STERLING – The city was asked Monday night to consider issuing up to $5 million in bonds to refinance the defaulted Sauk Commons project in order to take advantage of federal tax incentives.
Sauk Valley Student Housing LLC, a nonprofit group created by Sauk Foundation, owns the student housing complex next to Sauk Valley Community College.
Sauk Commons filed for bankruptcy in February 2011. Chicago-based Harris Bank is its creditor.
During a budget study session of the Sterling City Council, James Snyder of Ice Miller law firm asked the city to serve as the bond issuer for the project.
"The project is in default," he said. "I have been approached by people that are working with the foundation and Harris Bank to put money into the project to put in $500,000 of furniture and fixtures."
A new 501(c)(3) would buy the member interest from Sauk Valley Community College Foundation, he said. It would require refinancing of the existing debt obligation, allowing money to come in to help improve the complex, Snyder said.
Federal tax code permits local governments to issue bonds on a tax-exempt basis. Rather than financing at a rate of 6 percent, as an example, the project could be refinanced at a rate of 4 percent because it is tax-exempt, Snyder said.
Sauk Commons needs an issuer, he said. Other potential issuers include Lee County, the city of Dixon, and the state-run Illinois Finance Authority.
The Illinois Finance Authority has some requirements that would make it difficult to issue bonds for Sauk Commons, Snyder said.
Dixon and Lee County have not been approached, he said.
Snyder said he received positive feedback on the idea from Alderwoman Amy Viering, who also is director of the Sauk Foundation.
Snyder said Sterling is legally able to issue the bonds because the project is located within 10 miles and is the city's community college.
"You would not be liable under these bonds," he said. "I would draft them; your counsel would also review them, it would say 'No liability on the part of Sterling.'"
Liability, Snyder said, would remain with Sauk Valley Student Housing LLC, and the city would not be responsible for paying legal fees.
Snyder said projections call for a bond issuance of between $3 and $5 million.
"Through this arrangement, money will come in, pay off Harris ... right now there's a $7 million obligation that the LLC owes Harris Bank," he said. "They're not going to get $7 million. They're going to get an amount far less than that."
The complex was built in 2005 at a cost of $7.3 million using tax-exempt revenue bonds.
Sterling Mayor Skip Lee said the council must decide to what degree it is willing to work with another entity to solve a problem.
"Bottom line in my mind: Are we willing to cooperate with the folks at Sauk to get this problem taken care of?" Lee said. "The other issue is, are we going to incur any risk to the city of Sterling, its bond ratings, all those things?"
If the city is not going to incur any risk, then partnering with other governmental agencies "is what it's all about," the mayor said.
The city could adopt a resolution at its next meeting, March 18, agreeing to refinance the bonds if there is no risk, Lee said.
Council asked to consider sales tax rebates for restaurant
STERLING – Should the city give a sales tax rebate to a restaurateur looking at a Sterling location?
That was a question City Council members were asked Monday night.
Sterling City Manager Scott Shumard said he and Mayor Skip Lee were approached recently about the former Ryan's Steakhouse. A person who is interested in putting a new restaurant there asked for a 15-year schedule of sales tax rebates that begin at 90 percent and end at 50 percent.
While the city has provided sales tax deals to some retailers, it has never given one for a restaurant, Shumard said. And, he said, most rebates are over 10 years. A deal with Kohl's was the first to go for 20 years.
"The question is: If a retail business came in, would we entertain a sales tax rebate?" Lee said. "To me the issue is, whether it's a Michaels [craft store]; a Hobby Lobby or a restaurant or Pets 'R' Us: to what degree would the council be willing to consider doing that on a smaller scale?"
Lee said the matter was brought to the council at its budget study session Monday to get input from aldermen.
"If you have a property sitting there that has not been developed, and is deteriorating, to what degree is the city willing to participate to help get that up and going again?" Lee said.
If a business were to locate in the building, the city would get whatever sales tax is not abated, Lee said. In the case of a functioning business, the real estate property tax would go up, benefitting all taxing entities, he said.
"If I was an alderman voting, I would rather get something than get nothing," he said.
Shumard said he did not have a recommendation on how the council should respond to the proposal. He advised council members to go with their instincts.