City, School Districts discuss possible use of MidAmerica Enterprise Zone and tax incentives for developers

The planned development consists of 1,500 acres north of Scott Air Force Base, located between Interstate-64 Exits 19 and 21. The City of O’Fallon will invest over
$3,000,000 for public infrastructure.  (Submitted Photo)

By Martha Stoffel

O’FALLON – Representatives from the City of O’Fallon met with board members and superintendents from O’Fallon District 90 and OTHS District 203 on February 12th to discuss the districts’ voluntary participation in a property tax abatement incentive for new, commercial projects in the Mid America Enterprise Zone. 

The city was approached by developer TriStar Companies regarding the development of approximately 200 acres within the 1,500 acre enterprise zone. Vice President of Construction and Development, Bobby Klucker, presented at the meeting the company’s initial design plans and why the property tax abatement incentive is a critical component for their development to take place. 

The city has envisioned this area for years as the Mid-America Commerce Center, with businesses in light manufacturing, engineering and a distribution center to diversify the economy of O’Fallon and provide more local jobs for residents. The area is generally located north of I-64 between exits 19 and 21. The city is currently in the process of annexing several parcels in the enterprise zone to be able to bring sewer to the area to make it more attractive to developers. 

The enterprise zone was established in 2000 and will terminate on December 31, 2030. State law will allow for the reapplication of the zone, starting in the 28th year, for a 15-year term with the possibility for a 10-year expansion after that. The enterprise zone currently offers several economic development incentives for commercial projects, to include sales tax exemption of building materials, investment tax credits, job creation tax credits, utility tax exemption and manufacturing machinery sales tax exemption. Property tax abatement has not been an incentive offered in the MidAmerica Enterprise Zone, but will be added upon approval of the ordinance amendment being sent to the state by the municipalities within the zone. The city of O’Fallon will approve the ordinance on second reading at their February 19th council meeting.

The property tax abatement incentive is for ten years, with a declining scale in abatement. Property tax years one through seven will be at 100 percent abatement, year eight at 70 percent, year nine at 40 percent, and year ten at 10  percent. The abatement is applied on a per-project basis, and the ten-year period does not start until the “first assessment year in which the improvements are fully assessed.” The property tax abatement incentive would terminate at the time the enterprise zone terminates, regardless of what year of the abatement schedule a parcel would fall. Should a new enterprise zone be established, the taxing bodies would have the opportunity again to choose whether or not to participate in the property tax abatement incentive. 

There is not a requirement for all taxing bodies within the zone to participate in the property tax abatement incentive. City staff and Klucker have indicated that the project TriStar Companies is proposing will not happen without both school districts’ participation in the abatement incentive, since their portion of the tax bill represents such a large percentage of the overall bill. 

As part of the presentation, Klucker described a similar development TriStar has done at the Gateway Commerce Center in Madison County, with businesses like Proctor & Gamble, Unilever and WorldWide Technology and a primary focus in the warehousing and logistics industry. A study done in 2017 by the SIUE School of Business that focused on the three large logistics centers within Madison County, the Gateway Commerce Center, Lakeview Commerce Park and Northgate Industrial Park, indicated their combined economic impact to be over $1.3 billion, with nearly 6,000 workers and approximately $6 million in property taxes in 2016.  

TriStar Companies is proposing their initial project to be a six-phase construction of 100,000 square foot distribution centers, with construction beginning as soon as Spring 2019. For the developer to close on the property and begin construction, the taxing bodies will first need to approve a resolution to abate their portion of the property taxes. Klucker spoke to the group to explain the need for property tax abatement saying “we don’t need it to pay for the additional development costs, what we need tax abatement for is strictly as a pass-through to the tenants. For us to draw tenants to this area, we have to compete with other adjacent cities, other adjacent counties and other adjacent states.”

Businesses wanting to reduce their transportation costs through supply chain management are looking to put in distribution centers, and they are looking within a 400-500 mile radius at areas like Memphis, Indianapolis, Kansas City, and Chicago. These locations currently offer some sort of incentive program, typically property tax abatement or industrial bonds. For TriStar Companies to be competitive when quoting rates to tenants, Klucker said property tax abatement has to be in place for something to happen off of Rieder Road. He also believes that the lack of property tax abatement in the enterprise zone since its establishment is likely the reason nothing has developed out there over the last 20 years. 

As an incentive to the school districts for their participation in the property tax abatement for the Enterprise Zone, the city “shall immediately declare a surplus in the Special Tax Allocation Fund for TIF #1 (Rasp Farm).” Upon the declaration of a surplus, the funds would be distributed to all taxing bodies within the TIF accordingly. 

TIF #1 expired June 19, 2018, and the funds remaining in the TIF account are currently earmarked by the city to install a sewer line to the west portion of the Enterprise Zone. This sewer line would not service the portion of the Enterprise Zone where TriStar is proposing development. That area will require a sewer line from the city to be installed along Rieder Road which could ultimately service the entire area and negate the need for the sewer line on the west side of the Enterprise Zone. If the districts do not participate in the property tax abatement, the city has indicated they will still consider going forward with the sewer line on the west side of the zone since it falls within the TIF #1 boundaries and the funds can be used for public infrastructure. 

School district administrators are concerned about how the increase in Equalized Assessed Valuation (EAV) from the developments will ultimately affect their state funding. The rate-setting EAV with St. Clair County will not include the properties in the Enterprise Zone, but administrators believe the state will still include the EAV increase when calculating the state’s payments to the districts with the new evidence-based funding model. The previously used General State Aid model allowed the districts to be held harmless for abated property taxes in an enterprise zone, which would remove the EAV from their tax rolls for funding calculation purposes. The evidence-based funding model takes into consideration a district’s ability to meet funding needs on a local level when determining the amounts the state pays. A significant increase in EAV for the districts could result in lower payments from the state. 

The other main concern for the districts involve timeliness of property assessments by the county. Since the abatement schedule does not start until the assessment on the property is done upon substantial completion, the districts do not want to lose out on future property taxes due to inefficiencies at the county level. OTHS superintendent Dr. Darcy Benway has requested the verbiage in the resolution reflect assurances and protections to the districts that assessments will be done in a timely manner, or alterations to the schedule be allowed when assessments are delayed. City staff indicated they will look into whether or not language can be added to the resolution or if the assurance needs to be put in place another way. 

Property tax revenue are the school districts’ primary means of funding, representing approximately 65 percent of their operating fund budget. In the preliminary budget for FY20, the city of O’Fallon indicates property tax revenue represent roughly three percent of their general fund budget. The city’s primary revenue sources are sales tax, state income tax and utility tax, revenue streams not available to school districts. 

The school boards will vote on the resolution at their March school board meetings. District 90 will hold their meeting on Tuesday, March 19 and OTHS will hold their meeting on Thursday, March 21. Discussion of the resolution may be on the agenda for their February meetings. The city has indicated they will proceed with approaching the other taxing bodies to ask for their participation in the property tax abatement incentive.