Title
Discussion – Debt Presentation Follow-up
History
The following is a response to an inquiry from Trustee Healy following the debt presentation at the July 15, 2025, Committee of the Whole meeting.
Tax Increment Financing (TIF) Primer
At the January 16, 2023, Village Board meeting, the Village Board adopted a Resolution urging the Illinois General Assembly and Governor to protect Tax Increment Financing (TIF) in its current form as a valuable economic development tool without additional restrictions on municipal governments and the communities they serve. Since TIF is one of the last significant economic development tools available to address areas of blight, support development and promote local job creation and retention, the then-Village Board supported the Illinois Municipal League’s call to protect TIF as part of its responsibility to promote economic development and revitalization.
In order to establish a TIF district, a local government must find that development or redevelopment of the area would not occur “but for” the creation and use of TIF. Illinois law specifies a number of requirements that must be satisfied for an area to qualify as a TIF district, beginning with identifying the district and the physical and economic deficiencies that need to be cured. Specifically, state law requires that the proposed area must meet one or more of three conditions:
1. Blighted conditions;
2. Conservation conditions; and,
3. Industrial Park conservation conditions.
If one or more of these conditions is identified, municipal officials and a Joint Review Board, made up of representatives from affected local taxing bodies, must review a plan for the redevelopment of the TIF area. A public hearing must be held where residents and other interested parties can express their thoughts on the subject. If the plan for redevelopment is approved by the Joint Review Board, the municipality may adopt the plan by a majority vote of the corporate authorities. If the Joint Review Board rejects the plan for redevelopment, the municipality may proceed but the plan must be approved by a three-fifths vote of the corporate authorities. No state or federal approval is required for creation of a TIF District.
Because of the nuanced intricacies of TIFs, the Village engages with three important consultants when considering a TIF:
1. TIF Financial Advisor – In the Village’s case, the TIF financial advisor has continuously been SB Friedman since at least 2018. A TIF financial advisor provides expert guidance to municipalities and developers on the use of TIF to finance public and private development projects. They assist with feasibility studies, financial modeling, structuring TIF agreements, and navigating the legal and regulatory landscape. As an example, SB Friedman completed the Tax Increment Financing District Eligibility Report and Redevelopment Plan and Project that was submitted as part of the Downtown Orland Park TIF District.
2. Municipal Financial Advisor - PMA Securities has been the Village’s Financial Advisor since 2020. At the November 2, 2020, Village Board meeting, following an RFP, the Village approved entering into an agreement with PMA Securities, LLC for Municipal Financial Advisor services. Municipal financial advisors are financial professionals who assist public agencies with the issuance of bonds, as well as financial analysis, modeling, planning, and forecasting associated with funding capital improvements. Municipal advisors are regulated by the Securities and Exchange Commission under the Dodd-Frank Wall Street and Consumer Protection Act. Municipal advisors are required to pass the Series 50 exam, a qualifying exam developed by the Municipal Securities Rulemaking Board (MSRB). Municipal advisors are required to follow certain standards of conduct, as defined under MSRB Rule G-42, including regulatory compliance, licensing, and continuing education requirements. Most importantly, municipal advisors are obligated to serve in a fiduciary capacity to their clients and act in their best interest. Since most local government do not have such professionals on their payroll, most local governments retain these services through consultancy agreements, similar to what the Village has done with PMA Securities.
3. Bond Counsel - An attorney or firm of attorneys, retained by the Village, to render an opinion in a Bond financing as to the validity and enforceability of the Bonds and the treatment of the Interest on the Bonds under applicable federal and state law. At the June 16, 2025, Village Board meeting, following a Request for Qualifications process, the Village Board approved entering into agreements with various law firms for legal services, including Croke Fairchild Duarte & Beres LLC as bond counsel.
Debt Primer
Illinois local governments can borrow money in a number of different ways. These various mechanisms for borrowing are either long-term or short-term, and they can be repaid through tax revenues, user fees, or special assessments.
Long-term debt is a commonly used means of financing large capital assets such as infrastructure, buildings, and large pieces of equipment. Issuing debt increases the total cost of the asset through the payment of interest, but it also allows local governments to acquire or build capital assets sooner by borrowing up front for assets that they could not otherwise fund from existing cash resources. By spreading out debt payments over many years, local governments can also smooth out their expenses and create a more predictable cash flow.
