Tax Increment Financing

History of TIF

Tax increment financing came about after WWII. The federal government had initiated some community development programs to clear slums and improve public housing, but their right to eminent domain was challenged by citizens who were displaced by these takings [1]. So redevelopment was relegated to state and local governments, who were required to raise 2½ times the federal contribution in order to receive it. Raising that much money for needed development is basically impossible, so the local governments had to get creative [15].

In 1952, California invented tax increment financing as a means to address "blight." The original definition of blight actually came from the American Public Health Association. The current definitions of blight vary by state, but the general notion is of deteriorating conditions that pose a threat to public health [25]. TIF is now used in 48 states [9]. It was first implemented in Chicago in 1986, and it is now so widely used that 30% of Chicago is in a TIF [13]. Advocates of TIF insist that it is the last and best available tool for economic development [23].

TIF property tax revenue growth. Image from Chicago TIF Information Forum.

How TIF Works

Essentially TIF is a speculative financing mechanism that sets aside tax revenues from property value growth within a designated area suffering from blight in order to finance development in that same area. Once a TIF district is declared, the assessed value of the property within that district is frozen. All the property tax that is distributed to taxing bodies such as Chicago Public Schools, Chicago Parks District, the City, and Cook County is frozen at this base level for the duration of the TIF district, which is typically twenty-three years [23].

Then, as development begins, often initially financed by bonds provided by the City, the property value of the TIF district increases, and it accrues extra property tax above the frozen base rate. This is called the "increment." The increment is set aside to pay for development within the TIF district. TIF funds from the increment can be used for improvements to housing, infrastructure, and businesses as well as for job creation, job training, and day care. When the TIF district expires, the overlapping taxing bodies see a windfall as the full property tax received from that area is again distributed amongst them [16; 25].

The TIF Process in Chicago

The TIF process varies, but what follows is a brief description of how it works in Chicago. In the pre-planning phase, an alderman, a private developer, or the City (through the Department of Housing and Economic Development) can propose a new TIF district. They must show that the area meets the conditions for "blight," and that the development would not occur "but for" tax increment financing [13].

A public hearing is held, and the proposal is subject to review and approval by the Community Development Committee, which is composed of fifteen mayorally appointed members. Next the Joint Review Board votes. The JRB is composed of one representative from each of five other taxing bodies, the leadership of whom is all appointed by the mayor, plus one public member appointed by the board. Finally the city council, composed of the city’s fifty aldermen, gives the final approval [23].

Next the development plan is created. The development projects must evidence a public benefit, and additional plans can be drawn up at any point in the duration of the TIF district. Then the TIF projects are implemented. There are no set standards or regulations for monitoring or reporting on the status of the TIF once it has been implemented [10].

Chicago TIF revenue by year (1986-2010). Image from Cook County Clerk's Office.

TIF Use in Chicago

TIF has grown exponentially in Chicago, especially in the last decade. In the year 2011, TIF brought in $540 million dollars of property taxes [8]. Now one of every ten property tax dollars in Chicago is set aside for TIF [13].

The distribution of TIF money is split nearly in half, so that 46% goes to public projects and 4% to small business development, and the other 50% goes to private development projects. Of that private development, 20% is not for profit, and 80% is for profit [8]. It is important to keep in mind that TIF was created for the benefit of the public. So as we consider how TIF is used, we must ask ourselves: Who benefits? Private or public? Privileged or underprivileged?

Illinois TIF Law

Below is a summary excerpt from the Illinois Municipal Code's Tax Increment Allocation Redevelopment Act, or the TIF Act [22].

"It is hereby found and declared that there exist in many municipalities within this State blighted conservation and industrial park conservation areas…[T]he stable economic and physical development of the blighted areas…is endangered by the presence of blighting factors…[These] areas…if developed…will…reduc[e] the evils attendant upon involuntary unemployment and enhanc[e] the public health and welfare of this State".
—Tax Increment Allocation Redevelopment Act. Illinois Municipal Code, Article 11-74.4-1–11

The law explicitly declares that public health is the goal. So we have every right to be involved in the process.

Possible Points of Intervention in the TIF Process

The lack of transparency and accountability of TIF in Chicago is particularly problematic. In the preplanning phase, there is a required public hearing, but the city is not required to — and generally does not — respond to or follow up on any of the citizen concerns [13]. The independence of approving agencies has been disputed, since nearly everyone but the aldermen is appointed by the mayor, and the City Council of aldermen votes in accordance with the mayor 83% of the time [23]. Beyond the original development proposal, the public and often even the aldermen are left out of the decision making process for how TIF money is spent [13]. Public health and community representatives are rarely if ever involved in planning.

There are no written standards or regulations for implementation and monitoring of TIF [23]. Even when reporting is required as part of a redevelopment plan, it is rarely enforced, and developers are not held accountable for failing to meet the requirements of a redevelopment agreement [12]. It is nearly impossible to make sense of TIF data that's been published because it is not searchable, and there is no narrative or summary of the data [18]. TIF money is not included in the city's overall budget, nor is it included in property tax bills [13]. TIF funds are often transferred to fund development projects in other districts at the mayor’s discretion [23]. Aldermen have been denied access to the city's overall TIF budget, and several have reported that the mayor’s office has used the promise of new TIF spending in their districts as leverage to win their votes in the City Council [13].

Previous Calls for Reform of TIF in Chicago

Over the past fifteen years there have been several calls for reform. These reforms have been proposed by government officials as well as independent research and policy groups, in collaboration with academics and city planners [16; 23]. But there have been no public health representatives involved in any of these calls for reform, and there has been little opportunity for participation of concerned residents of TIF districts. Many of these reports focus on the more sensational uses of TIF funds, such as the Central Loop TIF district [18; 10; 11], but very little has been said about equity, particularly health equity.


Bibliography
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8. Cook County Clerk's Office. (2012.) TIF District Summary — City of Chicago, 2010-2011 revenue comparison.
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