If You Like TIF, You’re Gonna Love STAR

This is STAR as in Sales Tax Anticipated Revenue bonds, and it’s a plan only big developers and pocketed or ill-informed legislators could love. I’ll put links to other articles after the jump so you can further clarify for yourself exactly how STAR financing works, but if you understand Tax Increment Financing (TIF) — and how TIF is regularly abused in Illinois — you’ve already got the concept. Just add the twist of developers capturing, via rebate, sales tax revenues generated within the district.

STAR is beginning to infect catch on across the country. The Illinois intro to it is SB1909, the STAR Bonds Financing Act, which establishes a 900-acre business park in Glen Carbon. SB1909 has passed both houses of the General Assembly. Heaven help us if Governor Quinn signs it. This bill represents the polar opposite of government’s obligations to facilitate a level playing field. It does, however, facilitate Illinois’ slide into bankruptcy. According to two state departments, the immediate impact to the state budget will be as follows:

Fiscal Note (Dept. of Revenue)
SB 1909, as engrossed, would have a negative impact on State government revenue from the Retailers’ Occupation Tax, Use Tax, Service Occupation Tax, Electricity Excise Tax, Gas Revenue Tax, and Hotel Operators’ Occupation Tax. The combined annual loss to these revenue sources could exceed $15 million annually per established district given the terms of the proposal and depending on the location of the district. Much of this loss will be due to the erosion of the State government tax base that existed before the STAR district was created.

Balanced Budget Note (Office of Management and Budget)
SB 1909, as engrossed, would cost the State $15,000,000 in lost sales tax revenue as estimated by the Department of Revenue. SB 1909, if enacted into law would add $15,000,000 in additional spending pressure to the General Revenue Fund and to the current Fiscal Year 2009 budget deficit.

Rich Miller at The Capitol Fax Blog calls it the “Worst. Bill. Ever.”

Once this thing starts, it’ll never stop. Guaranteed. It won’t be long before a very large chunk of this state is in a STAR bond district, meaning that state sales tax money will be spent on local projects, meaning that the state’s budget situation will only get worse while the locals try to cannibalize each other. Mark my words.

More:

After reviewing the bill at the request of state Rep. Jay Hoffman, D-Collinsville, the Department of Revenue projected that each STAR bond project would cost the state government $15 million in sales tax revenue annually.

It also said the University Town Center development would cost local governments in Madison and St. Clair counties — outside of Glen Carbon — an estimated $5.5 million per year in lost revenue.

Much of this would be from “cannibalization” of customers from existing businesses, the report says.

The report notes that STAR bonds would be available only for developments with projected gross sales of $300 million or more. “Since the basis of these sales is the surrounding community’s finite disposable income, it is unreasonable to believe that all or even most of these sales will be new sales,” it says.

[…]

The development group is headed by Bruce Holland, president of Holland Construction Service, in Swansea. Also involved are his nephews, Chad and Ryan Holland, and John Costello, son of U.S. Rep. Jerry Costello, D-Belleville.

I can almost hear the gleeful rubbing together of certain hands in Chicago.

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Linkies & More:

Analysis from the City of O’Fallon, Illinois in their city administrator’s blog:

1. Glen Carbon only: Testimony from the Senate committee hearing indicates that no other STAR Bond Districts will be allowed within 250 miles of the Glen Carbon site. The developers state that substantial property taxes and income taxes will be generated and that may be true. However, Illinois has the Publication 134 Developer’s Exemption, which will allow the developer to keep all the property zoned as “Agricultural” until each development project is occupancy ready and one parcel at a time. It could take years for this to develop and Glen Carbon would have to provide development services, police protection and other government services without added income for possibly years after project start.

They also promote the Kansas City, KS, STAR Bond District as their model. However, the enabling legislation in Kansas did not establish a 250-mile exclusionary zone. Any community in Kansas can establish a STAR Bond District. In fact, STAR Bond Districts are currently proposed in four other cities in Kansas, and two of them are in the same metropolitan area as Kansas City, KS.

STAR bond project in Kansas City

Another Kansas City STAR-incentivized venture

Scorching criticism of STAR bond use in Nevada

Governor Quinn’s contact info

Off-topic: O’Fallon, BTW, posts all meeting agendas online. And has an “E-Government Services Page.” What a great little city website.