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Saturday, July 20

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Airbags

You have a problem. You can't stop spending money at Brookstone, or its on-line store, Brookstone.com. Your spouse pleads with you to stop wasting precious family resources on what you call "luxury executive" items. But you can't help it; and besides, those little things make you a more effective spouse and employee. Your white gold and platinum Tom Tom makes sure you are never late for a meeting, and in a good mood when you get there. Your Power-Reclining uSpace Massage Chair makes sure you always look relaxed and in command at the office. But the tirades never stop: every time your bank statement comes, with the itemized debits, they can see all the Jewel Encrusted Dresser Valets and Faberge Automatic Watch Winders you bought in the last month.

Brookstone steadfastly refuses to bill you as Home & Office Efficiency Enhancement Corp., so there can be only one solution: make the money disappear before it gets to your checking account, so it looks like there was no activity. You don't get blamed for wasteful spending and you'll finally land that all-too-essential Dual Node Percussion Massager.

This is essentially the scheme Mayor Daley — and mayors all over Illinois — use to conceal their profoundly bad spending priorities from the general public, and the mechanism they use to do it are TIFs.

Tax Increment Financing districts are a hot topic in urban planning and political reform circles. TIFs are probably one of the most abused tax schemes in government, and their cynical use by politicians eager to "partner" with developers without the bother of having the legislative branch appropriate money. Stupid legislative branch.

The creation of "Redevelopment Project Areas," or TIF districts, is a way to encourage development of "blighted" properties or neighborhoods (or sub-neighborhoods). To give you the unfairly and perhaps irresponsibly short run-down, a TIF essentially freezes the property value assessment of a given property or group of properties for 23 years. Property owners still pay the taxes on the regular, "market" assessed values, but the difference between the "frozen" level and the market level goes into a special municipal fund (A TIF fund) that is spent essentially as a subsidy to the developer of the property, although there are restrictions on how the money can be spent (very ill-defined and general restrictions). To get a fair idea of what TIFs are, I'll provide two links: one to the TIF Association. (I think if some future historian tries to figure out what really set Western civilization apart from the rest of the world, it would be "They had a shitload of associations.") and one to the now-defunct Neighborhood Capital Budget Group.

There are two major problems with TIFs: First, there is little oversight. The money from the TIF fund, although approved by legislatures in the form of very generalized "redevelopment agreements," is spent according to these generally pre-agreed guidelines by the executive branch departments and so there is little accounting for how the money is spent; it essentially falls into a black hole, masking government's spending priorities. Second, TIFs de-fund school districts, and school districts are hard-pressed to fight back, particularly in Chicago where they have been absorbed by the city government.

In Chicago, aldermen, not developers, usually request a TIF. In order for a TIF to be approved, it has to get approval from the affected taxing bodies — in other words, the governments that would receive the property taxes. This is typically the county, the city or municipality, and the School Board (or equivalent). In the case of the city, which does not have a traditional independent school board, all of the taxing bodies meet on something called the Joint Review Board, which votes on the TIF (in Chicago, this is after it has been referred to the Community Development Commission). Tell me if you are following the problem.

An aldermen, likely subservient to the mayor, requests a TIF; the TIF is then referred to the Development Commission, also controlled by the mayor. The DC refers it to the JRB, controlled by the mayor, and then it will probably go on to the Plan Commission if there are zoning or other changes built into it — I know I don't need to say it, but just to keep the parallel structure and make William Safire happy, the Plan Commission, too, is controlled by the mayor. Approved by the Plan Commission, the City Council "considers" (pronounced "rubber stamps" in Chicago) it after a perfunctory hearing by the Finance Committee where the public comments are explicitly considered not germane to the consideration — "consideration" — of the proposal.

Phew. So after a process dominated by the executive branch from start to finish, what then? Well, huge sums of money are spent, with only minimal accountability ("compliance" statements that are supposed to prove that the money was spent according to the legal limitations), and this money is not accounted for in the larger budget proposals for appropriation by the "people's house," the City Council. Not a big deal if you're the mayor of Stickney, perhaps. But a big deal when you're the mayor of Chicago, because if you TIF enough of the city — and some 30 percent of the city is TIF districted — you take enormous sums of money away from the schools and spend it on hyper-localized pet projects, all without "seeming" to take money away from schools in an open budgeting process.

But you know what? My efforts at extended metaphor are not nearly as persuasive as the press release of one David Orr, our well-mustachioed Cook County Clerk:

Two Chicago TIFs alone are collecting more revenue ($152.5 million) this year than all the money Cook County spends from property taxes toward public health. The county's public hospitals, clinics, and services total $144 million. The City of Chicago's Central Loop TIF and South Loop TIF total $111 million and $41.5 million, respectively.