Short-term debt can be used to cover a temporary cash flow deficit or provide for an interim method of financing until long-term borrowing has been secured. The amount of debt a government may incur is generally limited by Illinois state statutes (with exceptions for Home Rule municipalities), and whether the debt is being repaid with tax or nontax revenue sources. Federal law establishes rules about the tax status of government securities and the process for issuing and disclosing debt obligations.
Another type of borrowing are leases and installment contracts. Because of the increased popularity of lease and installment contracts, the Governmental Accounting Standards Board (GASB) issued Statement No. 87 which went into effect on June 15, 2021. GASB 87, as it is now referred to in shorthand, is the lease accounting standard.
General Obligation (GO) Debt
General obligation bonds are secured by the full faith, credit and taxing power of the municipality, which should result in the lowest possible interest rates for financing a capital project. Since the (GO) debt is secured by the full faith and credit of the local government issuing the debt, the municipality pledges its tax revenues unconditionally to pay the interest and principal on the debt as it matures. Another advantage is generally lower costs of issuing general obligation bonds, when compared to most other methods of financing capital projects. This is because the legal structure for the issuance of general obligation bonds is less complex than most other financing methods. Because GO debt usually has lower interest rates, even when Village debt is ultimately being pledged by a specific revenue structure such as Water and Sewer rates, it is more financially advantageous to issue Water and Sewer capital bonds as GO bonds as opposed to Revenue Bonds.
How was the General Obligation Debt estimated
Five-Year Financial Plan – At the June 5, 2023, BOT meeting, the Village Board approved the Capital Improvement Plan and Five-Year Financial Plan - The Five-Year Financial Plan included $68.3 million in new governmental debt (see p.78 of Five-Year Financial Plan). At the same meeting, the Village Board adopted a Natural Gas Tax, an Electricity Tax, and an increase in the Home Rule Sales Tax, and elimination of the Vehicle Sticker as part of the Five-Year Financial Plan.
2023-2027 Utility Rate Study Adoption – At the October 3, 2022, BOT meeting, the Village Board accepted the Five-Year Utility Rate Study and approved the corresponding water and sewer rate increases. The Five-Year Utility Rate Study included $30.15 million in new governmental debt (see Section II of the Five-Year Utility Rate Study). At the same meeting, the Village Board adopted water and sewer rate increases for the proceeding five-years as part of the Five-Year Utility Rate Study.
TIF Bonds -
-Downtown Orland Park TIF – At the October 7, 2024 BOT Meeting, the Village Board approved a Redevelopment Agreement (RDA) with Edwards Realty. As part of the RDA, the Village pledged $33 million in GO debt as part of the redevelopment project (see page 14 of the RDA). The GO Debt is to be paid back from the created Downtown Orland Park TIF District and the separately created Business Improvement District (BID). The BID overlays an additional 1% sales tax on the business within the Downtown Orland Park boundary. The Tax Increment Financing District Eligibility Report and Redevelopment Plan and Project were submitted as part of the multi-step process to create the TIF.
-Dick’s House of Sport (former Sears) – In 2024, when the creation of the TIF was being discussed, the original plan was for Dick’s to receive tax incentive on a “Pay-As-You-Go” method. In Pay-As-You-Go TIF (or Pay-Go TIF), the developer pays for upfront development cost and is reimbursed for TIF-eligible costs twice annually as the increment becomes available (when the tax base increases). Following the March 17, 2025 Board of Trustee meeting in which the Village Board adopted an inducement agreement with the Dicks’ House of Sports, the Pay-Go option was dropped and instead former Mayor Pekau agreed to upfront the incentive to Dick’s House of Sports. This upfront payment was going to be provided through GO TIF debt along with another approximately $3 million in GO TIF debt for stormwater improvements that the Village was going to construct. Once the plans are finalized, the Village’s TIF Advisor, SB Friedman, will draft the Tax Increment Financing District Eligibility Report and Redevelopment Plan and Project, which is an important part of the multi-step TIF development process.
-Former Andrew Corporation Property – At the August 19, 2024, BOT meeting, the Board adopted an inducement agreement for the Former Andrew Corporation Property. The adopted Resolution includes the following language:
WHEREAS, Village and Developer desire such Expenditures be able to qualify for consideration as “redevelopment project costs” that can be reimbursed from proceeds of the tax increment generated by the Proposed Project to the extent such costs qualify under the Act; and
WHEREAS, the Village may reimburse the Developer for the Expenditures by issuing debt instruments secured by the incremental revenue generated by the Proposed Project (the
“Obligations”);
With regard to the planned TIF GO Debt issuance, as indicated in separate correspondence, the Village was planning on issuing $25.5 million in GO Debt to be repaid through TIF generated increment. Subsequently, additional conversations were had in which the Former Andrew Corporation property TIF was to be expanded to incorporate the former clean-fill site adjacent to Centennial Park for the funding and construction of turf fields. The total GO Bond to be issued would then be $43.7 million (assuming the lower cost concept). Once the plans are finalized, the Village’s TIF Advisor, SB Friedman, will draft the Tax Increment Financing District Eligibility Report and Redevelopment Plan and Project, which is an important part of the multi-step TIF approval process.
