Five Ways to Fix Chicago’s TIF Mess

How to reform the city’s sprawling economic-development scheme so schools and aldermen don’t have to fight for scraps.

A girl walks by an empty lot at 4703 West Madison Street in Chicago's South Austin neighborhood. TIF money and city land—a total of $1.7 million in City Hall commitments—was earmarked for a badly needed Save-A-Lot grocery store, which was to open here in June.   Alex Garcia/Chicago Tribune

Four months ago, aldermen Robert Fioretti and Scott Waguespack introduced an ordinance that would force the city to return surplus money in the city’s tax-increment finance districts—a fungible percentage of the $1.7 billion spread across the city—back to Chicago Public Schools. Thirty co-sponsors signed on, but it was sent to the limbo of the Rules Committee.

It would not have been a great deal of money, beginning at a negotiating position of about $10 million. But even that attempt to claw back a fraction of TIF money failed, as a mere 11 aldermen voted to drag the ordinance out of the Rules Committee for a vote.

This upset a lot of critics, but even the city’s most dogged TIF-watcher, Ben Joravsky of the Reader, considered it progress. And, though it failed, it’s not the first progress that’s been made to re-evaluate the economic development program, famously called “the only game in town” by the former Mare. The pressure of reporters (most prominently Joravsky and his colleague Mick Dumke) and politicians (most prominently former county commissioner and current congressman Mike Quigley, and Cook County clerk David Orr) has exposed more information about the program, from its uses to research on its effectiveness, and put it in the public eye with open data and tax-bill line items.

(Tax-increment finance districts cap the amount of property taxes within a given area, that go into the general fund and the city’s taxing bodies, like CPS. For the next 23 years, everything above that is considered “increment,” since it’s above the amount of property taxes that district was taking in. That increment has to be invested back into the TIF, or ported into a neighboring district If you think about what, say, the Loop was like in the 1980s, it’s clear that the “increment” can become a huge number if a neighborhood booms.)

And TIFs now consume a wide swath of the city and a big part of its revenues—$450 to $500 million a year, over the past few years. TIF money has also encroached on what we think of as basic functions of government like infrastructure and education, as specfic economic development makes up a bare plurality of TIF spending, leading to what UIC professor Rachel Weber calls a “magic pot” of money that covers all sorts of functions.

And this growth of TIF funding into traditional government business creates difficulties for aldermen. Ameya Pawar, a proponent of TIF reform, raised eyebrows by comparing the effort to bring the ordinance out of the Rules Committee to a Tea Party-like litmus test, argues that the ordinance as-is would wipe out projects in his district like structural renovations to Sulzer Library and Chappell Coonley Elementary. Instead, Pawar supports codifying a surplus policy and working over time to reform the program. “We should have a citywide capital plan. . . . If you had a citywide pot of money, it would be more equitable,” Pawar says. “But it’s not a one to three year effort.”

Weber supports the effort to claw back a TIF surplus—“desperate times call for desperate measures”—but also raises the question of whether such an effort is counterproductive in the long run.

“In some ways it’s a fix that comes out of our over-dependence on TIF. I would argue that, before we start basing all these public finance decisions on the surplus, we should take a harder look at why we have this program and why there’s so much money in the TIF accounts. And if we have to use the scraps and the extra and the surfeit, at the end it calls into question why do we even have to do that. I guess that’s why I don’t see it as being a good long-term solution for a problem that was created by the program itself, or partly because of it.”

As the surplus ordinance demonstrates, TIFs pit alderman against alderman and reformer against reformer—a collective action problem, in Weber’s words, where City Council as a whole would be better off with a smaller, more goal-oriented program but aldermen as individuals are better off clawing for however much money they can get rather than seeing current projects vanish.

And by the looks of things, TIFs aren’t going anywhere anytime soon. If, as Pawar suggests, the only option is to reform the program over the long term, here are five fixes.

1. Restrict how much of the city can be within a TIF district.

“I think there are way too many TIFs,” says Mike Quigley, the U.S. representative for Illinois’s 5th District, former Cook County commissioner, and author of the 2007 report “A Tale of Two Cities: Reinventing Tax Increment Financing.” “A lot have outlived their usefulness.”

