PI Original Josh Kalven Thursday July 29th, 2010, 1:47pm

Daley's Billion-Dollar TIF Surplus Is Not Untouchable

As was the case in Chicago at the end of 2008, Mayor Daley closed last year's books with over $1 billion in unspent tax increment financing funds.  We summarize some of the ways that money could be redirected to cash-strapped taxing bodies, such as the city's public schools.

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Buried in Fran Spielman's new Sun-Times article on the City of Chicago's dwindling cash reserves is an important nugget:

The audits [of city finances conducted by Deloitte & Touche] show that Chicago’s 159 tax-increment financing districts had a collective balance of $1.2 billion on Dec. 31. Only $37.1 million of that amount is reserved. The rest remains uncommitted.

Within the boundaries of a TIF, property taxes are frozen at their current levels for 23 years. When the value of property increases, the added tax revenue is set aside for infrastructure improvements needed to lure businesses to the area and subsidies for those that agree to come.

Over the years, TIFs have become Daley's favorite — and he says only — economic development tool, diverting tens of millions of dollars from the city, Chicago Public Schools and other local taxing districts.

To give some historical context, Daley ended 2008 with $1.4 billion in leftover tax increment financing (TIF) funds.  We've now learned from the Deloitte & Touche audit that the 2009 surplus amounted to about $1.2 billion. What this means is that the vast network of 159 TIF districts continues to siphon off more tax revenue than it can spend each year on public improvement projects. 

Meanwhile, the local taxing bodies that would otherwise be absorbing those property tax dollars -- such as the Chicago Board of Education and the city itself -- continue to suffer under massive deficits.  Therefore, it's time to revisit a question that the Daley administration has dismissed again and again: How can the TIF system be reformed or reined in to alleviate the ongoing budget stress?

Last summer, we laid out three different approaches to freeing up TIF dollars for general fund use.  Here's a quick recap:

Let my surplus go: Other municipalities in Illinois have returned surplus TIF funds to local taxing bodies, rather than hoarded them year over year.  There is no reason Chicago can't do the same right away.  In fact, in early 2009, State Sen. Mike Noland (D-Springfield) proposed legislation requiring "that annual revenues in excess of the budget for a redevelopment project area must be returned to the affected taxing districts."  (It never made it out of committee.)

Retiring elderly TIF districts: While TIF districts have a lifespan of 23-35 years under Illinois law, municipalities can retire them early if they have served their original purpose, as the town of Chesterfield did in 2008.  Once again, there is nothing keeping the Daley administration from conducting a thorough review of its older districts and expiring some of them ahead of schedule.

Indexing the TIF tax base:  When a new TIF district is created, the property tax base is frozen until the district expires, meaning that local taxing bodies can expect to receive the same amount of tax revenue from the properties within that district for the lifespan of the TIF.  Some other states with TIF laws on the books -- such as Massachusetts and California -- give the taxing bodies some relief by indexing the tax base to inflation.  Here's one area where Illinois lawmakers could take meaningful action.  If the TIF statute was changed to index that tax base to inflation -- as State Rep. Elizabeth Hernandez (D-Cicero) proposed doing in 2008 -- taxing bodies in Chicago would likely recoup about $100 million annually.

Since we published these ideas, a few other TIF reform proposals have surfaced in Chicago:

A one-year moratorium: In December 2009, Ald. Tom Allen (38th Ward) took to the council floor and proposed pausing the city's TIF system for one year as a way of redirecting some of that revenue back towards the city and other cash-strapped taxing bodies.  In pitching this idea, he noted that the TIF fund would obviously be replenished once the year was over.  Ald. Bob Fioretti (2nd Ward) -- who say $358 million in TIF dollars spent within his ward between 2004 and 2008 --  even rose to second the approach.  Read Allen's full remarks here.

Exempting the schools: The Raise Your Hand Coalition, a newly-formed group representing parents of Chicago Public Schools students, has entered the fray with an idea of their own: Exempt the Chicago Board of Education from having any of their property tax revenue siphoned off into TIF accounts.  The organizers believe that aldermen could make this happen by amending the ordinance that establishes each TIF district. 

In case your wondering how Chicago TIF funds would be allocated if released back into the general tax base, here’s a graph from the city’s FY 2009 budget document breaking down how property tax revenues are distributed:

Tomorrow, Mayor Daley will release his preliminary FY 2011 budget and at some point he will be questioned about the TIF system's drag on city finances.  Once again, he will attempt to portray his TIF piggy bank as a completely separate matter from the budget deficit.  But this is a myth, plain and simple.  As the above proposals show, there are many different ways both the City Council and the state legislature can incrementally rein in Daley's TIF empire. 

It will take an immense amount of political will.  But if there was ever a time, this is it.

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