Revenue's new fiscal note on UTC still predicts negative impact

Steve Korris Feb. 11, 2010, 10:16am

SPRINGFIELD - State Revenue Director Brian Hamer predicted last year that the proposed University Town Center (UTC) in Glen Carbon would cannibalize other retailers, but his new report on the mall replaces that clear warning with fuzzy estimates.

Hamer still expects negative impact on state revenues but in a Feb. 5 fiscal note he declared that he didn't know the depth or duration of the impact.

Last year he predicted the mall would cost the state $15 million a year in lost taxes.

UTC developers propose to divert about $15 million a year in sales tax revenues from the state treasury to the mall for repayment of at least $300 million in bonds.

Hamer predicted last year that almost all sales at the mall would migrate from other stores in the region, but he changed his mind after developers offered his department 3 percent of sales tax collections.

His new fiscal note casts aside evidence that a similar mall in Kansas put many retailers out of business, and relies instead on statistics from UTC developers.

A bill in the Illinois legislature to authorize state financing for the mall would provide a review of possible cannibalization after seven years.

If the review finds that UTC diminished state revenues by wrecking other retail outlets, the state wouldn't allow development of any more malls with state sales tax financing.

The UTC development group includes Bruce Holland of Holland Construction and John Costello, son of Congressman Jerry Costello.

Last year's bill passed the House and the Senate, but Gov. Pat Quinn signed an amendatory veto that would have split sales taxes with the mall on a 50-50 basis.

Developers rejected the split and prepared a new bill for the current session.

They propose to capture all sales taxes from "destination" tenants and "entertainment users" while letting the state keep other sales taxes.

A destination tenant would mean a store with at least 150,000 square feet of floor space and an initial investment of at least $30 million.

An entertainment user would mean an amusement park occupying at least 50 acres, with an initial investment of at least $100 million.

Hamer then set about calculating the new proposal's effect on state revenues.

"We began with information on the developers' proposed tenants for UTC," he wrote.

"This information is very general," he wrote.

"This proposed tenant list did not include an amusement park, and recent public comments by the developers have proposed a large scale amusement park as part of UTC, so we added a large scale amusement park to the tenant list."

He wrote that he did not have enough information to determine how sales taxes would be used for debt service or for how many years.

"These answers would depend on the developments' total cost, on the amount of bonds issued, on how bond repayment is restructured, and on the interest rate for the bonds," he wrote.

"We currently have only the most limited information on proposed development costs, and this information is not only outdated but also incomplete," he wrote.

"We have no information about the planned bond issues," he wrote.

"There will be an early net positive impact in the construction phase from construction spending and associated employment, but a net negative impact thereafter once UTC is operational and as taxable sales are displaced from outside of the district," he wrote.

He wrote that an economic impact study for UTC suggested that 61-70 percent of taxable sales would be displaced from elsewhere in Illinois.

"Please note that we do not account for the possibility that jobs and their associated income will be lost outside of UTC because of sales displacement and its negative effect on outside Illinois businesses," he wrote.

"To the extent that this occurs, the negative state revenue effects will be larger," he wrote.

He estimated state revenue from construction at $40 million.

"To the extent that the income and spending is taxed by other states, as could happen for example if taxable materials are purchased and taxed across the border in Missouri, the estimated revenue gain from construction could be significantly lower," he wrote.

On Feb. 11 the House Revenue and Finance Committee referred the bill to its subcommittee on sales taxes.

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