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Welcome to Tales of the TIF

You’ve read a lot about them. You wonder how they work. This is the place to get your questions answered about local government’s favorite economic development tool, the place to immerse yourself in Tales of the TIF.

The acronym stands for Tax Increment Financing and is often coupled with the word “district.” Municipalities set up TIF districts to raise money to support private development or public works. The idea is that the projects will improve areas deemed “blighted” under state law.

“Blight”— that’s another important term in all this. Is downtown Chicago blighted? Not in the judgment of most people, I expect, but downtown qualifies under the law. Blight for TIF purposes has been defined so broadly as to include any area where officials think incentives are needed to bring in outside investment.

The aim of this blog is to examine where the money is going, whether TIFs are achieving their aims, and whether they operate with sufficient public disclosure.

But first, a TIF review:

TIF incentives come in the form of property taxes, thus making them controversial. A town starts the process by creating a TIF district, drawing the boundaries exactly as it wants. The district has to be entirely within the municipality, but otherwise can cross neighborhood or ward lines.

Officials compute the amount of property tax revenue that the district generates, and that becomes a baseline sum. Any revenue increase from that point goes not to local governments that rely on property taxes, but into the TIF.

This causes controversy and some misconceptions. Taxes don’t go up just because a TIF district is created. But over time, if the district is lucrative and money builds up in its account, it can create a stealthy burden on taxpayers. Local governments need their money from somewhere and if they can’t get it inside a TIF district, it might need to increase its collections from everywhere else.

The law provides that a TIF district lasts for 23 years. They can be extended by legislative action for another dozen years. Towns can dissolve them sooner, declaring a TIF surplus and shipping the money back to government agencies.

TIFs are accused of strangling taxing bodies that need the revenue, especially the schools. But the issue isn’t always clear-cut; Chicago, for example, has used TIF income to provide the schools money for construction that otherwise wouldn’t be available in the normal budget.

In the last 10 years, according to Cook County Clerk David Orr, the city has sent $182 million back to the schools, including $10.5 million last year.

Orr’s office is involved in TIFs because of its role in computing Cook County tax bills.

He counts 435 TIF districts in Cook County, 154 of them within Chicago.

The use of TIFs exploded under former Mayor Richard M. Daley, who argued that they were a ready tool for an established, industrialized city that needed job growth. In fairness, he was competing for developments that might have gone to a collar-county cornfield, where buildings can go up cheaper and faster.

But over time, TIFs took on a life of their own and became an off-the-books source of money for sundry projects. TIFs in Chicago have been called a slush fund. The description is mostly undeserved, but their influence can’t be denied. Chicago has collected more than a half-billion dollars annually through TIFs, and it got $457 million from them last year.

Accountability has been a big issue. Mayor Rahm Emanuel has phased out some TIFs and improved access to the budgets and annual reports the city must compile for each of its districts.

Orr has moved forward with an important reform. For the first time, Cook County taxpayers next year will see their property tax bills reflect whether any of their payments get routed into a TIF.

Currently, the bills of people living in TIF districts lie, incorrectly showing that their dollars go entirely to the city, schools, parks and other agencies that serve them.

Do TIFs work? It depends on whether you trust the “but-for” test. Municipalities are supposed to decide that a particular project or improvement would not occur but for a TIF subsidy. Emanuel wants to use $55 million in TIF money to back a DePaul University arena near McCormick Place. How does the “but-for” test apply there?

An irony here is that of all the TIF districts in Cook County, the rich ones are relatively few and are generally in or near downtown Chicago, the region that might be furthest from “blight.” Districts in truly poor communities often have little cash and results to show.

If you wish to learn more, you can find the city’s TIF portal here and Orr’s TIF reports here. Also, the University of Illinois at Chicago is compiling a nifty summary of TIFs that can be found here.

Check back. There will be much more to come.