City: Tousis' West Racine development may not be worth enough

After a period of relative calm, it appears the city and Tom Tousis are headed for a clash over a proposal to build a grocery store, gas station and restaurant at the corner of West Boulevard and Washington Avenue.

The Redevelopment Authority, which has already approved giving Tousis an option to buy the land, now may reconsider its decision after questions about the project's total assessment were raised.

City Development Director Brian O'Connell issued a memo Thursday saying Tousis' project will have an assessed value of $2.8 million, which is well below the $5 million assessed value the city was hoping for the site. The city needs a $5 million development on the corner to pay off loans it took out to demolish old buildings and create space for redevelopment.

O'Connell's memo was based on a review by City Assessor Ray Anderson. Here's O'Connell's memo:

Commissioners:

The request of Tom Tousis for an extension of the deadlines in his option agreement is on the agenda for your meeting on April 7, 2010.

In the time that elapsed between receiving the request from Mr. Tousis and your meeting, Mr. Tousis submitted his development for design review. The application for design review stated that the cost to construct the development is estimated to be $2.8 million. Later reports in the media stated the cost to construct the development would be $4.2 million. The projected value of the development is relevant because the tax incremental district for West Racine (TID-11) anticipates that the property on the south side of Washington Avenue will have an assessed value of $5.0 million after redevelopment.

Because construction cost differs from assessed value, I asked the City Assessor, Ray Anderson, to estimate the assessed value of the proposed development. Mr. Anderson considered all the parts of the proposed redevelopment shown on Mr. Tousis’ plans, including the gasoline pumps and canopy. Mr. Anderson estimates that the assessed value would be $2.8 million.
A copy of Mr. Anderson’s memorandum is attached to this e-mail. I have also attached copies of Mr. Tousis’ plans.

I provide this information in the interest of having a more informed discussion at Wednesday’s meeting. If you have any questions in the meantime, feel free to contact me by phone or e-mail.
-Brian

Zak Williams, a spokesman for the Tousis project, said O'Connell's memo fails to note that there is additional property in TID-11 on the north side of Washington Avenue, which is the former Piggly Wiggly building. Land on the north side makes up 60 percent of the TID.

The assessed value of Tousis' project would cover its share of the TID, Williams said.

The RDA has twice put off votes on Tousis' extension of deadlines due to a lack of quorum at its last two meetings. Now, based on O'Connell's memo, it appears the RDA may not only reconsider the extension, it may reconsider the project all together.

With no other projects in line to build on the site, the RDA is faced with the decision of going with an less-than-desirable assessment and paying off some of the debt, or scrapping the development and hoping a $5 million project comes along.

Williams is pessimistic any one else is interested in the site.

"If this doesn't go through, no one will build on this site for at least five years," he said. "Then the TID will be upside down, and development will never pay off the loan."

Update: Ryan Rudie, Tousis' architect on the West Racine project, fired off an email to the city development department and several city officials saying the project should be valued at $4.2 million - closer to the desired $5 million level. Here's Rudie's letter:

Dear Mr. O'Connell,

I sure hope this is the last time I have to repeat this to you or Mr. Sadowski or anybody in your department, but the application form was filled out incorrectly by me and did not take into consideration the cost of the gas pumps, gas pump canopy, gas storage tanks, and building fixtures such as refrigerated grocery cases, grocery shelving, walk-in coolers, and walk-in freezers. All of these are items that would be purchased and installed by the Owner or another entity employed by the Owner and were not part of my Architectural plan and thus were not included in my original building estimate when I filled out the form. All of these items are necessary costs of development and therefore should be included in the overall budget which is $4.2 million.

Your email stated that you "provide this information in the interst of having a more informed discussion at Wednesday's meeting". Not only are you informing everybody incorrectly, it seems to me you are trying to muddy the waters and create obstacles for this development.

I hope once and for all we can put this issue to bed___!


Ryan M. Rudie, AIA
Butterfield, Rudie & Seitz Architects, Inc. 

920 Goold Street

Tousis makes $5,000 payment to secure West Racine option

(Above) Realtor Karen Sorenson, Landmark Title owner Mike Staeck and City Development Director Brian O'Connell meet in O'Connell's office on Monday afternoon. Staeck was delivering a check from Developer Tom Tousis to secure an option on land at the corner of Washington Avenue and West Boulevard in West Racine.

Tousis intends to build  a grocery store, gas station and restaurant on the site. His plans were delayed, however, when it was discovered a stormwater pipe was bisecting his proposed building. The city's Redevelopment Authority, which technically owns the property, voted last week to give Tousis until Monday at 4:30 p.m. to make a $5,000 payment to secure the option. The check was delivered Monday at 4:10 p.m.

Tousis' proposal now heads to the City Council for approval. It's scheduled to go to the Access Corridor Review committee, which will evaluate the merits of the project. O'Connell said Monday it's unclear when Tousis' proposal will be taken up, because changes are likely coming to the project. 

Proposed West Racine grocery store, gas station faces Monday deadline

Jim Spangenberg, Nicole Loop, Brian O'Connell, John Crimmings and Jean Wolfgang

at Wednesday's RDA meeting.

