Is it truly surprising that the two most substantial developments in Chicago — Lincoln Yards on the North Side and The 78 in the South Loop — are poised to reap the benefits of fiscal maneuvers outlined in their tax increment financing strategies?
These maneuvers discreetly tap into public bank accounts to finance infrastructure enhancements in and around these projects. While this revelation isn’t groundbreaking, it does underscore the significance of using TIF funds not only as an economic instrument but also as a catalyst for elevated property taxes.
Detractors rightly emphasize that TIF funds are unevenly distributed across the city, a result of the inherent structure of districting. TIF revenues accrue based on the real estate values in a TIF district’s boundaries. Underdeveloped areas encounter challenges generating development revenues for their TIF accounts due to lower property values, which is a predicament faced by lower-income communities. Conversely, more developed regions yield larger TIF development funds.
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At first glance, this might not appear inequitable, but issues arise when surplus TIF funds are directed to specific projects. As not all TIF funds are earmarked for particular endeavors or city development plans, excess funds accumulate, potentially being diverted toward other initiatives. Critics aptly assert that this fosters a quasi-slush fund controlled by the mayor’s office, effectively furnishing upfront capital for connected developers. This raises legitimate concerns about equitable distribution and transparency since the allocation of unused TIF funds largely hinges on the mayor’s discretion.
This complex issue is exacerbated by the extensive growth of the TIF program, which essentially constitutes an indirect property tax surge. The diversion of TIF funds is significant: As of 2018, there were 138 TIF districts encompassing about a third of the city’s land area and more than a third of its property tax base. The TIF districts themselves don’t directly siphon funds from property tax entities as tax rate adjustments enable taxing districts to meet their levy requests, offsetting any diversion.
Over the past two decades, TIFs have contributed to annual property tax increases. Notably, the city declared a surplus of more than $1 billion in 2019, with a substantial portion allocated to Chicago Public Schools.
Then-Mayor Lori Lightfoot proposed a TIF overhaul plan to establish stricter requirements for obtaining and using TIF funds, with a focus on aligning with the fund’s original purpose of assisting underprivileged neighborhoods. However, a significant flaw in her efforts lay in attempting to reshape TIF without involving public input. This indicates that the mayor, like her predecessors, had equally limited interest in curbing mayoral control over the substantial pool of taxpayer dollars. As the most potent economic development tool in the city’s arsenal, Chicagoans must advocate for TIF reform that ensures documented returns for taxpayers.
Initiating this transformation necessitates transparency and accountability throughout the TIF lifecycle. This entails integrating the program into budgeting practices. Ordinarily, when the mayor’s office presents the city’s budget, it undergoes scrutiny from the City Council, the public and the media before a council votes. This procedure doesn’t apply to TIFs, as accounts are managed by the mayor’s office as an off-the-books reserve, permitting the mayor and aldermen to finance favored initiatives with limited oversight. This practice must cease.
To salvage the program, it should be realigned with its initial mission: to function as an investment tool for blighted areas while generating returns for taxpayers.
Here are five key actions to take:
Mandate investment in blighted areas: Allocate a portion of new TIF revenues, alongside income from cannabis, gaming, sports betting and future casinos, to a community investment fund earmarked for the South and West sides. This fund should support not only light industry, retail and food services but also locally owned social service providers. Federal Opportunity Zone incentives can complement TIF funds to attract private investment.
Leverage expiring TIF districts for environmental cleanup and affordable housing: Seize forthcoming TIF windfalls by issuing bonds that leverage revenues from expiring TIFs. These funds can finance environmental remediation and affordable housing, tackling challenges inhibiting new investments. Lead water-pipe replacements, a billion-dollar burden on homeowners and businesses, could be addressed. Furthermore, affordable housing could be expanded by acquiring vacant properties and collaborating with community developers to meet housing needs.
Establish a city emergency management assistance fund: Use TIF funds to establish a local disaster relief program similar to federal efforts. This program could aid businesses affected by disasters, including vandalism, looting and pandemic-related economic fallout, by providing grants, loans or equity investments.
Transform the TIF program into a quantifiable investment vehicle: Attach conditions to TIFs and financial subsidies, such as demanding equity shares for the city. This would generate a city-controlled revenue stream that funds investments without necessarily extending existing TIFs or creating new ones.
Address city pension obligations: Maximize TIF surpluses and allocate the net revenue, minus county shares, to balance the city budget and ease the burden on taxpayers. Funds provided to schools should support teacher pensions, thereby reducing the city subsidy. This approach could also aid city employee pension obligations and mitigate the need for higher taxes.
By implementing these measures, TIF funds could drive economic growth, nurture local ownership and lead to wealth accumulation — as mandated by the program. Long-term advantages for the city would stem from sustained growth in historically marginalized areas, vital for Chicago’s expansion, prosperity and reduced reliance on future tax hikes.
Should city leaders remain unwilling to embrace such changes, the program’s termination is a viable alternative. TIF funds could be reintegrated into the general budget or, ideally, returned to the taxpayers.
Demanding nearly $1 billion in property taxes annually for a program that raises taxes with scant accountability and limited benefits for most neighborhoods is unfair, shortsighted and unwise — particularly amid the prevailing depopulation trend.
Paul Vallas is an adviser for the Illinois Policy Institute. He ran for Chicago mayor this year and in 2019 and was previously budget director for the city and CEO of Chicago Public Schools.
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