Crystal Lake OKs 1% sales tax hike for Water’s Edge shoppers as developer incentive

The Crystal Lake City Council has agreed to increase the sales tax by 1% for those who shop at the Water’s Edge development’s upcoming commercial spaces.

By a 6-1 vote Tuesday, the City Council approved the creation of a Water’s Edge Business District – along with the additional 1% sales tax imposed on merchandise bought in its retail area – for a 23-year period. Shoppers in Crystal Lake already pay one of the highest overall sales taxes in McHenry County of 8.5%, including a 1.25% local sales tax.

Developers asked the city to create a Business District to help finance construction of the once blighted area, as construction starts up on the retail side of the Water’s Edge development along Route 14. This is the first Business District in Crystal Lake, Community Development Director Kathryn Cowlin said.

The setup means the Water’s Edge developer will be able to have certain expenses reimbursed with the revenue from the sales tax.

But Crystal Lake resident Don Kountz questioned the need for more public funding for the project, saying that the area is no longer blighted because rundown buildings on the site have already been removed.

“Everything that has been unsanitary or unsafe has been knocked down,” he said.

Kountz, who ran for a City Council seat in the 2023 election and for mayor in 2021, also said there are problems with the paperwork, citing undated documents and discrepancies in the PIN listings and the plot map.

The 30-acre project, located at the former Crystal Court shopping center on Route 14 adjacent to Three Oaks Recreation Area, started construction in 2023 and will eventually consist of more than 40,000 square feet of retail and restaurant spaces, open public areas and 260 units of housing.

Described as an “economic development tool‚" a Business District captures a sales tax from a defined area, and those funds can be used to pay for or reimburse eligible expenses within that defined area, according to city documents.

Some council members didn’t like adding another tax, but ultimately voted in approval of it with the idea the incentive will bring in high-quality retailers. Mayor Haig Haleblian said this will help draw in restaurants of a “higher caliber,” something that is a popular desire among residents.

“This is an elective tax, and if you decide you want to go dine there or shop there, whatever it may be, that’s on you,” Haleblian said. “From my perspective, it’s something that I don’t think anybody really likes, but I think it’s going to be necessary to complete this project.”

Council member Brett Hopkins voted no over concerns that the city needs to establish an exact criteria of what a high-quality retailer means to the city.

“I just want to make sure that before we agree with this, that we have all of our ducks in a row, and we can clearly articulate to any business/restaurant that’s coming in here what our expectations are,” Hopkins said.

The city first approved a redevelopment agreement in 2023 that included a component allowing the later establishment a business district for the commercial area of Water’s Edge. As part of the agreement, the developer, Heartland Real Estate Partners, also received a $14 million economic incentive package for reimbursement of eligible expenses, including $6 million for residential infrastructure, $6 million for commercial development and $2 million for commercial infrastructure.

Those reimbursements will come from a tax increment financing, or TIF, district established for the area in 2022. A TIF district works by earmarking newly accrued property taxes within a set area for economic development.

The Business District will help finance improvements such as building construction, which is not an eligible reimbursement for TIF funds, according to city documents. Other eligible reimbursements under the Business District include costs for studies and surveys, land acquisition, public site improvements, relocation and financing.

Total estimated cost for the entire Water’s Edge project is set at $23.5 million, according to city documents.