Developer Tom Tousis has until Monday at 4:30 p.m. to pay the city $5,000 or he'll lose an option on the West Racine site where he intends to build a grocery store, restaurant and gas station.

The city's Redevelopment Authority voted 3-2 to set the Monday deadline after Tousis missed a Jan. 16 deadline to make the payment. Tousis withheld payment after discovering a pipe on the property, located at Washington Avenue and West Boulevard, ran through the middle of his proposed building.

The standoff is based around the complicated, and distrustful, relationship between Tousis and city officials. Tousis claims the city has worked against his project, most recently, by not telling him about a stormwater pipe that runs through the property.

On the flip side, city officials are mystified by Tousis' unwillingness to meet deadlines and follow through on a development he's spent $30,000 on to this point.

Assistant City Attorney Nicole Loop said, legally, Tousis is in breach of contract for failing to pay the $5,000 on time.

"I'm at a loss of where this is coming from," she said.

"If he'd set out to complicate a matter, he couldn't have done a better job," O'Connell added about Tousis.

But the RDA was unwilling to kill Tousis' project Wednesday. Alderman Jim Spangenberg, an outspoken opponent of the proposal, moved to end Tousis' option on the land, but the motion died because no one else seconded the motion.

Cory Mason, a member of the RDA, then sifted through the issue and came up with a proposal to give Tousis until Monday to pay. Spangenberg then moved to set the deadline until Friday, but his amendment was defeated 3-2. The Monday deadline then passed 3-2, with RDA Chairman John Crimmings, Mason and Scott Terry voting in favor. Spangenberg and Robert Ledvina voted against the proposal.

It's unclear what Tousis will do next. He's deposited $5,000 with Landmark Title with the intention of releasing the money to the city when he gets a reliable survey on the West Racine site.

But the RDA made it clear Wednesday Tousis needs to pay the money directly to the city. If he doesn't, the option is dead and the project won't move forward.

"I really don't think he's going to come with the money," Spangenberg said. "I think he's afraid he's going to lose the money."

Karen Sorensen (left), who represented Tousis at the meeting, said the project is at a standstill until the city presents them with a survey showing all easements on the site.

"We never dreamed there was information that we didn't know," she told the RDA.

Surprise stormwater pipe forces changes to proposed West Racine grocery store

A stormwater pipe is forcing a Racine developer to redraw plans for a grocery store and restaurant in West Racine.

Developer Tom Tousis was surprised to learn earlier this month an 84-inch stormwater pipe bisects the 1.5-acre lot at West Boulevard and Washington Avenue. Tousis can't build over the pipe and now needs to shrink the size of his proposed building by as much as 40 percent.

The pipe is the third utility easement any developer would have to address on the corner lot. A powerline and a water pipe also run through the property, carving up the seemingly vacant lot into four sections available for construction.

Tousis and the city disagree over whether the stormwater pipe was included in city records.

Brian O'Connell, director of city development for Racine, said the stormwater pipe was included in materials when the city first began searching for a developer for the site. It's also included in the city's GIS system, which is available for free online.

"They should have known about it," O'Connell said about Tousis' development team.

But Zak Williams, a spokesman for Tousis, showed a city survey of the site completed in 2006 that does not include the stormwater pipe. He said the original plans, which were shown to city officials when Tousis applied for an option to buy the land, were based on the 2006 survey.

"If the city knew about the pipe, why didn't they tell us about it?" Williams asked, noting the plan was approved by the city's Redevelopment Authority and City Council with no mention that the proposal would not fit on the site. O'Connell serves as staff to the RDA.

Williams added the city's own GIS website includes a warning on the front page that the online maps should not be used as official documents. Instead, Tousis used a city-commissioned, formal survey of the site, which left off the pipe, Williams said.

"Every developer knows you go off the survey," Williams said.

O'Connell said the stormwater pipe ran down an alley behind buildings the city knocked down to create the vacant lot. Utilities underneath alleys were not included on the survey map, he said.

O'Connell added Tousis made a "naive assumption" that there was stormwater pipe running underneath the former alley. He said the bigger problem is Tousis and his team have not worked with city officials on the project. As a result, O'Connell said, there are surprises.

Williams said the new pipe - discovered earlier this month - will force reductions in the size of the grocery store, restaurant and gas station. The new building may still be 10,000 square-feet, but it's significantly smaller than what Tousis intended to build.

Developer Ray Leffler, who has worked with Tousis on the project, said building over the stormwater pipe would be risky because the city may need to access the pipe for repairs. If that happened, crews would have to rip up the store to reach the pipe, he said.

"It wouldn't generally be an acceptable practice to build over that pipe," said Leffler, who owns Newport Realty in Racine.

But Leffler said Tousis can work around the stormwater pipe and still build an acceptable project. "It would have been nice if there was a pipe running right through the middle of a building that someone would have said something," Leffler said.

He added "the ball was dropped a bit," but instead of placing blame, focus should now be on redrawing the plans to fit the utilities on the site.

"The real question is how do you fix it and move on?" Leffler said.

