In the pending development agreement between the Village of Oak Park and Whiteco, the village will sell to Whiteco 93,100 square feet of land for $2.25 million. In this same transaction, the village will grant Whiteco $4 million in cash. In effect, the village is planning to give the equivalent of two football fields of land to Whiteco for free and pay them $1.75 million.
Is this a good deal for Oak Park? Do we really need to give away downtown land and pay a fee for a developer to build here? The honest answer is no. With a land write down of $4.25 million (from its appraised value of $6.5 million) and a cash gift of $4 million, are there compelling reasons to justify this village subsidy of at least $8.25 million? (Subsidies for the parking garage are not addressed here.)
In my conversations with village trustees, plan commissioners, village staff and residents, I have heard many reasons to support the Whiteco project. Five of these reasons are considered below.
Increase rental units
A village goal (at least according to the previous board of trustees) is to build rental housing to increase the diversity of (expensive) housing options downtown. However, as a rental, Whiteco says its 200-unit multifamily building will not earn enough income to justify its development cost, so some subsidy is required.
Before the village accepts this argument, Whiteco’s inflated construction cost estimates should be independently verified. If the project is, in fact, not feasible, then it should not be built.
A second issue is one of village priorities. Is it worth several million taxpayer dollars to subsidize 200 luxury rental housing units that may exist for no more than 10 years (because the building could be converted to condominiums)? Or, instead, should these same units simply be sold as condominiums upfront with no need for a taxpayer subsidy? A “yes” vote for the Whiteco deal means an incumbent Trustee needs to have a convincing answer for the upcoming campaign season.
Favorable payback period
According to proponents, the period to pay back the village’s subsidy is around 10 years. Opponents claim 20 or more years. However, the very argument over a payback period is faulty because it assumes “but for” the public subsidy, development would not occur. Who truly believes this land would not be developed without village gifts?
Well, the Whiteco development team and many village officials do. For this to be true, the TIF district must meet certain standards of blight and disinvestment. But how does this square against Whiteco’s plans to sell 1,800 square foot townhouses for $450,000 ($250 per square foot) and rent 500 square foot studio apartments for $1,100 per month (nearly double the Village average)? As for Trader Joe’s, do you think they are on a mission to revitalize a blighted neighborhood or tap into an upper middle class market?
The real answer is that since no subsidy is needed, there is no payback because all tax dollars flow to the appropriate taxing bodies. Nevertheless, Whiteco is happy to argue the whole concept of “payback period” with its opponents because it serves as a useful diversion from the real debate over the very need for a subsidy.
Public fatigue
This process has gone on too long, everyone involved is sick and tired of this project, and we should all just get on with it. I realize this project is on the 10-yard line of a four year slog through a meat grinder the village calls its entitlement process. In the end, though, this is not the reason to approve a bad deal.
Weak developer demand
Few developers typically bid on major downtown parcels owned by the village. Perhaps, some say, the market is not as strong as many people seem to believe and subsidies really are required. I think the issue is not one of market strength but rather a counterproductive economic development strategy and a flawed property disposition process.
When property is included in a Tax Increment Financing (TIF) district, I believe market fundamentals can break down. Why, for instance, should a property owner or developer make a private investment now when a public subsidy may finance these costs at some point in the future? These anticipated public benefits could lead long-time owners (and more recent speculators) to simply sit on their property until the big payoff arrives. Most likely the good news will come in the form of the village overpaying for a property in a self-fulfilling prophecy to encourage “much needed” economic development.
In terms of the village’s property disposition process, the Whiteco affair is an extreme example of what can go wrong. The terms of the Whiteco development agreement were negotiated privately. Since there was no fair, open, and honest competitive bid process, the Whiteco deal will never achieve legitimacy. And no one in Oak Park truly believes that the 68 day period when new bids were solicited for this land?#34;while Whiteco remained the village darling?#34;represented a meaningful competitive bid process. Indeed, this disingenuous attempt to open up the bid process only serves to further discredit the village in the eyes of the development community. Is it any wonder, then, that interest in Oak Park from outside developers is weak?
Termination costs
Killing the Whiteco deal now would expose the village to potential financial liability in excess of the $50,000 termination fee already in place. However, paying Whiteco even $250,000 is, in my view, an acceptable cost when the minimum upside benefit is saving the village’s $4 million tax reserve and the maximum downside risk is having to sell this land for just one-third of its appraised value.
Leadership starts now
Our trustees should not wait until after the election to start reforming the way Village Hall does business; they should start now with the upcoming vote on the Whiteco deal. Perhaps change can begin with a simple question to each Trustee: If your family owned this land and they entrusted you to sell it, would you give it to the buyer for free and pay him $1.75 million? Or would you competitively bid this land and sell it at the highest qualified price?
The village board’s vote on the Whiteco deal will likely occur shortly after property tax bills are paid. The taxpayers of Oak Park should remember both of these events when the incumbent trustees ask for our vote on election day.
