St. Charles aldermen learned Monday night that the concept plan for Phase III of the First Street Redevelopment Project has been revised at the city’s insistence to reduce future city subsidies for repayment of the project’s debt.
The report to the City Council Government Operations Committee comes a little more than 60 days after the City Council gave developer First Street LLC a 90-day extension to begin construction. The 90-day term expires Nov. 19, although city officials indicated another extension is likely, provided the City Council is satisfied that adequate progress is being made to begin construction of Phase III.
Phase III is located along the Fox River between Main and Illinois streets.
The upshot of negotiations with the city, First Street LLC’s Bob Rasmussen said, is that:
Phase III’s Building 3 along the Fox River will be expanded to five floors to increase the number of residential units, while some second-floor office space in another building will be replaced with residences. The goal is to increase the increment generated by the Phase III development.
St. Charles Finance Director Chris Minick said after the meeting that the additional residential units are needed to reduce the city’s subsidy of the debt repayment on the First Street project. The city in the past year issued general obligation bonds to refinance to the tax increment financial district’s debt, after the Great Recession stalled the development — and, therefore, stalled repayment of the debt.
The move was met with criticism from some residents, but Minick said the goal of refinancing was to buy time for completion of the development, which would generate the revenues needed to pay down the debt. One goal is to save additional funding by retiring the debt early.
Ultimately, in a tax increment financing district, or TIF, property tax levels are frozen, for tax revenue distribution purposes, at a base level for 23 years. The idea is that as infrastructure improvements are made and as redevelopment occurs, property tax revenues will increase above the base level, which is the increment. The increment is what the city wants to use to repay its debt.
Minick said that if the revenue generated from the increment is not enough to pay the city’s debt service on the project, then the city must supplement — or subsidize — the difference with money pledged from the general fund.
Minick said the original plans reviewed by the council in August included options for a four-building development and a three-building Phase II development. Both the council and the developer favored the three-building conceptual plan.
But the plan did not address the city’s needs related to the TIF, Community Development Director Rita Tungare told aldermen during Monday’s meeting. She also noted other concerns, as outlined in an Oct. 16, 2013 staff memo to aldermen on the project.
Minick said the three-building conceptual plan as proposed in August would have generated about $5 million less in increment revenue than an alternative four-building plan First Street LLC also pitched to aldermen in August.
First Street LLC is reluctant to pursue the four-building plan, however, because of the additional construction costs associated with it.
The revised three-building plan that Rasmussen presented Monday night goes a long way toward eliminating the $5 million gap, Minick said.
Still, the difference would not completely wipe out a city subsidy for the TIF debt, something the city might be able to do if it can get the TIF’s term extended another 12 years. He said he only now is beginning to crunch numbers on that possibility. He also said the idea of extending the TIF has yet to be fully vetted — an extension requires legislative approval, and it is possible there are requirements the city would have to meet first.
The First Street TIF does not expire until 2027.
Other changes to the conceptual plan as presented Monday would add public parking space to the parking deck.
Another key issue is the developer’s ongoing talks with Sterling Bank on financing the project. That financing has yet to be secured, although Rasmussen believes that will happen.
First Street LLC also is in discussions with the city about one of the original Phase III requirements — that the developer set up a Phase III escrow account to assure full funding of the construction.
Tungare also told aldermen that a market analysis of Phase III is being conducted.