Tousis and real estate agent, Karen Sorenson, wrote O'Connell a letter on Jan. 13 asking for an extension on the submission of their conditional-use permit for city approval. "The recent information obtained has changed the scope of our project drastically," the wrote to O'Connell.

Williams said Tousis is now waiting for the city to provide a reliable survey of the site before redrawing plans. "We don't want any more surprises," he said.

City plan to pay company for jobs is 'unique,' development director says

The city is one step closer to paying a company to bring jobs to Racine.

The Finance and Personnel committee voted 3-1 Monday night to allow the city to enter into a developer's agreement with American Tire and Recycling, which is based on the Wisconsin-Michigan border in Niagara, Wis.

The city would pay American Tire $39,600 to cover the company's rent at 2301 S. Memorial Drive for 18 months. In exchange, the company is committed to creating 88 jobs over 18 months, with city residents getting first shot at the jobs.

City Development Director Brian O'Connell said the jobs incentive grant was "unique" for Racine.

"I don't think I've brought anything to you that's only a jobs incentive grant," O'Connell said.

Committee members passed the proposal despite unanswered questions. Aldermen asked City Development Director Brian O'Connell to find out how much the jobs will pay and if they're union jobs.

Alderman Terry McCarthy also requested the company lay out a specific schedule for when it will create jobs, and then have the city tie the rent payments to job creation.

O'Connell said the city would pay American Tire's rent on a quarterly basis, with the first payment of $6,600 coming when the company takes occupancy of the South Memorial Drive Building.

The company is committed to immediately hiring 33 low-skill workers and 20 truck drivers for the Racine site. It intends to ramp up to two shifts with a total of 88 workers over the next year and a half.

While the low-skill jobs may not pay great, O'Connell said, they're needed in Racine. The city has a large unskilled workforce that could use jobs that don't require degrees or advanced training.

"There are a lot of people without skills who need money," O'Connell said.

The meeting started with O'Connell taking some heat from the committee for providing a written review of the agreement on Monday, the same day as the meeting.

"Is there any way this committee can be better informed?" Alderman Q.A. Shakoor II asked O'Connell.

O'Connell said he didn't have an excuse. "It's the simple press of business," O'Connell responded to Shakoor. "I don't have a better reason."

Shields wanted to defer action on the proposal until the committee's Dec. 21 meeting, which may get canceled because it's the week of Christmas. That would push off a City Council vote to Jan. 5.

Instead, the committee voted to pass the proposal with the understanding O'Connell would bring more information to the City Council meeting on Dec. 15.

This was the second city committee to take up the proposal. The Redevelopment Authority approved the developer's agreement last week.

Keary Ecklund, head of American Tire and Recycling, did not attend either meeting, leaving O'Connell to present the agreement and answer questions.

American Tire and Recycling closer to delivering jobs to Racine

It's looking more and more like Mayor John Dickert is going to deliver his first new major employer to Racine.

American Tire and Recycling is close to a deal to move into 2301 S. Memorial Drive, where it will collect old tires, cut them apart and send the products to its processing plant in Niagara, Wis. (located on the Wisconsin-Michigan border).

The Racine operation will employ up to 88 people over three shifts, according to City Development Director Brian O'Connell. If approved by the City Council, operations would start in the first quarter of next year, he said.

The building on Memorial Drive is perfect for the operation. It will serve as a transfer point for old tires collected within a 100-mile radius. Trucks will carry the tires in, drop them off to run through a machine that will separate the side walls from the treads, and then another set of trucks will drive them to Niagara.

The company has a similar operation going in New London, Wis. that's having success, O'Connell said.

The Redevelopment Authority reviewed a proposed deal to use sewer revenue money to pay American Tire's lease for 18 months to help the company get established. The deal would cost $39,600, O'Connell said. It also includes a clause requiring American Tire to hire its employees form the city of Racine, which has the second highest unemployment rate in the state.

RDA member Pete Karas asked about the environmental impact of the business. O'Connell said it would be minimal, with no piles of tires or really any waste product left behind.

The RDA unanimously approved the deal for American Tire.

It was the second bit of good news for the company this week. On Tuesday night, the Niagara City Council voted to allow American Tire to setup its recycling operation at a former paper plant.

No Option: City puts off decision on West Racine grocery store, gas station

The Redevelopment Authority met Wednesday in the City Council chambers.
About 75 people attended the meeting.

A proposed grocery store, gas station, restaurant and bank in West Racine remains in limbo after the Redevelopment Authority's meeting on Wednesday.

Project developer Tom Tousis had hoped to secure a 12-month option to buy the 1.5-acre site, located at West Boulevard and Washington Avenue, from the RDA, which owns the land. But the RDA only agreed Wednesday to direct city staff to negotiate with Tousis on an option to buy the land. Tousis will need to return to the RDA to get the option.

The option is a critical step because Tousis needs RDA support for his project to advance to the next round of city approvals. The City Council's Plan Commission and other committees cannot consider the $5 million proposal if Tousis does not have the right to purchase the property.

