Walmart wins Class 8 tax break, gets tough questions from Homewood residents

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Walmart wins Class 8 tax break, gets tough questions from Homewood residents

August 25, 2015 - 22:37
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The Walmart tax benefit issue brought a vocal crowd to 
the Homewood Board of Trustees meeting Tuesday. At 
the end of the meeting Village President Richard Hofeld 
thanked residents for expressing their often critical views 
with courtesy.
(Photo by Quincy Crump/HF Chronicle)

Walmart is coming to Homewood.

But the retail giant's reception will be mixed at best, if the prevailing views expressed at the Homewood Board of Trustees meeting Tuesday is any indication.

Homewood trustees voted 4 to 1 to approve a resolution supporting Walmart's application for Class 8 property tax incentives from Cook County, but none of the trustees spoke in favor of the Walmart project.

The issue brought a crowd to the meeting, and more than a dozen people spoke, asking sometimes pointed questions of a Walmart representative and village trustees.

Audience members asked about the fate of the Glenwood Walmart store, about the jobs the new store will bring to Homewood, about Walmart's need for the tax incentive, about property upkeep after the store is open, about the impact on Homewood's police department, about specifics of the tax incentive deal, about market saturation and about the company's commitment to the community. 

The deal
Assuming county officials follow the village's recommendation, which they typically do, Walmart will receive $4.3 million in tax benefits to help finance the $29 million cost of renovations to the former K-Mart building at 17550 Halsted St. in Homewood.

Typically, the Class 8 designation reduces tax bills by basing the assessment on a lower market rate for the property. Rather than paying a rate based on 25 percent of market value, the bill is based on 10 percent for the first 10 years, 15 percent in the 11th year, and back to 25 percent thereafter. 

If Walmart receives the $4.3 million in benefits before the 12-year period is over, the company agrees to terminate its Class 8 designation or refund local taxing agencies any additional benefits it receives if it fails to request the termination on time.

if the $4.3 million threshold is not met during the 12-year period, Walmart can apply for an extension.

The deal might be an historic one. Walmart representative Robert L. Gamrath of Quarles & Brady LLP said after the meeting that he did not know of another case where a cap was put on a Class 8 designation for a Walmart project.

Don Peelman, an area economic development consultant, lauded that aspect of the agreement. 

"I think the board, the mayor and (village manager) Jim Marino have done a good job limiting the amount of benefit that Walmart is going to get on this project," he said. "When you are a community in the southeast sections of Cook County, the tax rates are so high you need to be able to offset some of that tax disparity with other areas that are less costly."

He noted that other Walmart projects in the South Suburbs have included no limit on the tax benefits the company could receive during the Class 8 period.

Village President Richard Hofeld clarified, in response to questions from the audience, that the deal does not dip into any local government fund. Because taxes currently are based on a vacant property rate that is similar to the rate under the agreement, the agreement is about keeping the rate low, not a pay out from village resources.

"It doesn't come from any particular fund. It's what they don't have to pay," he said. "The village is not funding it in any way."

The project
Gamrath said once the Class 8 designation has been approved by the county, the company is prepared to move quickly to begin construction, which could begin later this year. The store is slated to open in July 2016.

The new store will be a supercenter model with general merchandise, groceries, pharmacy, garden center, auto center, outside sales and possibly a fuel station.

Some residents questioned Walmart's need for incentives, given the company's vast resources, and whether the store would really succeed, considering it is about two miles north of the Glenwood store the company plans to close.

Gamrath said Walmart's assessment of a store's economic viability is done on a case by case basis, and each site has to meet the company's criteria.

"They have investment criteria, and if an individual project can't meet that criteria they won't move forward on it," he said. "That's a corporate philosophy and it is also a responsibility to their shareholders as a publicly traded company."

The Glenwood store is underperforming, he said. He cited its "middle of the block" location and relative lack of other retail activity in the immediate area as causes for the move to close it.

In the case of the Homewood site, the location is very attractive, he said, because of its proximity to Interstate 80/294 and because of the thriving business environment on Halsted Street. But the 1992 building represents a big challenge. It is huge by modern standards and outmoded, he said.

"The project cost came in far in excess of what we originally estimated," he said. "It no longer met investment parameters."

