TIF programs need reform: Civic Federation

Crain's Chicago Business

November 12, 2007

By Greg Hinz

Tax increment financing (TIF) has been and remains a key way of spurring economic growth here, but significant reform is needed.

That's the gist of a new report by the Civic Federation which says citizens deserve more information and more input into how the city of Chicago and other local governments spend hundreds of millions of TIF dollars a year on development subsidies.

The report by the tax policy group, which is being officially released this morning, terms TIF "an important tool that has generated significant economic developments."

In Chicago, for instance, $242.6 million in public subsidies generated $1.1 billion in private investment — a more than 4-to-1 ratio-in the Central Loop TIF district, according to the federation.

But it is impossible to tell how much of that private spending would have occurred anyway, without subsidies, the report concedes.

With a more critical eye, the report says that TIF expenditures now occur in such a sporadic and obscure fashion that voters have difficulty knowing what's really happening.

"TIF financial information is not readily available in an easily accessible format," the report says. "Both the state's and the city's efforts in providing transparency have fallen far short of what they should be."

As a result, much "misinformation and erroneous speculation" exists about what's happening with TIF.

To remedy that, the federation recommends that the annual budgets in Chicago and other municipalities include "full information" on TIFs, including expenses, revenues and fund balances.

TIF subsidies now are approved case by case, with each TIF district releasing only a paper, not electronic, annual report months after the city passes its annual budget.

The reform is crucial because Chicago's TIF districts generated $386.5 million in property taxes in 2005, a fast-rising figure that now constitutes more than half of the $713.5 million in property taxes the city otherwise levies, the federation says.

The federation also urges that each TIF district prepare a status report 10 years after its formation to review income and spending, and give the public a chance at an open hearing to comment on whether funds have been properly spent. Most TIF districts have a life of 23 years after approved by the City Council, and never hold hearings on their overall budget, only on specific projects.

TIF is a way of subsidizing development by borrowing against anticipated growth. When a TIF district is formed, normal property tax assessments are frozen for the life of the district.

Revenues from all growth, including inflation, go not to schools and other taxing bodies but to the municipality which formed the district. Such revenue, known as increment, usually is spent on subsidies and related public infrastructure, but Chicago increasingly has spent some revenue on building schools as TIF subsidies have become more and more controversial.

In most cases, the federation says, creating a TIF district effectively raises taxes on property not located within a district, as taxing bodies just extend their gross property-tax levy on a smaller base, forcing up rates.

But when the district expires, all property-tax revenues, including that from the new growth, return to the regular pool shared by the city, county, public schools and other local governments.

Copyright 2007, Crain Communications, Inc.

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