – tax increment financing and economic incentive agreements.
Part II provides a discussion of two additional economic development tools: business districts and special financing. Also discussed is the link between economic development and land use. All references in Part I and Part II to municipalities or development issues refer to municipalities and development issues in Illinois.
Business Districts
Another economic development tool available to municipalities in Illinois is the Business District Development and Redevelopment Law. This law allows a municipality to create a business district and, in so doing, prepare a redevelopment plan. Through the implementation of the redevelopment plan, the municipality can exercise considerable authority with minimal procedural limitations. For non-home rule units, this permits prompt and flexible responses to economic development challenges.
When originally adopted, the Business District Development and Redevelopment Law contained very few procedures relating to its establishment other than the need for a public hearing (without any prescribed notice) before designating the business district. Effective January 2005, however, the General Assembly established more extensive procedures that apply when the business district is to be used as the authority for imposing a special tax.
In addition, the Business District Development and Redevelopment Law authorizes municipalities to exercise eminent domain powers in furtherance of the plan. Prior to the United States Supreme Court case, Kelo v. New London, Connecticut, and the legislative reactions to that decision, the exercise of eminent domain powers through a business district merely required a determination that the use of eminent domain would further a development project in the business district. New statutory limitations on eminent domain authority as established in P.A. 94-1055, however, will impose greater burdens of proof and more specific showings of the public need for and benefit from the exercise of eminent domain powers.
These additional procedures and legal developments may make the Business District Development and Redevelopment Law less attractive than some of the other economic development tools available to municipalities. Nevertheless, the Business District Development and Redevelopment Law may still have useful applications for municipalities when the right economic development circumstances arise.
Special Financings
One of the greatest impediments to new development is the lack of immediately available and adequately sized or configured infrastructure. It is not uncommon for new development to bring with it the need for an extended or enlarged water or sewer main, a reconfigured roadway or new traffic control devices, or the construction of a new fire station. Forcing the development to bear those costs at the same time that other upfront development costs must be incurred can be the tipping point for a development to look for another location.
Fortunately, municipalities and other local governments have certain financing tools available that can bridge the gap needed to provide the necessary infrastructure without either breaking the financial back of the developer or new business or requiring the municipality to bear the cost directly. Two of the more common tools are special assessment districts and special service areas.
Special Assessments
Special assessments are a financing method used when a public improvement specifically benefits a particular area to a greater extent than the local government as a whole. The cost of the public improvement is “assessed” against individual properties in the benefited area in an amount no greater than the value that the public improvement will bring to the property assessed. The objective is to have each property owner bear his or her fair share of the cost of a public improvement that will be increasing the fair market value of his or her property.
The authority for home rule and non-home rule municipalities to impose special assessments is contained in Article VII of the Illinois Constitution and the Illinois Municipal Code. Whether initiated by a petition of local property owners or by the municipality itself, every project to be paid for out of a special assessment must be accurately estimated in terms of project scope and costs. The municipality is required to establish a local improvement board, which body is to undertake an initial needs assessment for the improvement, and propose a financing and assessment plan for such improvements. The local improvement board must thereafter hold a public hearing, after which hearing it presents a recommendation to the corporate authorities of the municipality.
The municipality must thereafter adopt an ordinance setting forth the nature, character, locality and description of the improvement. Once the ordinance is adopted, each lot, block, tract, or parcel of land in the benefited area is assessed separately in an amount no greater than the amount by which each property will be benefited. Normally this is done on the basis of how much frontage the property has with the value of the improvement being allocated on a per-foot basis. Any portion of the value of the improvement that does not benefit a specific parcel is paid for by the municipality which can assess an annual public benefit tax to pay for its share.
After adoption of the ordinance and assessment roll, the information is forwarded to the circuit court for a hearing on the roll including any legal objections by aggrieved property owners. An order of confirmation is required from the court before imposition of the assessment roll and initiation of bidding and construction of the project.
Special assessments are a procedurally complex approach to financing localized improvements. In light of other approaches that were conceived as part of the 1970 Illinois Constitution, special assessments have become a rather outmoded means of financing such improvements, although there are some circumstances where their use may still be preferred to the alternatives.
Special Service Areas
The cumbersome process of establishing a Special Assessment has led most municipalities to undertake public improvements by the use of Special Service Areas (SSAs). SSAs are also provided for by the Illinois Constitution and the Illinois Property Tax Code, but the legal procedures involved in establishing SSAs are simpler and less costly than Special Assessments. A court is not required to confirm an SSA and there is no requirement that a cost-benefit analysis be undertaken to set the assessment roll.
Instead, SSAs are financed by a special service tax applied to an area that receives the benefit of specific “special services” provided by the municipality. Pursuant to the Illinois Property Tax Code, “special services” include “all forms of services pertaining to the government and affairs of the municipality or county” so SSAs can be used for a wide range of services that benefit a portion of a municipality that is less than the whole.
The basic procedural requirements for a special service area are as follows. First, the governing body adopts an ordinance proposing the establishment of the SSA. The proposing ordinance requirement is somewhat obtusely described in the statute, but its primary purpose seems to be for the setting of a public hearing date. Following a notice published at least 15 days and mailed at least 10 days in advance, a public hearing is to be held to consider the formation of the SSA and the amounts of any tax to be levied or bonds to be issued. After the conclusion of such hearing, a 60-day period must pass to allow protests to be filed. If there is a protest filed by 51 percent of the owners of record and 51 percent of the electors within the proposed SSA, then the process ends. Otherwise, the governing body of the local government can consider an ordinance establishing the SSA. Overall, a SSA can be completed in 90-120 days in most instances – a far quicker process than its forerunner – the special assessment district.
In addition to the procedures set forth above, the Illinois General Assembly has made available related approaches for establishing SSAs for private (as opposed to public) services. These approaches include mechanisms for funding private road maintenance and follow slightly modified procedures. The hallmark of these procedures, however, is the relative swiftness with which it can be completed.
Linking Economic Development and Land Use
Ordinarily, the purpose of providing economic development incentives is to accomplish a land use outcome. Thus, having the tools is only part of the challenge. The other part is to document the terms under which the economic incentives are granted.
Some of the tools mentioned in this article, such as TIF districts, business districts, economic incentive agreements and abatement agreements, have direct statutory authority for entering into agreements that will set forth the parties’ respective obligations. Such agreements can (and should) establish what land use activities will be achieved in consideration of the economic incentive, the timeframe for accomplishing them and the duration that such land use must continue (or, alternatively, consequences if such land use cannot be sustained).
For special service areas, however, a municipality does not have readily available statutory support for setting out mutual obligations. This can be accomplished in some cases through the terms of the SSA establishing ordinance if the SSA is fairly defined and the number of participating properties is limited. Otherwise, it is important for a municipality or developer to get assurances in the form of an annexation agreement, or as part of a subdivision improvement agreement.
Conclusion
Municipalities have various economic development tools available for developers and businesses. Choosing the right tools for the specific project, and effectively documenting the terms of such economic incentive, are critical to effective economic development efforts. Importantly, the creative application of these and other economic development tools can be combined to provide a significant incentive that will benefit both the developer or business and the municipality involved.
For more information, e-mail Victor P. Filippini, Jr. at victor.filippini@hklaw.com or call toll free, 1-888-688-8500.
Related Practices