STAR Bonds a distraction to state's serious challenges

By Sen. William Haine and Rep. Jay Hoffman | Apr 21, 2010



Recently many local leaders have spent countless hours fighting STAR bond legislation at a time when local and state government is already overwhelmed with problems resulting from the worst economic and fiscal conditions in decades. Mayors of nearly every community in the Metro-East have mobilized in opposition to legislation that would provide unprecedented State subsidies for a private real estate development. We share their concern that a huge, new STAR-supported project would get an unfair advantage and suck the life out of our existing retail districts, office buildings and residential developments.

Yes, unemployment is alarmingly high in the Metro East and throughout the country. And, yes, any large construction project would put people to work. But providing these extravagant subsidies for this single, speculative real estate project is an inefficient and inappropriate way for the State to address unemployment.

There are a host of arguments against STAR, but the claim that University Town Center (the sole proposed beneficiary of STAR) would create or "support" many thousands of jobs, is the only reason STAR legislation ever had support. However, if you scratch beneath the surface of UTC's eye-catching "job creations" number, you see economic "multipliers" and terms like "indirect jobs" and "induced jobs."

The developer's own consultant estimates that during the 14-year construction of UTC, the project will result in less than 500 direct jobs on an average annual basis. The "total jobs" figure touted by UTC includes thousands of "indirect jobs" from construction spending. Also realize that on a 14-year project, even the direct jobs are duplicated year after year. The cynical "jobs" drumbeat by UTC promoters is an attempt to exploit the anxiety and fear of a workforce suffering through the worst period of unemployment in decades.

Given the likely negative impact on surrounding retailers, it's reasonable to expect layoffs from the malls and shopping centers nearby once UTC's doors open. Any projection of jobs created by a project like UTC must also account for job losses at competing retailers. In terms of construction jobs, expect a similar effect when UTC displaces construction labor that would have otherwise been spread throughout Madison and St. Clair counties. We fear that once construction of such a massive project in underway, don't expect to hear a single hammer building any new development anywhere else in the Metro East.

Assume for a moment that all UTC's job claims were correct. When public funds are at stake, legislators and taxpayers alike must ask the question "At what cost?" How much will we have to give up in State tax revenue, which would otherwise pay teachers and State troopers, to get these jobs? We must not only look at UTC's sophisticated PR machine to tally up the total public subsidy the project could receive over the life of their STAR bonds.

According to the Illinois Department of Revenue, the total public subsidy under STAR could be as much as $1.3 billion over 20 years. Since the STAR legislation allows diversion of funds for 23 years with an extension to 35, the total subsidy could push up to nearly $2 billion. Yes, that's billion with a "B."

We fear the serious losses in retail sales in nearby communities as a result of a STAR-subsidized UTC project would take money from cash-strapped local governments, leave storefronts vacant and ultimately push up property taxes. The local retail sector is simply a finite "pie" that can only be cut into so many slices. No one is against competition among retailers or shopping centers, but certainly the State should not tilt the playing field at the expense of existing retailers and nearby municipalities.

Furthermore, the State should not counteract significant local efforts to revitalize and develop retail districts using tax increment financing, Business Districts, Enterprise Zones, and tax rebates under the Economic Development Incentive Act. Providing a massive retail complex with extraordinary new subsidies will give it an unfair advantage over existing retail areas that local governments have diligently tried to support using existing mechanisms authorized under current State Statute. Losses in sales at some existing commercial districts could even threaten the ability of the local government to repay bond obligations.

The impact of a STAR-supported UTC project extends beyond the retail sector. Subsidy through STAR will also indirectly support hundreds of thousands of square feet of office development (with class-A office vacancy currently at 25%), 820 hotel rooms and more than 1,110 residential units. Many communities in the Metro East have existing residential or office projects that have been shelved due to poor market conditions. With so many projects identified by state and local leaders as priorities for development, the State's granting of special STAR incentives for a competing development is counterproductive to local economic development.

Promoters of UTC say that STAR Bond legislation is the only way they can build the project, an indication that their project lacks the fundamental market to support it. Given the current economic climate, we have no doubt that the project is not feasible without substantial government subsidy. The speculative, long-range, multi-phase nature of the project makes it even less worthy of special State incentives. The fact that the plan has been revised often and substantially since the current legislative session began makes it even harder to justify.

Illinois needs economic development policy that encourages robust job growth across all sectors, promotes private investment and sparks innovation and entrepreneurship. Incentives clearly have their place and our existing State and local incentive programs should be used and improved. The current fiscal environment simply does not allow the State to grant lavish new incentives for a single, speculative real estate project. The proposed STAR Bonds development is simply too risky. We have urged the Governor and the General Assembly to reject the current STAR Bonds and focus our collective attention on more appropriate means to get Illinois back to work.

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