The City of Chicago tax increment financing (TIF) program may be heading toward some big changes as longtime Mayor Richard Daley leaves office. We review the basics of TIF and its problems.
The City of Chicago's tax increment financing (TIF) program continues to make news. Even Rahm Emanuel, who has resigned from his post as White House Chief of Staff to run for mayor here, appears to be talking about the program, ostensibly getting a few pointers about how the system operates from TIF expert U.S. Rep. Mike Quigley.
The TIF program may or may not be skidding toward a few big changes. Lame duck Mayor Richard Daley is said to be considering using TIF dollars to staunch the gaping, $655 million shortfall in the city's 2011 budget, the last of his tenure, and a few lawmakers in Springfield are talking about and introducing TIF reform bills that would fundamentally change how the districts work in Chicago. At Progress Illinois, we've tracked the TIF controversy and even offered a few suggestions about how to get creative with Daley's cash cow. The Chicago Reader, of course, has investigated the program at a granular level for years.
On Tuesday night, the Better Government Association hosted a panel discussion about tax increment financing that featured the Reader's Ben Joravsky, University of Illinois-Chicago urban planning and policy professor Rachel Weber, and Illinois TIF Association executive director Thomas Henderson. Dozens of people packed a room at Depaul University for the event. With the volume of press and political interest about TIF seemingly at a peak -- Joravsky's latest TIF column is even titled "The Hot New Issue" -- we thought it was an opportune moment to step back and revisit the basics of TIF and the problems that dog it here in Chicago.
How TIF Works In Abstract, U.S.A.
Tax increment financing programs are meant to spur development in blighted neighborhoods that wouldn't see investment and economic growth if the TIF district, and the subsidies it provides, did not exist. Here's Weber defining tax increment financing and discussing how TIF programs are supposed to work in the abstract:
To summarize: At the moment a municipality creates a TIF district, the sum of all the properties and the property taxes they represent within the district is tallied up and frozen. As economic development increases within the district, any new property taxes generated above the frozen rate are kept in a special account not subject to normal municipal budgetary appropriations or claims by other taxing bodies. TIFs pay for everything from infrastructure to direct grants to developers.
TIF districts aren't new, Weber told the crowd; they were first introduced in the mid-1950s, when cities in California began using them as a way to match federal urban renewal dollars then flowing into Golden State cities. Illinois got into the game in 1977, passing a state TIF bill that allowed municipalities to create the districts (that now blanket around one-third of Chicago). TIF districts were seen then, according to Weber, as a way to "pin down ever elusive, increasingly mobile businesses and manufacturers, in particular."
The Two Main Problems With TIF
When you leave the City of Abstract and visit the City of Chicago, TIF starts to get a bit more complicated. Indeed, the money generated from the obscure tool of public administration flows into a slush fund that can be controlled by an autocratic mayor and used to buttress his political power.
Ben Joravsky has done more than any other reporter in Chicago to point out the inconsistencies and problems with how TIFs are operated in the city. (The Reader's TIF Archive is here.) At the BGA panel, Joravsky identified two main problems with tax increment financing in Chicago. Watch:
Blight And Downtown
As Joravsky notes above, one of the biggest problems with Chicago's TIF system is that establishing an area as blighted has become essentially meaningless. The Illinois TIF Statute lays out in pretty specific terms what type of area should qualify. Places that have some degree of residential and commercial development (there are separate rules for entirely vacant areas or for "conservation" areas) must exhibit at least five of the following factors, abbreviated from their full definitions in the state TIF statute:
Dilapidation; Obsolescence; Deterioration; Presence of structures below minimum code standards; Illegal use of individual structures; Excessive vacancies; Lack of ventilation, light, or sanitary facilities; Inadequate utilities; Excessive land coverage and overcrowding of structures and community facilities; Deleterious land use or layout; Environmental clean‑up; Lack of community planning.
A final qualifying factor is when a potentially blighted area is essentially experiencing slow growth, lagging behind other parts of the city.