The building will have to be gutted, the roof replaced, the parking lot resurfaced and in some places replaced. The cost will be just short of what it would cost to raze it and construct a new building, he said.

Asked about jobs at the new store, Gamrath said he didn't know specifically how many would be added above the number already employed in Glenwood, but a typical supercenter has a staff about 300. 

Homewood Police Chief Lawrence Burnson said the store would add to the workload of his department. He estimated there would be an additional 800 to 1,200 calls per year.

Based on his experience working with Walmart in Matteson and with K-Mart in Homewood, he said the department will be able to handle it, though some increase in staff might be necessary in the future. 

"They have very good security," he said. "I'm sure we'll have a good working relationship with them."

A matter of trust
But incentives were not the only issue for trustees and residents. 

Village President Richard Hofeld noted that most of the big stores on Halsted have received incentives of various kinds. Finance Director Dennis Bubenik reported that, if equalized with Walmart's project, some of the earlier developments have gotten proportionally higher incentives.

The fate of the Glenwood store was one source of concern among several residents. That store was opened in 2005, according to former Glenwood Mayor Kerry Durkin. Walmart received about $2 million in incentives from the village's tax increment financing (TIF) program.

One resident wondered whether the Homewood store might be discarded after tax incentives expire. 

Gamrath said the incentives would take a number of years to acccumulate and noted that the company has a 20-year lease obligation.

Each trustee objected to the tactics used by Walmart to force the village to comply with its request.

This was Walmart's third request for incentives. Village officials said the company signed a lease for the building shortly after K-Mart closed in December 2013 and made its first request for incentives soon after. 

Trustee Anne Colton, who cast the sole nay vote on the Class 8 resolution, said she favors offering incentives for businesses that really need it to level the playing field or that bring something new to the community, but she doesn't think Walmart qualifies.

"You guys came to us," she said, noting the village did not court Walmart for the site. "We said no incentives. You said, 'Fine, we'll take it anyway.' Now you're coming back to us and saying 'incentives or else.' I'm not OK with that. Walmart isn't bringing us anything we don't already have."

"Incentives or else" referred to reports that Walmart officials, when their third request for incentives was rebuffed, said they would leave the building vacant indefinitely if they didn't get the incentives they require.

Two residents asked Gamrath what the company would do if the Class 8 incentive application failed. He said the company would revisit the economic viablity of the site and if necessary would seek to sublease the property or try to renegotiate with the property owner.

"There is no intention by Walmart to let the store be fallow," he said. "If you look at it critically, that wouldn't make sense. They are not going to spend more resources and not get a return. That wouldn't serve the community well and it wouldn't serve Walmart well."

Marino, however, said other Walmart representativs he talked to during negotiations took a different stance.

He said one representative "repeatedly told me if you did not get this incentive, Walmart would likely just sit on the property."

Gamrath reiterated his position that Walmart would not leave the property vacant.

Colton said she was also concerned about the what the deal might cost other local government agencies. She said the village might do fine with the deal financially since the property tax benefits are projected to be offset or exceeded by the sales tax revenue the store will generate. Walmart estimates it could do $70 million in sales the first year of operation, bringing about $700,000 to the village.

But she said the other taxing agencies in town will not benefit from the sales tax revenue and most of them are already struggling with sagging property tax revenues.

"The library is in trouble. The schools are in trouble. The parks are in trouble," she said. "It works out pretty well for the village, but I don't think it works out well for the community. So there is no way I can support this."

The trustees who voted for the resolution were not much happier about it. 

Barbara Dawkins called Walmart's tactics "insulting" and "disingenuous" but said she ultimately had to consider the village's financial situation. For example, Hofeld noted that the state is considering a 50 percent cut to the Local Government Distributive Fund, which would cost Homewood about $900,000 per year. 

"It really angers me to be put in this position, but I think getting something from this property is better than getting nothing," Dawkins said.

Trustee Lisa Purcell also expressed resentment toward Walmart's tactics and said she found the threat to leave the building vacant to be credible.

"I feel like we have been bullied," she said. "There are a lot of people who have said 'I would rather see a vacant store than see a Walmart,' but five years from now, when that vacant building is sitting there, people will forget this conversation. It will be in worse shape than it is now."


Contact Eric Crump at [email protected]