Wednesday's outcome was somewhat unexpected because Tousis and RDA officials both seemed surprised/confused by the project's status. Here's an explanation of what happened based on interviews and attending the meeting:

* Tousis submitted his project to the city on Sept. 11 and it was referred to the RDA for consideration.

* The RDA put the project on its October agenda as a public hearing with an initial recommendation to "receive and file" the proposal. Tousis was hoping to secure rights to buy the land so the project could advance to other city committees.

* On Tuesday (the day before the RDA meeting), the city notified Tousis that he needed to work with the RDA's real estate agent to establish terms of the land option, including price and length. This was news to Tousis, who didn't know the RDA wanted him to negotiate the option.

* On Wednesday, the RDA's meeting agenda changed the staff recommendation on Tousis' project from "receive and file" to "defer" to give Tousis time to negotiate the option.

* The RDA voted unanimously Wednesday to direct staff to negotiate the option with Tousis.

Tom Tousis speaks during Wednesday's RDA meeting.

Following Wednesday's meeting, Zak Williams, a spokesman for Tousis, said the RDA's action was another "roadblock" to Tousis' efforts to build in West Racine. He noted the city had Tousis' project nearly a month before the RDA meeting but never said Tousis needed to negotiate an option before Wednesday's meeting.

Williams said city officials, including Mayor John Dickert and City Development Director Brian O'Connell, were stalling on Tousis' project.

"The city staff does not want this proposal to move forward," Williams said, adding: "The mayor has been very aware of what Brian O'Connell has been doing with this project, and he's done nothing about it."

Dickert, who sat in on the RDA meeting, said afterward that the RDA's decision was a common sense vote. Tousis only asked the RDA to review his project, and that's what the RDA did, Dickert said. If Tousis wanted an option on the land, Dickert said, he should have brought an option for the RDA to consider.

In other words, since there was no option, the RDA had nothing to vote on.

RDA Chairman John Crimmings said as much during the meeting. "The problem I have is we don't have an option to consider," he said. "It's very difficult to grant an option when we don't have an option."

The outcome suggested one of three things occurred:

1. The city sprung the option requirement on Tousis at the last minute, possibly to delay a vote.
2. Tousis made a mistake and failed to work on the option prior to Wednesday's meeting.
3. Everything went as it should, and this is just part of the approval process.

One person who seemingly can't be blamed for the delay is Alderman Jim Spangenberg, who is opposed to Tousis' plans to build a gas station but said he was "not against" giving Tousis the option.

Spangenberg did say he opposed a lengthy option (18 months) on the property, in part because a handful of other developers received options and then did nothing with the site. He also said he wouldn't vote for an option without seeing information about the deal and more about Tousis' background and project.

One positive for Tousis out of Wednesday's meeting was the RDA held its public hearing on his project, which is a step forward in the approval process. A majority of the people who spoke Wednesday night backed Tousis' 25,000-square-foot project.

Alderman Greg Helding and Elaine Sutton-Ekes, both city Plan Commission members, both spoke in favor of granting Tousis the option. Both said they looked forward to reviewing the project in detail at their meetings.

A sketch of the gas station canopy designed to look like a train depot Tom Tousis
intends to build in West Racine.

Tousis himself spoke on the project Wednesday. He revealed a new canopy for the gas station that would be designed to resemble an old train station and would use motion sensors to light up at night only when customers were present. Tousis also said the project would reclaim stormwater on the project and use it for landscaping, would setup a neighborhood recycling center and may even compost leftover food to create a source for renewable energy.

Dick Hinsman, who owns a property adjacent to the vacant lot in the 3100 block of Washington Avenue, continued his strong opposition to the project. Hinsman spoke during the public comment period and said a gas station would bring too much traffic to the corner.

Robin Wilson, the owner of Wilson's Coffee and Tea in West Racine, said he supported the grocery store and restaurant, but said a gas station was "completely unacceptable."

A representative from the West Racine Business and Professional Association, said the organization met this week and supported Tousis' grocery store, restaurant and bank, but said the gas station did not fit with plans for West Racine. (Tousis attempted to attend the association's meeting Tuesday morning, but was asked to leave.)

Real estate agent Karen Sorenson speaks at Wednesday's RDA meeting.

The next step for the controversial project is unknown. Karen Sorenson, Tousis' Realtor on the project, said she would write-up an option on the land by Friday. She asked the RDA if they would consider a special meeting this month so Tousis wouldn't have to wait until November to appear again before the RDA. Crimmings was non-committal on the idea.

As a side note to the meeting, state Rep. Cory Mason didn't attend the meeting but did listen in through conference call. There was some disagreement over whether Mason could vote at the meeting. Assistant City Attorney Nicole Loop said City Attorney Rob Weber had cleared Mason to vote by phone if he participated in the meeting, which she said is consistent with state law. But during the actual meeting Crimmings said Mason wouldn't be allowed to vote.

Mason himself said Tuesday he was told he could vote by phone.

The issue proved irrelevant because no votes were close enough for Mason to make a difference, but could be worth watching at future meetings.

Proposed Dollar Store on Washington Ave. falls through

Plans for a 14,000-square-foot Dollar Store at 1130 Washington Ave. have fallen through.

