TIFs, Reforms, and Structural Deficits

Is Chicago ready for TIF reform? Perhaps it’s ready for some reasonable changes to the internal workings of the special taxing scheme, but who knows about the future of the city’s structural tax and budget problems.

Super Tax

 

Ben Joravsky laments regarding the Mayor’s new Tax Increment Financing Task Force report that “Chicago ain’t ready for TIF reform”:

And, yes, the mayor released the report yesterday at a well-choreographed press conference that won him lots of coverage—you have to admit the guy’s got a knack for public relations.

But the changes he’s enacting are mostly limited to providing more information about the program—after the money’s been spent. It won’t rectify the central flaws in this boondoggle in any real way.

Which reminded me of a quote that Fran Spielman flagged from Emanuel’s TIF press conference that, I think, is the tell (emphasis mine):

Under pressure from aldermen, Daley agreed last year to siphon $180 million in surplus TIF funds to balance his final budget and help the Chicago Public Schools do the same.

Emanuel has flatly rejected that strategy in favor of a $150 million school property tax hike.

“Those are, in my view, one-time fixes that don’t deal with the structural problem. My mission is to have an honest budget for the public — not one that papers over mistakes or structural problems and avoid you from dealing with reforms that are necessary,” the mayor said Monday.

But TIFs are a structural problem. If you don’t believe Joravsky, it practically says so in the task-force report:

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.

And TIFs themselves have structural problems:

Areas populated by high-rise, commercial buildings, even when they are in need of extensive redevelopment, will have greater potential for EAV [equalized assessed value] growth than a similarly sized area comprised of single-family residential properties. Therefore, a relatively small percentage increase in property values in a dense business district often creates substantially more increment than a relatively large percentage increase in other districts.

In English: if you put a TIF in a fancy office district and the values go up, say, one percent, that one percent represents a lot more money than it would in a residential neighborhood, because the property is expensive and there’s a lot more of it to tax.

Which means that the money pools in those neighborhoods. And neighborhoods where EAV growth has high potential are, arguably, less in need of city assistance for economic development. But because of the way TIFs work, it means those neighborhoods have more money available for economic development… and that big stream gets diverted from places the property tax money might otherwise go, causing property tax levies to rise. Or, as it says in the report:

New construction is exempt from the PTELL so taxes on any new construction that would have been built without TIF can be considered a revenue loss for the overlapping taxing jurisdictions.

Yes, the city would certainly use tax revenues for economic development in the absence of the TIF program. Yes, that would mean that taxes would be higher than if the city did not “directly levy additional dollars to fund economic development projects.” But TIFs are an oddly blunt tool that’s inflexible to work with—hence the substantial surpluses generated by it during the worst economy of my lifetime, not to mention the shrinking of the city’s population.

Some of the TIF, er, reforms proposed would make the system more flexible, such as the ability to divert TIF money to citywide projects. But that could be viewed as just making a slush fund a bit more slushy. The structural problems addressed by the TIF task force are largely ones internal to the program. How they’ll interact with the larger structural problems created by TIF’s loose fit within the city budget will bear close attention.

 

Photograph: Images_Of_Money (CC by 2.0)

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