These Are the Consequences of Chicago Bears Megaproject

Developers in Chicago should be licking their chops.

Tweaks to the so-called megaprojects bill passed by the Illinois House this week to keep the NFL’s Bears in the state will have consequences for real estate investment and how it’s taxed for a generation, reaching well beyond stadiums.

Without changes it could be a windfall for builders who’d save significantly on even the most standard commercial real estate projects.

Some of the state’s top property tax professionals are expressing concerns the bill, if turned into law, will rob local governments of far more taxable real estate value than is necessary to achieve the goals of the policy — namely keeping the Bears in Illinois and easing the path forward for other massive development visions.

This is because the bill as now constructed would make property developments consisting of $100 million or more in investment eligible for the payment in lieu of taxes program the Bears are pushing for in order to get certainty on their property tax costs for the next several decades. That’s down from a previously contemplated floor of $500 million.

The way it would work is developers would negotiate with municipal leaders an annual tax payment based on a property’s pre-construction assessment, that would remain the same for at least 25 years, and tack an additional surcharge on that could be no less than 10 percent of the annual tax bill charged to the property before its development. The surcharge portion could be a fixed payment or tied to the Consumer Price Index.

The idea is to eliminate the volatility inherent in the Cook County property tax system, which only reassesses property values every three years, thus making taxpayers prone to wild swings in their costs based on market changes and the outcome of appeals to bodies such as the Board of Review. The unpredictability has proven to be a deterrent to investors, and was a major factor in Patrick Hynes’ unseating of two-term incumbent Cook County Assessor Fritz Kaegi in last month’s Democratic primary election.

But the problem with the new megaproject bill is that the $100 million floor is too low. It will make almost every large commercial development eligible for the payment in lieu program, which would have local taxing districts sacrifice their ability to levy taxes on jumps in property value.

“I’d say it’s low. $100 million isn’t ‘mega’ anymore,” said Justin B. McClelland, a property tax appeals analyst who studies Cook County and founded software platform AppealZoo.

There’s a lot of projects costing a $100 million that would happen whether or not they could lock in a discounted property tax for 25 years, as the bill currently would allow — from the big, boxy industrial warehouses throughout the region fulfilling online shopping orders to almost any apartment project of a couple hundred units or more in Chicago, among countless other projects.

While an investment of $100 million is certainly nothing to sneeze at and should be encouraged by Illinois tax policy, keeping the entry point at $500 million on this particular bill’s program would reserve it for projects that truly transform an area of Illinois by delivering a new economic flavor. Those might range from a stadium, to conversions of shuttered buildings like factories or old hospitals into new uses, to perhaps a casino or other job creators. (Data centers are excluded from eligibility, which I tend to agree with, although some tax appeals professionals think they should be considered.)

“Looking at this holistically, it’s not good for the average taxpayer,” said Mary Kate Fitzgerald, a top property tax appeals attorney in Chicago. “Yes, we need to incentivize development, but granting a generational abatement for commercial developments as low as $100 million? It’s probably a bit beyond necessary.”

Critics of the bill have also said the timelines for the tax freeze could be shorter — while it’s set at a 25-year term for eligible projects of $100 million, it jumps to 30 years for a $500 million project and 40 years for $1 billion or more, which the Bears stadium plan for Arlington Heights would likely be. Suggestions include scheduling a review of the agreement at the 10-year mark.

Running some back of the napkin math makes it easy to see why the Bears — or anyone else in commercial development — would back this bill.

Assuming the Bears build a $2 billion stadium in Arlington Heights, Fitzgerald figured the team’s tax savings could amount to $155 million per year, and more than $6 billion over the life of the project, before factoring in any of the additional surcharge payments that could be as low as 10 percent of the property’s base year tax.

(Fitzgerald plugged in the current $125 million assessed value for the vacant former Arlington International Racecourse site the Bears own and a 10.5 percent local tax rate on commercial property to arrive at her conclusions; former state Rep. Mark Batinick of Plainfield, who’s also a commercial real estate broker and investor for the past 30 years, noted in his analysis that Arlington Heights commercial property gets taxed at a rate of about 7 percent of property value, meaning the savings would be less but still significant.)

For a $100 million project, Fitzgerald’s model showed property tax savings would be more than $7.7 million per year, and over $194 million during the entire 25 year term, before accounting for the additional surcharges. “The volume of those projects far surpasses anything in the other tiers,” she noted.

There’s a clear reason to apply some version of this idea to the $500 million and up range — even an NFL team can’t sustain a $155 million property tax bill, as Batinick has argued. He noted the Los Angeles Rams pay about $8.1 million in taxes per year for their recently built SoFi Stadium. A similar deal for a Bears stadium seems like it could be fair.

However, there won’t be nearly as many of these true megaprojects as $100 million developments, though, and the impacts of a stadium on a community are different than those brought by apartment buildings, offices, hotels and warehouses that cross the nine-figure mark. So there’s some sense in taxing the bigger megaprojects a little differently, too.

Of course, it’s smart to be skeptical of tax appeal lawyers’ opposition to the bill. Specifically, if more new development is taxed at a pre-negotiated rate for decades, there’d be fewer lucrative appeals the attorneys could file annually on recently built property. Yet, it’s also likely the lawyers in this niche sector would play a role in haggling the payment in lieu deals between developers and local officials, so they’d still have a chance to make a buck.

There are some components of the bill meant to act as a safeguard against giveaways getting too big, such as that projects that enter the payment in lieu of taxes program can’t also sign up for tax increment finance agreements.

Plus, a committee of local taxing bodies that include school districts would get a say on whether to approve a particular payment in lieu deal. A vote of approval from that body, with greater voting power given to the districts that charge the most in taxes, would be required. That sets up school districts — usually the largest line item on property tax bills — to be the bad guys standing in the way of exciting new projects. It’s easy to see how a school system’s responsible apprehension could get overpowered by other officials who view creating growth as their mission, rather than planning for the costs of education and sustaining that growth.

Governor J.B. Pritzker said Friday that it’s practically certain that big changes are ahead as the state Senate takes up the bill next week. Looking at the minimum buy-in, and how schools could still fairly capture benefits from increasing real estate values in their communities, are probably good places to start.