-Former Terry Lincoln Mercury - At the August 19, 2024, BOT meeting, the Board adopted an inducement agreement for the Former Terry Lincoln Mercury property. Similar to the Former Andrew Corporation Inducement Resolution, the Former Terry Lincoln Mercury Resolution includes the same type of TIF and debt issuance language. The last plan included a condominium project. With regard to the planned debt issuance, as indicated in separate correspondence, the Village was planning on issuing debt to be repaid through TIF generated increment. It was estimated that the bond issuance was going to be $10 million for the incentive and additional $5 million for the adjacent intersection improvement (143rd Street and John Humphrey Drive). Once the plans are finalized, the Village’s TIF Advisor, SB Friedman, will draft the Tax Increment Financing District Eligibility Report and Redevelopment Plan and Project, which is an important part of the multi-step TIF approval process.
-Former Petey’s 2 - At the August 19, 2024, BOT meeting, the Board adopted an inducement agreement for the Former Petey’s 2 property. Similar to the Former Andrew Corporation Inducement Resolution and the Former Terry Lincoln Mercury Inducement Resolution, the Former Petey’s 2 Resolution includes the same type of TIF and debt issuance language. With regard to the planned debt issuance, as indicated in separate correspondence, the Village was planning on issuing debt to be repaid through TIF generated increment. It was estimated that the bond issuance was going to be $18 million for the incentive and additional $3 million to complete the 161st Street extension to Ravinia Avenue. Once the plans are finalized, the Village’s TIF Advisor, SB Friedman, will draft the Tax Increment Financing District Eligibility Report and Redevelopment Plan and Project, which is an important part of the multi-step TIF approval process.
Previously Committed General Obligation Debt is estimated at $274,295,000
At the July 15, 2025, Committee of the Whole meeting, the initial maximum potential GO Debt issuance was estimated at $251 million. However, based on a reexamination of previous commitments, the maximum potential General Obligation Debt is now estimated at $274,295,000
Additional Commitments
Other preliminarily committed TIFs are further described below. This additional information is not included in the updated maximum potential GO Debt figure because the Village was not yet provided estimated figures.
-Crossroads TIF - When the petition for the Crossroads Development at the SEC of 159/LaGrange failed at the on June 17, 2024 Board of Trustees meeting, the developers were approached with the possibility of establishing a TIF that could assist with a owner-occupied development instead of rentals.
-I-80 TIF District - There have been previous discussions with regard to the creation of a TIF for the parcels West of Wolf Road along I-80. These parcels, referred to as Centennial Crossings, are a 246-acre greenfield parcel, currently located in unincorporated Orland Park. Although unincorporated, the Village has been working very closely with the property owner toward an annexation agreement. At the September 16, 2024, Village Board meeting, the Village Board agreed to a joint marketing agreement with the property owners. As part of planning for the site, data centers were emphasized
-Jefferson Avenue TIF - Previously, Village Staff had very preliminary discussion with former Mayor Pekau regarding a potential Jefferson Avenue TIF as a way to redevelop the area.
-Orland Square Mall/John Humphrey Drive Business Improvement District - A Business Improvement District is similar to a TIF District, but instead of income generated from property taxes, business improvement districts generate revenue from a sales tax overlay. As part of the Downtown Orland Park redevelopment, a 1% sales tax business improvement district overlay was added to the Downtown Orland Park boundary. A similar business improvement district was previously reviewed at the request of former Mayor Pekau for Orland Square Mall (including the ring road), and businesses along John Humphrey Drive. The Illinois Business District Development and Redevelopment Law authorize a municipality to impose a tax designed to fund the development or redevelopment of certain designated areas within a municipality. The business district sales tax is imposed by the municipality in the form of the Business District Retailers’ Occupation Tax and Business District Service Occupation Tax. This revenue could be used for several needed capital improvements (ring road, façade improvements, etc.).
Recommended Action/Motion
Discussion Only