Yesterday the great tax-increment finance debate returned to City Hall, as city council’s progressive caucus tried to get a bill that would return surplus TIF funds to Chicago Public Schools out of the rules committee. It failed, as the specter of Council Wars was somewhat ludicrously invoked by Pat O’Connor. (They have a long ways to go to get there.)
The attempt to claw back TIF funds would be a significant reform to a program that’s collected $1.7 billion in the funds, coming in at a rate of about $500 million per year. But there’s a bigger question: does the TIF program actually work?
The critical question about tax-increment financing is simple: “but-for.” If neighborhood, employment, and economic development would not happen but for the existence of TIF districts, proponents have a very good case.
Obviously specific projects, paid for by TIFs, would not happen but for TIF financing. Without $6 million in TIF money, MillerCoors probably doesn’t move into 250 South Wacker. But companies move to Chicago without TIF money; stores and restaurants are opened; buildings are built. Does that happen more or less without TIF financing?
But for is a difficult calculation. So it doesn’t happen very often. But T. William Lester, an assistant professor at UNC-Chapel Hill who studied under TIF maven
Laura Rachael Weber at the University of Illinois-Chicago, designed a but-for test for Chicago, for an article in Urban Studies.
The verdict? TIFs fail the but-for test on a number of levels. That doesn’t mean that individual TIFs don’t create jobs, but “Chicago’s use of TIF has not resulted in positive net employment benefits for city residents.”
Lester chose Chicago not just because he studied here, but because of the city’s extreme dependence on TIFs, famously described by Mayor Daley as “the only game in town.”
Here’s (a very simplified version of) how Lester’s methodology works: He looked at TIF districts from 1990-2006, broken down by time-series and census block: when TIF money was spent in TIF districts, since it comes in and is spent over time, and where. Second, Lester needed a control group—the parts of the city that aren’t TIF’d, compared to the parts that are, factoring in demographics and measures of neighborhood distress to prevent selection bias and to compare apples to something statistically resembling apples.
What came out the other end?
Overall, the estimated impact of TIF designation on total employment is very close to zero (-0.001 unweighted and -0.003 weighted) with relatively small standard errors. To put this finding in context, while the estimates are very close to zero and insignificant, the statistical power of the model implies a level of precision great enough to rule out anything larger than a 2.7 per cent increase in employment within TIF block groups at the 90 per cent level.
For all building activity, the effect was slightly positive but “not significant.” And for the ultimate goal of TIFs: “Interestingly, commercial building permit activity—which is the category that is most likely to be effected by TIF—is very close to zero and insignificant.”
“If you’re actually thinking about some of the critiques of TIF, of how TIF actually got used and for what purposes, some of it was used to build housing, which isn’t a big job creation thing. A lot of it was used to give to developers to do land-cost writedowns and the development would have occurred anyway,” Lester says. “So I’m not super surprised there’s not a big employment effect.
Yet aldermen lined up yesterday to sing the praises of TIFs, as a method of reform was locked down in its rules-committee cage. What’s the appeal? It’s the intersection of new-school entrepreneurial city financing and old-school Chicago ward politics, Lester theorizes: “There’s a political-economy explanation for the proliferation of TIFs, which is that each alderman can have control over it. Which is the style of governance that Chicago’s used to.”
TIFs are geographically based. So are aldermen. When the money comes out of a TIF instead of more broadly out of the city coffers, an alderman can attach his name to it. “It’s ribbon-cutting money,” Lester says.
And in turn, it gives the mayor more power, too. The Reader’s Ben Joravsky explained how this works in 2009:
By moving more necessary expenditures into the secret budget that he ultimately controls, the mayor also wields even more power over every public entity, from the City Council to the public schools to the Park District. At various times at least half a dozen aldermen have told us that mayoral aides pressure them on key votes—such as the ordinances for funding the Olympics or moving the Children’s Museum to Grant Park—by either promising to give their wards more TIF dollars or threatening to take TIF dollars away.
And a lot of the basic work of government flows through the TIF program. By Lester’s calculations, in 2011, 42 percent of TIF expenditures went to traditional economic development; 38 percent to public facilities (“traditional categories of public capital expenditure, including upgrades to public schools, parks and transit facilities"); and 16 percent to infrastructure (“streetscaping, lighting, sewer improvements and any other infrastructure improvement").
It pits aldermen against each other, while strengthing the hold of TIF as well. “Because everybody has their little pot of TIF money that they don’t want to get rid of, even those aldermen on, say the South Side—where there’s definitely a need for development as well as more investment in schools—it makes it harder to create coalitions to reform TIFs in a progressive way,” Lester says. “Why would I want to lose that pot of money I can use in a ribbon-cutting?”