Some jurisdictions limit how much of a municipality’s property tax value can be contained within TIF districts—ten percent in Georgia, five percent in Maine. Want to create a new TIF district? You have to cancel an old one to get within the limit. “It’s possible that that kind of restriction would bring more of a focus both to the focus on the TIFs that we already have, and decommission those that aren’t particularly successful,” says Weber.

2. Limit TIFs to areas that need them, and where they work best.

T. William Lester, a professor at the University of North Carolina-Chapel Hill who studied under Weber at UIC, suggests a model based on North Carolina’s tiered approach to economic subsidies. “With one of their projects, they’ll set the level of the incentive they give with the poverty rate of the county. So they have different counties . . . and they call them Tier One, Tier Two, or Tier Three,” Lester days. “Tier Three are the wealthiest, like Raleigh and Charlotte; Tier One is eastern North Carolina, where the poverty rates in the 20s. So you get more money as a firm moving to North Carolina if you move to a Tier One county. So that would be some way to reform TIFs, is to say, look, if you’re in the TIF that’s in neighborhoods that haven’t experienced much development in the last boom cycle. . . . you’re able to use TIF. There’s a built-in redistribution policy.”

“Blighted” neighborhoods, the original target for TIF financing, aren’t necessarily the best targets for TIF financing, though. Tax-increment financing comes from the “increment,” which gets bigger as a neighborhood thrives. If a neighborhood is struggling, its increment doesn’t grow, and not much money is driven back into the district. On the other hand, booming neighborhoods don’t really need the help. “It’s the areas that are on the border of the blighted areas, and also on areas that are thriving,” Weber says, “those are the areas where TIF can work its magic.”

3. Use it or lose it.

One of the problems with fighting for a TIF surplus is actually defining what a surplus is—the problem Pawar ran up against, and what pits activists against the city every time the idea of declaring a surplus is floated. And ultimately, it’s the city’s call.

Lester suggests making the city put its money where its mouth is: “Maybe even a built-in law that, in the TIF, if the money is not spent after five years, it automatically goes back to the taxing districts.” That keeps money from being vaguely committed to funds—either it’s put to work or it’s pushed back to the taxing districts.

Another way to return money from TIF districts is to “release” individual properties from the district once they’re developed. As Weber has written, this is what Oak Park does: Once TIF money builds a new project, it goes back into the general tax rolls, and that TIF-created development starts to return money to schools, parks, and other taxing bodies.

4. Set strict goals for TIF districts and the funding within them.

The broader the uses of TIF money, the more incentive there is to hang onto it. “There’s an incentive for the city to over-TIF, because this is the way you do planning and development. And then there’s an incentive to hold on to that surplus in that event . . . they’re always going to be planning things,” says Weber.

Lester suggests an alternative: “The TIFs have to have a redevelopment agreement up front, and the types of jobs that are created, and the type of community benefits that are generated all fit within that plan. You have to say, ‘okay, we’re going to do this project, and the project fulfills the goals of the strategic plan,’ and you have to have the developer in hand.”

Like many of these ideas, it’s included in the city’s 2011 TIF Report (Weber was on the task force that produced it). But Quigley would like to see it taken to a higher level: ”The General Assembly needs to pass legislation that protects other taxing bodies and put some teeth in the but/for clause.”

5. Let CPS opt out, in whole or in part.

Some states let school districts decide whether or not they want to participate in a given TIF district; some states prevent the district’s share from going to the TIF district; and Texas allows the district to decide how much of its funding goes to a district.

Weber acknowledges that such legislation could create a free-rider problem, but would also give the school system more leverage, making it an active participant in the TIF system. “Often, the municipality has to offer something to the school districts, where they come up with something like, ‘instead of the duration of this TIF district being 25 years, it’ll be 15 years instead,’ as a compromise,” Weber says. “There’s a little more horse trading from the get-go, as opposed to this sort of post-facto stuff, which these surplus deals are.”

 

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