Another TIF Controversy Flares Up in Chicago

New questions are surfacing about Chicago’s implementation of Tax Increment Financing (TIF) agreements.

An examination by Joseph Ferguson, the city’s Inspector General, claims that $3.7 million in cash contributions was funneled to selected non-profits from private concerns that were beneficiaries of TIF redevelopment deals. The IG report says that $915,000 was funneled to After School Matters, a non-profit founded by former Chicago First Lady Maggie Daley, the wife of ex Mayor Richard M. Daley.

Today, members of the BGA discussed the IG’s report and TIFs on radio and TV broadcasts.

The Inspector General says his report reveals there was a “lack of transparency and accountability in the City’s process of choosing specific non-profit organizations.” It adds that city officials did not have a system for supporting non-profits and instead determined arbitrarily which charities or groups would benefit from TIF-related contributions.

The fact that After School Matters was recipient of 59 percent of the available funds between 2000 and 2009 “undermines public confidence in whether the TIF process is being used appropriately,” according to the IG report.

This is the latest in a series of questions and concerns surrounding the implementation of Chicago-based TIFs. The districts are under fire from some community groups and leaders who are concerned that TIFs are being misused or abused and end up draining needed resources or tax receipts from neighborhood schools and projects.

Recently, Chicago Mayor Rahm Emanuel announced that his administration is exploring a number of TIF reforms.

To learn more about Tax Increment Financing (TIF) agreements, consult these infographics:

INFOGRAPHIC: How A TIF Works
INFOGRAPHIC: How A TIF Is Created

Chicago Inspector General Releases 63 ‘Budget Options,’ Proposes $3 Billion in Savings for 2012

Different year. Different administration. Same story: the city of Chicago has a fiscal mess to clean up.

To that end, Inspector General Joseph Ferguson releases a “Budget Options Report” meant to “support efforts to balance the budget by arming the public and City officials with context, basic data, and analysis needed to inform the tough choices ahead.”

The report includes some 63 options that would purportedly save upwards of $3 billion. Here are a few examples highlighted by the IG’s office:

• Reducing the ratio of managers to non-supervisory employees in City government to save more than $100,000,000 annually
• Eliminating all Tax Increment Financing Districts to increase tax revenues to the City’s general fund by an estimated $100 million annually
• Increasing the work week of all City employees to 40 hours to save approximately $40 million annually
• Implement Congestion Pricing for vehicular traffic that is estimated to generate an additional annual revenues of $235 million

Here’s the statement from the IG’s office:

September 26, 2011

Focused on meeting its mandate of promoting efficiency and effectiveness in City government, the City of Chicago Office of Inspector General (IGO) today released its annual report of Budget Options for the City.

The IGO’s Budget Options report for the 2012 budget provides a total of 44 separate, stand-alone options to cut spending. This year’s report also includes 19 possible revenue generating options, including new or restructured taxes, tolls, and fees. In total, the 63 options detailed in the report provide background for nearly $3 billion in possible savings or new revenue for the City. Each option includes a brief overview of how proponents and opponents might argue each option, as well as a new section that notes important questions and discussion topics for the public and decision makers.

“In last year’s report, we provided data and analysis explaining that Chicago’s budget was fundamentally broken” said Inspector General Joseph Ferguson. “One year later, the situation remains difficult. The new Administration has candidly acknowledged the fiscal mess it inherited and has publicly committed itself to fixing it. This report is meant to support efforts to balance the budget by arming the public and City officials with context, basic data, and analysis needed to inform the tough choices ahead.”

The list of options is not meant to be an exhaustive one, and the inclusion of any option in this report is not, and should not be, construed as an endorsement by the IGO. The IGO intends to use public feedback and official responses to the report in order to provide periodic updates and corrections to this year’s report.

>> To view the online version of the budget options, which will include updates, and post your comments on the options go here.

Hey, 2011 Candidates: Talking TIFs? Get it Right.

'Chicago, TIF by TIF' (www.averwymeren.com)

As the Chicago mayoral campaign heats up, we can expect to hear candidates talk of improving city life without raising taxes or cutting services.

Among the first to address this elusive prospect is mayoral hopeful Rahm Emanuel’s campaign, which suggests that one way to pay for the hiring of 250 new police officers is to tap the city’s stockpile of Tax Increment Finance (TIF) money.

Our initial reading of Emanuel’s plan is that it’s easier said than done because the Illinois law that created TIFs appears to bar the use of TIF proceeds for the hiring of police.

The proposal sparked our interest because the BGA pays close attention to the TIF issue, including sponsorship of an idea forum on TIFs at DePaul University in September.

The use of TIFs is clearly defined in the Illinois statute (65 ILCS 5). Administrative costs or general overhead cannot be paid for with TIF funds when the city would have incurred those costs anyway, according to the statute.

Protecting citizens is a primary goal of any municipality, and is a cost that would have been incurred without the creation of a TIF district. The statute goes on to define what TIF funds may be used for, and none of those include payroll for police officers.

How a TIF is created (BGA)

Basically, TIFs are economic redevelopment tools created by state statute. Cities can freeze property taxes at their current levels in blighted areas and funnel additional revenue into a fund set aside for public and private investment. Local taxing bodies, like schools, parks and libraries, continue to get the same tax revenue they did at the start of the TIF until it ends 21 years later. (click here to see our primer on what a TIF is, and how a TIF is created)

The city has used the vague language of the statute to its advantage, allowing the money to stockpile in the TIF funds instead of returning the surpluses to the schools, libraries, parks and other taxing bodies. According to a report released today by Cook County Clerk David Orr, since 1986 more than $4 billion has been collected from TIFs in Chicago—$519 million in this past year alone.

How a TIF works (BGA)

Politicians have increasingly been eyeing this money pile referred to by Orr as a “secretive slush fund” to pay for vital community services including education and crime prevention—services that exceed the original purpose and permissible use of the TIF.

Meeting those basic needs of everyday urban life is sparking talk of making changes to the TIF law that would allow for plowing TIF money back into public schools and other taxing bodies, like parks and libraries, located in TIF districts. Cook County Clerk David Orr is calling for a moratorium of new TIF districts to allow time to properly review existing TIFs, and the inclusion of TIF revenue and expenditures in the normal city budget process.

Those are ideas lawmakers need to examine and the BGA will be watching that debate unfold.

“Team Emanuel,” writes Greg Hinz in his Crain’s Chicago Business blog, “says its legal eagles have a different version, and argue that their plan will pass muster.”

But right now, everyone—including all the mayoral candidates—has to work within the legal framework for TIFs that exists.

They cannot plan Chicago’s future by wishing the law will allow something else.