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Mayor Emanuel Talks (A Little Bit) About TIFs

The mayor’s Tax Increment Financing Task Force issues its final report just before the new mayor holds two budget townhalls. There’s actually some straight talk in it, but no calls for radical change.

One of the things I was most looking forward to in the new mayor’s first 100 days was some indication of how he would treat the enormous TIF system he inherited from Mayor Daley, and the similarly enormous amount of unspent dollars it created:

By the end of 2010, the city had $868 million in unspent TIF funds, although Daley declared about $200 million as “surplus,” which allowed that money to be distributed to cash-strapped governments, including the Chicago Public Schools.

As Ben Joravsky pointed out in 2010, the city’s TIF districts, covering about 30 percent of Chicago—40 percent of which were created from 1998 through 2002—have generated a vast surplus while the city itself generates deep deficits:

But now the city’s broke—$650 million in the hole this year. Where can the mayor find the money to balance the books? He can’t spend the $1 billion he got for selling the parking meters because he pretty much spent all that money last fall.

So we come to the $700 million sitting in TIF reserves. How, you ask, did the TIF fund accumulate so much money?

Joravsky has been reporting on TIFs for years, but the collapse of the city’s finances in the wake of the financial crisis served to highlight the program’s bursting coffers, and the system became a significant issue during the mayoral election. So back in May, Mayor Emanuel assembled a Tax Increment Financing Task Force (TIFTF?), which issued its final report today (PDF). If it’s any indication, any changes to the TIF system will be gradual, focusing mainly on establishing performance metrics and making the information about it more transparent.

To evaluate and compare district performance consistently, the City should track performance against its specific TIF economic development goals (jobs, private investment, EAV growth) and community development goals (local priorities, housing, elimination of blight, neighborhood anchors). In addition, every district should be measured according to a set of metrics that cascade down from the aggregate level.

But the report does offer some respectable straight talk (emphasis mine), such as:

Since 1983, as part of their RDA commitments with the City, private developers committed to creating 43,639 permanent jobs in conjunction with TIF-funded projects, according to the City’s Department of Housing and Economic Development (DHED). Actual jobs created are not tracked beyond the period of payment disbursement, and therefore are not known.

No, really: literally not tracked. So better data collection and performance metrics will be an improvement, though it’s going to cost. Right now 2.7 percent of TIF expenditures go to administrative costs; the report recommends that be hiked by an additional 2 percent for “increased transparency and reporting, implementation of long-term monitoring, more extensive community outreach, and more detailed district planning.”

And we finally get an admission of the obvious:

Schools, parks, and other overlapping taxing districts may collect the same amount of taxes as they would without TIF districts – and in fact benefit from the public projects that TIF helps to fund – but the existence of TIF districts increases the individual tax burden on property owners both inside and outside of TIF districts. While all property taxpayers, both in the City of Chicago and those outside the City paying taxes to the same overlapping districts (Cook County, Cook County Forest Preserve, Metropolitan Water Reclamation District), have higher property tax rates as a result of TIF, the City actually collects a lesser amount for the benefit of its general corporate fund—if one assumes that in the absence of TIF, the City would not directly levy additional dollars to fund economic development projects.

It isn’t the first time public servants have so directly stated the facts so plainly, but the opacity of the TIF system has long been a problem. As Joravsky wrote in 2007, when Cook County clerk David Orr was making the above argument:

As costs rise while revenue remains fixed, the schools, parks, county, etc, have to raise their tax rates to compensate for the money going into the TIFs. From Daley’s standpoint, the beauty of the program is that other taxing bodies do the heavy lifting while he controls the cash. And because TIF funds aren’t included in the city’s annual budget or broken down on tax bills, he can act like they don’t exist. Last year Daley stated in his annual budget address that he was levying about $720 million in property taxes. In fact, as the new figures show, the city extracted more than $1.2 billion.

But the report doesn’t go so far as to panic about it. Instead, it concludes:

This indirect [Ed. note: wait, what?] cost of TIF to all the taxpayers of Chicago requires that it be used selectively and with the appropriate safeguards to ensure the highest return on their investment.

And it goes on to argue that the city could get even more creative with the fungibility of TIFs beyond just porting (moving TIF dollars from one district to a contiguous district, like tax tag).

Pool tax increment from multiple TIF districts to support programs with a city-wide benefit (such as those that address a particular problem, like lack of affordable housing or food deserts.)

Pay redevelopment project costs across all TIF districts. This practice could have the effect of spreading TIF costs and giving access to more resources to districts in which the increment has not yet accrued sufficiently to use toward development incentives.

Create a venture fund from TIF increment to make funds available for businesses throughout the city, not tied to any particular geographic location. All projects would still need to meet the goals related to jobs and economic development, set for all proposed TIF projects. Such a venture fund could be structured to enable the City to reap economic benefits when supported businesses grow and succeed.

Allow broader use of porting. For example, one approach could be “Robin Hood” porting, which allows a city to transfer TIF funds from a district that has a surplus to a district where less-than-average increment has been generated. Dallas offers a form of Robin Hood porting through its transit-oriented development TIF program.

Last year there was blowback from the city council about porting, so making TIF money even more flexible might make aldermanic hair stand on end, not to mention create turf wars.

But you could look at it another way: if TIFs are intractable—and they do cover a third of the city—maybe we’re headed towards the Borgesian TIF, one giant taxing body that does things like build schools and affordable housing. Kind of like, you know, a city.

If you want to weigh in on the city’s financial crisis, the mayor is holding two town hall meetings, tonight and Wednesday. Or just watch the inspirational video:

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