And yet downtown Chicago and the residential areas adjacent to it are covered in tax increment financing districts. What Joravsky calls the biggest "debacle TIF" in Chicago is here -- the LaSalle Central TIF, which zig-zags over the western half of the Loop. LaSalle Central has provided the taxpayer subisidies for Miller-Coors, Willis Tower, and United Airlines -- some of the most egregious examples of corporate welfare in recent Chicago history. LaSalle Central became the Daley Administration's go-to TIF fund for Loop projects after the Central Loop TIF died in 2008.
In the clip below from the event Tuesday night, Joravksy talks about the problems with the LaSalle Central TIF, the downtown business community's love of the tool, and the downtown TIF districts affect on the rest of the city:
What about the Near South TIF, which covers an area south of the Loop from approximately Congress Drive to Cermak Road? It's one of the richest in Chicago. Not so long ago, the area it covers -- the South Loop -- was largely devoid of development. Today, the growth of a dense residential and commercial area there is seen as one of the Daley administration's biggest accomplishments. "What two decades ago was an urban desert, best known for its Skid Row, now is a place of glittering condo towers, bustling stores and restaurants. The population -- including Rich and Maggie Daley -- has tripled since 1990 while income has more than quadrupled," Crain's reported this summer.
But Weber cautioned not to overestimate the Near South TIF's power in generating that growth, especially in comparison to other policies the city had undertaken to open up the area to development, like installing basic infrastructure and changing the city's land use planning and zoning codes. And the big factor in the South Loop, she said, was more global than local:
Part of the point here is that even if Chicago closed all its TIF districts in or near the Loop, it still would have plenty of options to incentivize projects.
To be sure, it's likely there are projects in the greater downtown area, like the vacant old post office, that might truly need TIF help. Weber herself said that TIF money can help historic preservation projects that face financing gaps.
But many of the downtown and near-downtown TIF districts seem extraneous at this point. The South Loop is largely developed. The Wacker Drive area covered by the LaSalle Central district is a busy employment hub.
One of the big questions Chicago's next mayor should have to answer is if he or she thinks that the TIF-covered parts of the city's central business district and near-downtown residential areas should still be considered "blighted" and if the districts covering those communities should now be closed.
The answer from some sectors of the Loop business community probably will be a resounding no. Many business advocates want more TIF bucks, in fact. Earlier this year, business advocates even pushed for a new East Loop TIF district. It was a proposal that 42nd Ward Ald. Brendan Reilly rejected outright.
TIFs And Political Culture
During his two-decade reign, Mayor Daley amassed tremendous power and ruled with an autocratic wave of the hand. He controls the CTA and housing authority, for example, and appointed 19 members to the City Council.
In 1995, Daley took over the Board of Education and Chicago Public Schools, the taxing body that is due the bulk of property taxes generated by city homeowners and therefore has the most to lose when those dollars flow into city controlled TIF districts.
Which begs a question: why doesn't CPS battle the City Hall for more control of the TIF dollars? According to the city's FY 2009 budget document, more than 53 percent of the local property tax take is earmarked for CPS. School district and muncipality TIF fights aren't uncommon, after all -- one's under way out in Oak Park right now. Part of that question lies with the Daley's power and the political culture he inculcated during his reign here. Here's Weber taking about this issue and CPS:
It's a point that Joravsky has made time and again, as well.
Ultimately, tax increment financing is a tool -- watch Weber describe it the abstract again -- that is shaped by local political cultures. TIFs worked well for Mayor Daley, given his dictatorial style. In other cities, residents have established neighborhood review panels over TIF districts, according to Weber, and there are examples of hyper-local advisory councils in Chicago too (yes, even here). Such efforts locally could prove the beachhead for broader TIF reform.
Mayor Daley will soon roll out his last city budget. It's likely that the city's TIF reserves (which total over $1 billion) will help plug the budget shortfall. While using TIF funds in a regular budget would mark something of milestone for this mayor, the problems with the program run deeper than any one-year budget fix. Broader TIF reform -- be it removing CPS from the TIF program going forward or closing down districts in prosperous areas -- is something residents, the press, and elected officials must not lose sight of. The next mayor shouldn't get to run the city's TIF program as Daley did for so long.