TIF surplus won’t solve Chicago’s budget woes — but it can do some good

Balancing the city’s TIF books could provide a chance to help poorer neighborhoods, Robin Hood-style.

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Artist’s rendering of the Lincoln Yards development. | Provided by Skidmore, Owings & Merrill LLP (SOM)

TIFs make big-ticket development such as the planned Lincoln Yards possible, while providing critical project funds on the South and West sides.

Skidmore, Owings & Merrill LLP

As the pandemic burns through Chicago’s municipal finances, the revelation that the city’s TIF coffers contained $1.79 billion at the end of 2019 — a whopping $855 million more than City Hall projected — might seem like a pot of gold.

In reality, it’s not a windfall — but it’s not insignificant, either.

Between now and October, the city will square up its tax-increment financing accounts and find out exactly how much is available to be spent out of them this year after expenses and future commitments are taken into consideration.

By law, City Hall then has two options:

It can return the leftover money to local taxing bodies, including the city, Chicago Public Schools and Cook County government. Under this scenario, the city’s share would be only 25 percent of that amount.

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Here’s the other option: Before giving some money back to local taxing bodies, the city can reassign dollars from richer TIFs into lesser-funded TIF neighborhoods on the South and West sides — many of which were starving for redevelopment even before the pandemic.

Our take: Mayor Lori Lightfoot’s administration would be wise to sharpen its pencils and transfer as much of the money as possible to where it’s needed most.

The insider’s game

There are 140 TIF districts across Chicago, each with a 23-year life. During that time span, all revenue from property tax increases within a district is kept within the district’s boundaries and used for a variety of public or private redevelopment projects.

But before putting a dollar of TIF money to work elsewhere, city officials must determine if any of that $1.79 billion has to be used to keep existing TIF projects on track. Or whether the amount fully takes into account already-committed TIF projects that will unfold in the future. The money might also have to be used to repay TIF bonds issued to fund infrastructure in existing redevelopment plans.

So the actual amount of money that can be spent out of the TIF surplus won’t be known until city officials figure out what portion of the funds already is spoken for.

During this process, officials factor in project costs that have varied over time and also changing economic conditions.

“This is somewhat of an insider’s game,” said Laurence Msall, president of the Civic Federation, a budget watchdog group. “Although they provide detailed information about the funds, unless you’re inside City Hall, you don’t really know what projects are moving forward.”

And so TIF, while well-intentioned, remains an easy target for criticism. It was originally intended to restore “blighted” neighborhoods. It’s since become a funding mechanism for projects of all kinds across Chicago and the rest of Illinois.

‘Hopscotching,’ and ‘porting’

In Chicago, TIF districts in wealthier neighborhoods and commercial areas generate tons of tax revenue that, in turn, gets poured back into the districts to spur even more development.

On the North Side, the 168-acre Lincoln Yards TIF could generate enough cash over the next 23 years to kick in $1.3 billion to build bridges over the Chicago River, a new Metra station and extending The 606 linear park east.

Meanwhile, the 397-acre Madison/Austin TIF on the Far West Side, for instance, is estimated to generate just $21 million over its 23-year life, which expires in 2023.

Rather than let so much cash nest in better-off TIF districts, city budget and planning officials can use “porting” to shift funds from richer districts to adjacent poorer ones. The city likely will investigate porting between some districts as it seeks to balances its TIF books over the next few months.

One former city finance expert suggested to us that city officials should investigate “hopscotching” TIF funds from flush districts to poorer districts miles away by porting money across several connected districts.

For instance, if there were a sizable surplus in the La Salle Central TIF downtown, the money could be sent almost 10 miles south to the disinvested Washington Park neighborhood by moving the funds though six contiguous tax increment financing districts between the two communities.

“These are the things that should be on the table,” the expert told us. “[To have a surplus] means the money is generated, but it’s not getting put inside the right areas that need it. This is what they should be using it for.”

When the city’s true TIF surplus is calculated sometime in the fall, here’s hoping that as much of the money as possible remains in the TIF program and gets transferred, Robin Hood-style.

TIF is one of the few games in town to encourage new investment in parts of Chicago in dire need of redevelopment. The most responsible strategy is to spend TIF revenue more fairly and equitably.

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