Skokie trustees approve new sales tax at Old Orchard Mall
by JASON MEREL
Shoppers at the Old Orchard Mall in Skokie will have to dig a bit deeper into their pockets after a new 1-percent sales tax increase expected to bring in $84 million to the mall operator for improvements was given final approval at the Skokie Village Board of Trustees meeting on March 7.
The sales tax will be imposed on all businesses at the mall and the funds will be paid to Unibail-Rodamco-Westfield over the next 23 years for capital improvements as part of a redevelopment agreement.
The board voted 7-1 despite residents concerns at the end of the meeting. The board does not read any comments received prior to or during the meeting out loud.
Officials said the mall represented a financial liability to the village and the new business district was designated a "blighted area" based on the deterioration of site improvements, improper subdivision and obsolete platting. Many high-end retailers operate at the mall.
Sales tax revenues from the mall were $36 million in 2020, a decrease from an average of about $50 million per year prior to the pandemic, according to village staff.
Mayor George Van Dusen said that 38 percent of all revenue that comes into the shopping center goes to property taxes and that’s why a tax hike is necessary.
"The industry standard is 12-percent," he said. "So Old Orchard is three times the industry standard across the country."
The new tax rates for mall shoppers would amount to 11.25 percent for retail sales and 13.25 percent for restaurant sales.
"It has been determined that the Old Orchard business district, on the whole, has not been subject to growth and redevelopment through investment since 2007 and would not reasonably be anticipated to be developed or redeveloped without the adoption of the plan," village attorney Michael Lorge said.
Trustee James Johnson voted against the decision. Johnson asked trustees if they would consider a rate as low as 0.25-percent.
"A 1-percent sales tax increase, it really doesn’t sound like a lot but by state statute it’s actually the maximum that’s allowed for a business district, under Illinois law," Johnson said. "From my understanding, Westfield’s estimated that the 1-percent translates into roughly $84 million in additional funding." Johnson asked how tax revenues at a 0.25-percent rate, for a total of $21 million, would affect redevelopment plans.
"Lowering that sales tax recovery rate would simply reduce the overall investment or elongate the process of, you know, the period of time needed to recover that investment," Old Orchard general manager Serge Khalimsky said.
"If we do not send to the business community a strong message that the mall is going to be redeveloped, we not only are going to have trouble retaining the businesses we have but we are going to have trouble attracting new businesses," Van Dusen said.
Van Dusen cited an article published by the Chicago Tribune in which Richard Spinell of Mid-America Real Estate Group suggested that other municipalities were being approached with similar proposals and many malls had become obsolete in the wake of the pandemic and would need to reinvent themselves as unique destinations to attract shoppers.
"We have a choice right now. We know there’s a problem," Van Dusen said. "The stats tell the story. We can act and curb the problem or we can hide and put our heads in the sand and pretend there isn’t a problem. And in 5 or 10 years, we’re going to be faced with a Golf Mill, a Northbrook Court or a Lincolnwood Town Center. Every one of those municipalities I just mentioned is contemplating even more drastic action than we’re taking."
Lorge said that Westfield was investing money on the front end in anticipation of the funds from the redevelopment agreement and would be reimbursed for eligible expenses as revenue is collected and made available.
"The number that’s been floating around is 80-percent of your customers are from out (side) of Skokie, is that correct?" Trustee Ralph Klein asked, verifying with Khalimsky. "So 80-percent of all of this would be paid by somebody who I don’t know?"
"Technically, yes," Khalimsky said.
"Okay, so then we ask ourselves what is best for Skokie: when somebody else pays the freight or when we have to ask our constituents to pay the freight," Klein said. "We have to worry more about Skokie residents than we do about people who are outside."
Several residents spoke against the decision at the meeting, with one speaker calling the move "corporate welfare."
Skokie resident and business owner Terry Socol said all business owners have been affected by the pandemic but the decision bothered him since the village isn’t taking action to support other business areas in the village. Socol suggested that high sales taxes were one of the reasons shoppers weren’t visiting the mall to begin with.
"This is a subsidy to Westfield," Skokie resident Matt Jarvis said. "Westfield is overleveraged or otherwise they’d be making the capital improvements themselves. They have access to bond markets."
Unibail-Rodamco-Westfield announced in a Feb. 10 earnings report that the company will "implement a program to significantly reduce its financial exposure to U.S. assets in 2021/2022." The corporate announcement to leave U.S. markets was made after the village began holding hearings on Old Orchard in January and in early February.
"Westfield doesn’t see the potential return on investment," Jarvis continued. "It’s not the village’s job to keep failing businesses or business models afloat. The exhibits in the agenda call out a difficulty to compete in Cook County but the mall is a completely redundant experience across the region."
"I hear about improving parking structures, resurfacing parking lots, modernizing elevators, but that’s not exactly going to make people flock to Old Orchard," Jarvis said. "A new vision is necessary and unless we’re changing this place to a theme park, I don’t really hear a lot about what’s attracting all this new business."
Trustees voting in favor are Khem Khoeun, Ralph Klein, Alison Pure Slovin, Keith Robinson, Edie Sue Sutker. Van Dusen also voted.