City Development Director Brian O'Connell said Friday the developer with an option to buy the property - formerly Schaeffer Motors - has not contacted the city in over two months.

Abdo Market House, of Minneapolis, was granted a 90-day option in June to buy the Schaeffer site for $70,000. The company had answered the city's request for proposal on the site with plans to build a dollar store worth over $1 million.

Abdo's option technically expires on Sept. 13, but O'Connell said he wasn't expecting to hear from the developer in the next few days.

The city made repeated attempts to reach the developer, O'Connell said. They made phone calls, sent certified letters and talked to partners on the project in hopes of getting a response. The company never answered, he said.

O'Connell said city officials are considering how to proceed with the site. They could offer another request for proposal and see if any new developers are interested, or pull the property off the market and wait awhile for the market to reset.

No decisions have been made, he said.

SC Johnson, city emails offer intimate lookat how company secured tax exemption

Foster+Partners rendering of Project Honor's Fortaleza Hall being built on SC Johnson's Racine campus.

SC Johnson used considerable influence, resources and ingenuity to convince former Mayor Gary Becker and Gov. Jim Doyle to approve a property tax exemption for the company's Frank Lloyd Wright buildings and the new Fortaleza Hall, according to company emails obtained by RacinePost.

The collection of emails from 2007 and 2008 provide an intimate look at SC Johnson's top executives orchestrating the deal that one email from an SCJ vice president suggests could save the company $400,000 a year in property taxes. SC Johnson Spokeswoman Kelly Semrau verified that the emails were authentic, but said some of the emails provided to RacinePost were taken out of context.

We've reviewed the emails and and are reprinting select quotes from them as they relate to Becker's deal with the company to trade the property tax exemption for money for the Uptown arts district.

The emails show SC Johnson sought the exemption to limit the amount of taxes it's required to pay on the new building under construction on the company's Racine campus. They also show a close tie between Becker's plans for Uptown and a property tax exemption, and SCJ's ability to successfully lobby the governor for the exemption.

All told, it was a remarkable effort by SC Johnson to minimize the company's taxes, and a questionable decision by Becker to support the exemption -- which ultimately will cost the city, county and RUSD a fortune -- without making it public.

For its part, Semrau said SC Johnson was upfront with Becker about its intention to seek the property tax exemption for its Wright buildings and Project Honor. State law allows the governor to issue executive orders to exempt architecturally significant buildings from property taxes. It also allows educational tourist centers adjacent to the historic buildings to be tax exempt.

SCJ used the law to secure an executive order from Doyle to exempt its Administration Building and Research Tower, and the new Fortaleza Hall next to the Administration Building, from property taxes.

"There is nothing the company did that was wrong," Semrau said. "It was a legitimate tax situation."

The Tax Exemption

The leaked emails begin in March 2007 with company officials pondering ways to limit property taxes on the new Project Honor, which was looking at a $52 million price tag (see below).

On Wednesday, March 28, 2007, Robert Randleman, vice president-corporate tax counsel, wrote an email to Jane Hutterly, executive vice president of worldwide corporate and environmental affairs, seeking guidance on "the company's desire to save property taxes on the Project Honor building additions."

Randleman wrote:

Alternatively, if we were to reduce the annual tax tax cost but agree to provide the city with a one time contribution to develop Uptown, the overall savings would be significant. Also, there is a significant possibility that once the Fortaleza Hall is completed and the plane is in place, the city could assess personal property tax on the aircraft. This would not be the case if the building received a state exemption.

Hutterly responded on April 9, 2007:

My perspective, Bob, is we should take the tax exemption that is appropriate under the law. I also will have some discomfort if this means we are really pushing the regs; while not adding any new jobs; as it could appear that the "rich (Fisk / family) only get richer" when Racine needs the tax revenue. Under the current scenario, I would assume that that would mean the community building is not tax exempt. That portion could be TIF'ed and we could also supplement that with contributions as needed.

Semrau said the tax exemption was not a requirement for Project Honor. SC Johnson would have built the buildings without the exemption, she said.

But the exemption paid off for the company. While Semrau estimated the exemption would save the company between $190,000 and $240,000 per year, one email suggested the number could be closer to $400,000 per year.

Randleman wrote to Fisk Johnson on Jan. 7, 2008:

Attached is a copy of the Executive Order - to be signed by Governor Dole (sic) ... As a result of this designation, we anticipate that the FLW buildings and Fortaleza Hall will be exempt from real estate tax resulting in an annual savings of approximately $400,000.

Racine Unified

Early on, SC Johnson was sensitive to the Racine Unified School District losing tax revenue, according to emails. SC Johnson's Brian Anderson, program manager for community development, responded to a question from Scott Frey, SCJ's director of corporate services and facilities, about Unified losing tax revenue if the Administration Building and Research Tower are tax exempt.

Anderson wrote on May 17, 2007:

The schools lose $8,234 per year if the FLW buildings are excluded. In the total scheme of things at Unifies (sic) this is not a significant amount of money. I am not sure what the district would do with 10,000 annually that is off the tax rolls. One potential idea for the schools is to provide updated technology to them annually in some amount.

