Where’s the Money? City Asks Developer

CHICAGO (CN) - A tiny Chicago suburb claims a developer refuses to provide an accounting on $150 million in public financing for an industrial park, which provided far fewer, poorer-paying jobs than promised, more traffic, and not enough tax revenue to cover even the interest on the loan.

The Village of Elwood sued CenterPoint Intermodal, CenterPoint Realty Services, and the Bank of New York Mellon Trust Co., in Cook County Court.

Elwood, pop. 2,300, a far southwest suburb of Chicago, says that in 2000 it entered into a development agreement with CenterPoint, which promised to bring 12,500 jobs to town and $20 million to 40 million in additional tax revenues.

"This lawsuit arises out of a billion-dollar real estate redevelopment project - commonly known as the Deer Run Industrial Park -- which was heavily subsidized by Tax Increment Financing ('TIF') provided by Elwood," the complaint states. "Defendants CenterPoint Intermodal LLC and CenterPoint Realty Services were to construct a large multi-use industrial park on land formerly owned by the Department of Defense that was annexed by Elwood for this project. Elwood issued the TIF Notes because CenterPoint represented that the project was not economically feasible without a large financial subsidy from Elwood."

The Bank of New York Mellon is the trustee under the indenture trust that controls the administration of the TIF notes issued by Elwood to subsidize the project.

The complaint continues: "Disputes have arisen because CenterPoint has refused to produce any information showing how the TIF Note financing was used, and further, because the Trustee has wrongfully declared Elwood in default under the terms of the TIF Notes and the Indenture Trust.

"This lawsuit seeks, among other things: (a) to have defendants provide an accounting of how the TIF Note proceeds were spent, and (b) a declaration that Elwood has not defaulted on any TIF Note repayment obligations."

According to the complaint: "Deer Run was intended to be a massive, billion dollar, economic redevelopment project that would bring commercial and industrial businesses to Elwood, generate thousands of jobs, attract hundreds of millions of dollars in private investment, and generate tens of millions of dollars in new tax revenue.

"Much of the land for the Deer Run project (approximately 1,820 acres) was United States Department of Defense land that had previously housed the now defunct Joliet Arsenal. The Department of Defense transferred the land to CenterPoint. Elwood then annexed and rezoned the land, and created and Economic Development Project Area pursuant to the [Economic Development Project Area Tax Increment Allocation] Act.

"The creation of the Economic Development Area was a key to the project because, under the Act, it allowed Elwood to issue tax increment allocation financing ('TIF' or 'TIF Notes') to subsidize the project's development. CenterPoint represented to Elwood that the availability of TIF financing was a critical precondition to the construction of Deer Run because the development would not be economically viable without it.

"CenterPoint initially represented that if it received a commitment to $125 million in public TIF financing, it would invest approximately $840 million of its own money. The central purpose of Elwood's issuance of TIF Notes was to attract this much larger investment by CenterPoint, which would lead to substantial job and revenue creation. This is consistent with the stated purpose of the Act, which provides that a primary goal of TIF financing is to attract private investment, create jobs, and enhance the tax base."

Three years after signing the agreement, CenterPoint asked for another $25 million worth of TIF notes to finance the development, Elwood says.

"TIF financing is a valuable tool for municipalities such as Elwood because it can issue notes to make public funds available to subsidize certain project costs, but limit its repayment obligation under the notes to the incremental tax revenue generated by the increased equalized assessed value of the completed redevelopment project," according to the complaint.

However, "in spite of the $150 million public subsidy, CenterPoint did not develop the kind of industrial park it had represented it would, and Elwood never received the significant public benefits it was supposed to receive," the village says.

"Deer Run was supposed to be a multi-use industrial park consisting of an intermodal facility, a regional power plant, a water and sewage treatment facility, a truck stop and service plaza, retail establishments including a hotel and restaurants, and industrial facilities. However, no commercial, retail or industrial facilities were ever built, and no regional power plant was constructed. Instead, CenterPoint built an intermodal facilities and warehouses that have generated mostly minimum wage jobs and truck traffic three times greater than was projected."

In addition, "only about 3,800 jobs have been created, and most of those jobs are lower-paying that what would have been available had Deer Run included the retail, commercial and industrial facilities that CenterPoint represented the redevelopment would provide," the complaint states.

Elwood says: "At the current pace, between 2012 and 2023, Deer Run is likely to produce $261 million less incremental tax revenue than what was projected by CenterPoint.

"Elwood issued $150 million in TIF Notes, at 10 percent interest, to subsidize Deer Run. In the past seven years, Elwood has paid CenterPoint over $45 million in public tax dollars pursuant to those Notes, and the terms of the Notes does not end until 2023.

"$150 Million in TIF Notes could only be validly issued if CenterPoint demonstrated to the Trustee that Deer Run would generate sufficient incremental tax revenues to repay the principal and interest on that debt by 2023, the statutory expiration of the Economic Development Area. The incremental revenue actually being generated by Deer Run, however, is not even sufficient to pay the annual interest, much less retire the principal."

The village says it "has repeatedly but unsuccessfully sought information on project expenditures and the issuance of the TIF notes from both CenterPoint and the Trustee."

It seeks a court-ordered accounting, a declaration that CenterPoint has defaulted under the redevelopment agreement and that no further tax money should be disbursed to CenterPoint.

Elwood is represented by Jonah Orlofsky.

Elwood is a relatively wealthy village, according to city-data.com. Its estimated median household income in 2009 was $68,456, nearly 27 percent above the statewide median of $53,966, according to city-data.

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