Chicago’s rapid expansion of the controversial Tax Increment Finance, or TIF, program during the housing bubble has arguably started to back fire.
Chicago’s rapid expansion of the controversial Tax Increment Finance, or TIF, program during the housing bubble has arguably started to back fire. A report released today by Cook County Clerk David Orr finds that Chicago TIF revenue is down 11 percent between 2011 and 2010 and 19 percent between 2011 and 2007 – the year the bubble burst.
The city will collect $454 million in 2011 TIF revenue compared to $510 million in 2010. The report also looked at Cook County suburban TIF districts, finding that county TIF revenue fell 10 percent to $739 million in 2011.
Orr contended at a press conference this morning that the revenue decline could have “dramatic implications.” Money might not be available to complete some TIF projects already in the pipeline and large TIF districts, such as the contentious LaSalle Central TIF in downtown Chicago, might run out of revenue.
Under Chicago’s TIF program, the city creates districts in areas the mayoral administration deems economically blighted.
In a TIF district, a portion of someone’s property tax bill does not go to local government bodies, such as the Chicago Public Schools. That portion is the “increment”: The difference between how much someone pays in property taxes to how much they paid the year the TIF was created.
The tax increment money is then applied to projects, ranging from a new park to a shopping center. TIF spending is supposed to be a virtuous cycle – economic development projects will increase property values, and increase the money available for more economic development projects.
But when property values stagnate or decline, TIF revenue dries up. Orr cited the “real estate downturn” as a main factor for decreased revenue, especially in TIF districts created at the downturn’s start.
For example, the LaSalle Central TIF district saw absolutely no revenue in 2011 after bringing in $12.6 million in 2010. Former Mayor Richard Daley created the downtown LaSalle Central TIF in 2006.
Eight other TIF districts generated zero revenue in 2011. These also are “relatively new TIF districts,” according to Orr.
Many other districts with rapid revenue declines were created in the last ten years as well. The North Side Lakeside-Clarendon TIF, to give one example, was created in 2004, and it witnessed a 61 percent revenue decline between 2010 and 2011.
Indeed, Daley expanded the number of TIF districts from just over 50 in 2000 to just over 150 in 2008. There are now 163 TIF districts, covering about 30 percent of city land.
Rachel Weber, an associate professor of urban planning and policy at the University of Illinois Chicago who studies TIF, says that the findings call into question “whether the city is accurately estimating what changes property values are going to make in the future.”
The report also adds a new controversy to a program already under the gun.
The LaSalle Central TIF, for instance, has been slammed since its inception, as it covers the central business district, making it a dubious candidate to be classified as economically blighted.
Now the river walk and other LaSalle Central projects must be paid for through TIF reserves, future revenue, or “porting”, which occurs when money is moved between adjacent TIF districts.
Orr recited what have become familiar, and well founded, critiques of TIF. Too much money is concentrated on downtown instead of in blighted areas, and there is little transparency in how the money is used. Orr said that there is “a lot more transparency” in suburbs like Evanston.
Emanuel entered the mayor's office as a TIF critic, setting up a task force with recommendations for how to make the program more transparent and effective. However, few of the recommendations have been acted on.
Ald. Robert Fioretti (2nd) proposed an ordinance last month to hold public hearings on each TIF project. But Fioretti agreed to table the ordinance and work with the city on a substitute measure.