Semrau said SCJ does not have a plan to reimburse Unified for tax revenue lost to the exemption of the FLW buildings.

Project Honor's Fortaleza Hall will serve as an educational tourist center for people visiting SC Johnson. This rendering from Foster+Partners shows Fortaleza Hall with Frank Lloyd Wright's Research Tower in the background.

Educational Tourist Center

SCJ carefully considered how Fortaleza Hall could be included in Doyle's executive order. State law allows an educational tourist center adjoining a historic building to be included in the property tax exemption.

Frey wrote Anderson on May 17, 2007 asking:

Is the tax exemption provision written specifically for FLW or simply any historical landmark? Will we have some requirements around displays, messages, etc in Fortaleza Hall in order to assure we are meeting the intent of the exemption?

Anderson responded: "???" But subsequent emails show the company making changes to Project Honor to secure the tax exemption.

The company did not initially call for the Project Honor buildings to be open to the public, Semrau said. But the tax exemption for Fortaleza Hall required public access, she said. (Note: Semrau contacted RacinePost after this story was published to clarify that if SCJ had not received the tax exemption it would have still built Fortaleza Hall. "But maybe we wouldn't have opened it to the public as one example since keeping buildings open to the public are expensive due to upkeep, security, tour guides, etc.," Semrau wrote in an email.)

SCJ will hire tour guides and allow visitors into the building, which will pay tribute to the story of how HF Johnson flew the Carnauba airplane to Brazil to study the carnauba palm tree that launched the company's fortune. Sam Johnson and his sons retraced the trip in 1998.

Initial plans for Fortaleza Hall did not include educational exhibits for tourists.

Randleman wrote to Kristine Banan, title unknown, on June 1, 2007 (Note: MEA is an internal SCJ acronym that Semrau declined to define):

There is little doubt that the Frank Lloyd Wright buildings are architectural landmarks. I would like to see the MEA emphasize the fact that the adjacent Fortaleza Hall will be used as an educational tourist center. This could be accomplished by changing the fifth sentence in the fifth paragraph to read:

"The Hall will provide an area for employees to informally meet and will be used as an educational tourist center for visitors to the Frank Lloyd Wright administration building, Golden Rondelle and other areas of the SCJ campus."

Randleman wrote on June 6, 2007:

Had a brief conversation with Fisk today - he emphasized the fact that he wants us to proceed with the property tax exemptions for Project Honor. He said that we could include specific displays in the exhibit if it would assist us in proving that the exhibit is indeed an educational tourist center. Next step is for Jane to send the presentation deck to Fisk and she and I will meet with him to answer any questions.

Public Relations

SCJ officials carefully considered the ramifications of the tax exemption becoming public - something that didn't happen until RacinePost broke the story on May 7. (See a summary of our coverage on this story here.) The company was particularly concerned about a planned Journal Times story on Project Honor's groundbreaking. Hutterly didn't want taxes mentioned with the story, which was given as an "exclusive" to the JT.

Hutterly wrote to Randleman on Aug. 29, 2007:

I'm confident we can weather the storm on this and any outcry over the FLW / FH application to the state, and ultimately, the time of all of this would be connected by those who are doing their homework and would want to say that SCJ is trying to avoid taxes and doing their part. That said, it would be helpful to us on the public side if we could stagger the actions on all of this.

She added: "It would be very disappointing to all of us if a side bar article on the new building was "SCJ avoids taxes."

Fisk Johnson wrote Sept. 4, 2007 to Randleman:

"... if we want to delay the action (actual filing that may become public?) in this exemption process to avoid something ending up in the papers at the same time as the ground breaking article I leave that to Jane and you to decide. I assume if it is easy enough to make a short delay of the filing (?) and not incur any financial risk and avoid the risk of this ending up in the paper at the same time... then that sounds like a good thing. I would assume the PR to be manageable either way."

Cost of Project Honor

The actual cost of Project Honor is expected to reach $52 million, according to an email. That far exceeds the $36 million figure SC Johnson had shared in the past. Semrau said the $36 million number is the cost of construction of the building. The $52 million figure is the total cost of the project, including landscaping, furnishings and items other than construction, she said.

Hutterly wrote on Aug. 31, 2007, to Scott Frey and others with the subject line, "Fisk's $$ on PH with the Press":

What number are you comfortable sharing with the press? I'm not comfortable with $52MM. How about the construction number of $36.5MM?

Lobbying for the exemption

SC Johnson lobbied the governor for the tax exemption in the summer of 2007, according to emails.

Randleman wrote to Fisk Johnson on Aug. 31, 2007:

"The Pricewaterhouse Coopers representative that will be meeting with Secretary Berk on behalf of SCJ will also be accompanying the Commerce Secretary and Governor Dole (sic) on an Asian trade mission starting September 10. The PwC representative hopes to be able to take advantage of this time with Ms. Berk and the governor to informally pursue the topics discussed during the September 5 meeting and further advocate SCJ's position. This is a fortunate opportunity."

