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

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.