City's TIF take passes $500-million mark

Crain's Chicago Business

November 15, 2007

By Greg Hinz

The city this year will collect more than a half-billion dollars in property taxes from little-understood but fast-growing tax-increment financing (TIF) districts — six times as much as the controversial tax hike that won narrow approval Wednesday in the City Council.

A report issued Thursday by Cook County Clerk David Orr said the take from Chicago’s TIFs for the tax year for which bills just went out is $500.4 million. That’s $114 million more than last year, a 29% increase, and represents more than a tripling compared with just five years ago.

Municipalities in suburban Cook County will collect just under $300 million from TIF districts this year, Mr. Orr said. But that figure has been growing much slower than in Chicago and is up just 0.03% compared with last year.

When a TIF district is formed, property-tax revenue destined to fund schools, park districts, and so on is frozen at the then-current level. Any additional revenue from property-tax growth, including inflation, in the district goes to fund development and related spending.

The new figures are likely to stoke an increasingly sharp response from some municipal finance experts and a few public officials who argue that Mayor Richard M. Daley needs more oversight on how he spends such an enormous amount of money.

Revenues from TIF districts “are growing at an exponential rate,” said Laurence Msall, president of the Civic Federation, a tax policy group. “Unfortunately, the public information about TIF spending is not growing at the same rate.”

The federation wants TIF spending to be included in the annual city budget, rather than handled in isolation on a case-by-case basis. Spending of TIF money is reviewed by some aspect of city government, depending on where the development is along the process, but not as part of any overall budget decisions.

It also wants all TIF financial information to be available online rather than just in written reports, as is the case now.

In his report, Mr. Orr listed several examples designed to illustrate just how large TIF has become here.

For instance, revenues from just the two largest of Chicago’s more than 100 TIF districts will exceed the $144 million in property taxes Cook County will spend on its network of public hospitals and health clinics.

If TIF districts in Cook County were a separate agency, the $800 million in property tax funds they collect would be more than any other government in the county receives except for the Chicago Board of Education.

The $500 million the city will collect in TIF property taxes this year also dwarfs the $86-million property tax hike the City Council adopted earlier in the week by a narrow 29-21 margin.

Mr. Orr said such facts have convinced him that the Civic Federation, County Commissioner Michael Quigley and others are right when they call for more transparency about TIF districts.

“I don’t think the average voter has much understanding about what TIF is,” Mr. Orr said. “There needs to be much more public information scrutiny.”

City financial officials were not immediately available for comment, but the mayor has strongly argued that TIF is the best tool the city has available to jump-start development in depressed neighborhoods.

TIF is a means of spurring development by borrowing against anticipated revenues such growth would create.

Mr. Daley says the city in the long run fares better because the tax base is larger than it would have been.

Most TIF districts expire in 23 years. But in the short run, TIFs also represent a hidden property tax increase because local governments raise their tax rates on non-TIF property to make up for revenues they’re not getting from property in TIF districts.

Copyright 2007, Crain Communications, Inc.

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