The company also worked Becker for his support, which was secured in November 2007, according to emails. Chip Brewer, director of worldwide government relations, wrote to Michael DeGuelle, SCJ's former state tax manager, on Nov. 12, 2007:

Mike - I spoke to Gary Becker and he is prepared to support SCJ if he gets a call from the Gov's office.

Brewer also wrote on Nov. 20, 2007:

Good news. I just spoke to the Mayor. He happened to be in the Governor's office today with a group of mayors on other business. Susan pulled him aside and asked him about Project Honor and he gave his strong OK.

Becker actually pushed former assessor Tom Kienbaum to sign a letter of support for the exemption. Anderson wrote on Feb. 13, 2008, to Jane Hutterly, Chip Brewer and Theresie Bode:

The assessor has to send a letter to Mike declaring the property tax exempt which is then forwarded to State to finalize this process. The meeting went very well and the mayor was very supportive and kept asking where does Tom sign. The city assessor is retiring at the end of the month so could put this off for his replacement to do, which the mayor assures me wouldn't happen.

Kienbaum didn't actually sign the letter. His successor Ray Anderson signed it on June 2, 2008. The letter, written to DeGuelle, reads:

We have no objection to you submitting the exemption application and our Office confirms its support for the full and timely implementation of the Executive Order's intentions.

Uptown TID

SC Johnson and the city worked closely together to create the Uptown TID, which will use an estimated $166,000 in property tax revenue from Project Honor's Community Building - it's not exempt from property taxes - to make improvements to the area, according to emails.

Semrau said the city approached SC Johnson about the Uptown TID. Emails among top executives indicate SC Johnson knew about the TID in June 2007 - six months before the idea was made public.

Fisk Johnson wrote an email June 7, 2007 to Hutterly stating:

I would like to push for as low an appraised value on the community building as possible (but I am fine agreeing to putting whatever that tax might end up being, based on that lowest appraised value, into a tif).

Hutterly responded on June 7, 2007:

We will put the final plans in place to do that and further make sure that your planned meeting with the Mayor next month coincides at the right time with our approach to the State for the tax exemption. We will also prepare appropriate key messages for the Becker meeting.

On Jan. 4, 2008, Brewer wrote to Brian Anderson, Jane Hutterly and Kelly Semrau:

Mike reports that this has gone to the Governor's desk for signature, probably within the week. We do not expect any press announcement about this. After this is signed, we can let the Mayor know and he can begin the TIF process. That is a public process and it is my understanding there would be publicity surrounding the TIF and the City's plans for Uptown development. We will need to work with the Mayor on those announcements and any announcements about SCJ contributions.

Brian Anderson wrote to Brewer and DeGuelle on Jan. 10, 2008:

I believe that these are two next steps, first a meeting with the city assessor to have the FLW properties taken off the tax roll and to inform him that Fortaleza Hall is not taxable and second, inform the city that we are ready to create a spot TIF to benefit Uptown.

Becker appeared to carefully consider the value of Project Honor in working out plans for the TIF district and the tax exemption, according to emails obtained from the city of Racine. He wrote to Anderson on Aug. 27, 2008:

Brian, just to follow up on our conversation a few days ago. It is my understand that the assessment of the property will be a minimum of $20,000,000. Please confirm if I have this right.

Anderson replied Sept. 2, 2008:

Gary, we have estimated that the construction cost of the taxable portion will be in the area of $20 million, however the actual assessment is determined by the state. We have not stated any amount as a minimum but we will not challenge the assessment that the state assesses.

$500,000 for Uptown

SC Johnson originally wanted to pay the city $30,000 a year for 10 years for Uptown, according to an email. But a series of emails showed the total increase to $500,000 and shifted from a 10-year payout to a five-year payout. The shorter time frame was crafted to maximize the benefit during Becker's second term in office.

Here's Anderson in the May 17, 2007, email (the "he" refers to Gary Becker):

I would go $30,000-over 10 years that is $300,000, which is what he would receive in 20 years under the current tax bill. This grant can be used for what he would like and doesn't go against the general levy or budget.

SC Johnson Chairman and CEO Fisk Johnson wrote June 7, 2007 to Hutterly:

I wonder if we have a better chance of getting the mayor's support if we agree to $100,000 over 5 years versus $50,000 over ten years (since it will be more impactful to his term in office). I leave that to you to decide.

SCJ has yet to make its first payment on the five-year, $500,000 plan, according to city emails. That fact seemed to concern Racine Development Director Brian O'Connell in an email he wrote to Brian Anderson on April 16:

The flyer for the next speaker at the Rondelle came in an SCJ envelope. I thought it might be the check for the Uptown grant. But it wasn't. Everything still OK with that?

Anderson replied April 17:

Everything is OK, but some here want to meet with you and the new mayor after the election to make sure everyone is still on the same page. It is harder with some things here than at City Hall. The money is still committed but probably won't get to you until end of June, first of July. Sorry that this has to be so complicated.

SC Johnson reviewed the TIF budget and raised questions about some of the items planned for Uptown. In an email to O'Connell on Nov. 13, 2008, Anderson asked to see marketing materials planned for the TID and raised questions about the city's budget for the district. Anderson wrote to O'Connell:

Not sure why $50,000 would be needed for the Island at 14th as it already exists and it would seem that to put plantings into the island would not cost $50,000, but maybe I am missing something.

O'Connell replied on March 2, 2009:

The Uptown Association has discussed having an "identity feature" (fountain? planter/garden?) at the island. I like the idea but it is very vague at the moment.

The marketing item is for targeted marketing of the Uptown buildings to "artists." Advertising in specialized publications is one use. This is an item that could benefit from your insights and the insights of any SCJ marketing wizards.

Failed projects suck up local tax dollars

Caledonia Village President Ron Coutts recently talked about being leery of investing village money into projects with the hope of attracting businesses, or one big business, to the village. The city of Racine's TID situation is the reason why Coutts is right to be cautious.

Before we get to why, let's define TID. It stands for tax incremental district, which doesn't explain much. TIDs are important to local governments because (when done well) they can help spur development (ie. new construction, new businesses, new jobs, new homes, etc.) TIDs are used to pay for all of the stuff you need to build a development.

Roads, water lines, electrical lanes, stormwater drainage and all that other stuff we don't like to think about too much. Somebody has to pay for all of that work, it can run into the millions of dollars to get land ready for the fun stuff (like an office building or condo tower). The TID allows a city to say, "We'll pay for all of the infrastructure stuff, and then we'll pay ourselves back with property taxes on the new development."

It's a really good deal for the local government, because they get to keep all of the taxes on the new development. They don't have to share with the school district, the state, Gateway Technical College, or even their own budget. All of the taxes go into paying for the roads and pipes needed to make the development possible.

If all works well, a TID is created, development occurs, the TID is paid off and then everyone (schools, the state, the county, Gateway, etc.) get paid. But that's a big "if."

All of this is a big lead into news that came out of the city's Joint Review Board meeting today. Yes, that's a pretty bland name, and yes, not much happens with this board. It's largely an oversight committee comprised of the people who run the finances for local governments.

In the 1980s, Racine set up six TIDs (maybe more, but we're only talking about six for this article). Three of these TIDs have been successful. One was used to redevelop the city's shoreline from Downtown north over the Root River. This has led to a $48.2 million increase in property value since 1983 and annual payout (a tax increment) of $1.064 million. Not bad.

Another TID created in 1989 led to the creation of Gaslight Pointe, complete with the Chancery and all of those nice condos. That's led to $43.6 million in additional property value and annual tax payment of $962,00o. Again, not bad.

And the last of the good news: the TID created in 1985 that led to the Olsen Industrial Park between Durand Avenue and Chicory Road on the city's south side. That's led to $19.3 million in new property value and $425,000 in annual tax payments.

Brian O'Connell, director of development for the city, referrred to these TIDs as the donors. They made enough money to give away annual payments to a group called the "laggards." This is the bad news portion of the story.

Three TIDs created in the 1980s have not fared well. All are losing money, and worse, all of them are preventing the good TIDs from paying taxes to our schools and government services. Here's why: the bad TIDs still owe money. The city borrowed millions to setup these areas for development, but they haven't paid off. Now, the city either has to pay for the debt out of its general fund (it would be over a million dollars per year), or it has to take money from the successful TIDs (the donors) and pay down the debt.

Let's look at the failed projects:

1. The Shoop Parking Ramp. The city invested $2.06 million to build the ramp in 1983, but it's property value has only increased by $2.98 million in 25 years. The city needs to borrow about $120,000 from its good TIDs to pay off this debt.

2. The Lake Avenue Parking Ramp. The city spent $3.9 million in 1993 to build the ramp and repair streets and sewer and water mains. Its led to $19.7 million in increased property value, but it's short of expectations and the TID still needs money. The city will be paying this project off through 2011. It's worth noting here that the state's revenue limits hurt these projects. When the Legislature limited how much local governments could raise taxes, it limited how much money the TIDs could raise. That's hurt their botttomline.

3. Case. The city invested $10.1 million in 1990 along State Street in preparation for Case's expansion. When this was approved, the company had bought International Harvester and was going strong. But the bottom fell out, the need for a new office building disappeared, and Racine is still paying for the development (which, incidentally, is exactly what Coutts is worried about with rumors of CNH looking at building in Caledonia).

So what does all of this means? Not much, really. O'Connell noted at the beginning of the Joint Review Board meeting that the committee's actions were largely housekeeping. These TIDs were set in motion decades ago, and the report is simply the result of past decision.

But it's an important cautionary tale for governments interested in TIDs. The districts often span such large periods of time that no planner or elected official could anticipate the changes that will influence future development.

The big loser in all of this is Racine Unified and the other local governments that survive year-to-year on property taxes. New development should mean additional revenue for schools, the technical college and local programs. But TIDs claim all of the money for additional development for decades.

The city's shoreline TID will start paying local governments in 2010. The other two donors will begin paying in 2012, and the three laggards will return to the tax rolls in 2014. It'd be interesting to calculate the city's rate of return on their TID investments in the 1980s and '90s. It's questionable as to whether they have really paid off.