Um, holy shit. More money is being spent to "rebate" infrastructure improvements to downtown developers than is being spent on keeping all of Cook County (mildly) healthy. And since I'm just re-printing things from press releases, I might as well go one bullet point further:

At $800 million, if TIFs were their own separate taxing agency, they would collect the second largest amount of revenue in Cook County. The Chicago Public Schools rank first with $1.7 billion.

You may be saying to yourself, "Why am I reading another column about TIFs?" If you're not, then hopefully you're saying to yourself, "Well, OK Ramsin, so TIFs suck up more money than all but two city agencies. But that money is spent on infrastructure — which we'd spend on anyway — and on investment in blighted neighborhoods, which is good because how else can we get people to build in blighted neighborhoods!?"

I welcome your critical thinking skills. But, unfortunately, there are responses to both of those things. First, TIFs are created as incentives to developers — so for exactly that reason, the money spent on infrastructure inside a TIF is meant to benefit whatever major project is going on in that TIF. It is not infrastructure spending in a unified, big-picture way ("Let's make the CTA run better!") but in a small, we'll-get-you-back way ("Thanks for widening those 500 yards of street! Here's $200,000!"). Second, I encourage you to visit the Cook County Clerk's TIF map and take a look at some of the "blighted" neighborhoods that have received TIF districts (the earlier mention of the Central Loop and South Loop TIFs should've tipped you off). While you're there, enjoy Mr. Orr's mustache. I wonder if the people who live at the intersection of Belmont, Lincoln and Ashland are aware of the miserable blight in which they toil and suffer all their days.

Subsidies are always preferable to tax breaks because they are targeted, and so better reflect the priorities of the legislature and therefore, at least in theory, the people, whereas tax breaks are more ill-defined and de-fund government. But TIFs combine the worst elements of both: defunding critical programs and bodies (health care, schools) to provide shadowy direct help to private interests ("Here's $200,000!").

Reform of the TIF system is needed immediately. They don't need to be eliminated necessarily. But their budgets should be put under the control of local councils. Their composition could be made up of previously elected individuals (such as the alderman and local school council members) and directly elected representatives. The City's ordinance dealing with TIFs already provides for the creation of oversight councils, but that needs to be taken further. The power of the purse belongs with the people, and if the idea of TIFs is that the money must be spent very locally to address blight, then let the people suffering with the blight spend the money.

"But Ramsin," you're laughing, because you're a state legislative staffer in Springfield who monitors this column on orders of your boss, who I may compared to a cartoon character and/or Miltonian villain in the past, "that would require amendment of the state public act that created TIFs in Illinois; something as specific as what you're suggesting couldn't just be rammed through the City Council, because it would probably be interpreted as contradicting the state's law, and thus be easily overturned by the Illinois state Supreme Court!"

So? What do I care? Amend the state law. Think big. Because the increase in TIF money in Chicago from 2005 to 2006 was nearly 30 percent, from $386m to $500m. If that rate continues, by the time we're redirecting massive funds toward building the temporary infrastructure we need to host a two-week event eight years from now, the City Council will be left with sales tax and parking tickets as their sole sources of revenue, and I don't feel like having to pay a $15,000 ticket for parking within 1,600 yards of an intersection when I ran into buy a $175 bag of Skittles.

Offering incentives for developments is not a problem — but it is ludicrous to imagine that there would be no development without them. Chicago grew at fantastic rates before TIFs were even a thing (having been made a thing some 30 years ago) and according to the Neighborhood Capital Budget Group, nearly 70 percent of Chicago's TIF districts were created after 1996. (Neat! One year after the mayor took over Chicago Public Schools!) The neighborhoods suffering from lack of investment in 1995 are still largely suffering from lack of investment, while the neighborhoods whose gentrification had begun in the mid-'90s have accelerated. There is no evidence that TIFs are necessary or sufficient for balanced, community-focused development: and, frankly, we can't afford the mayor's expensive tastes any more.

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Comments

Carl Giometti / July 16, 2008 8:30 AM

I understand why most people are opposed to TIF's on a theoretical level because they do seem to circumvent the legislative process, however, they are unbelievably useful and necessary. In the global economy, where decisions to locate a company can involve weighing Chicago against Barcelona against Hong Kong, cities compete to grow their corporate employment base. While now defunct major city manufacturing was attracted to density and a good working class, modern-day companies look for a creative, educated populous and, yes, tax breaks. In these negotiations, it is necessary to allow one person the ability to change the terms as is needed. It certainly doesn't seem that companies such as Boeing, United Airlines, or more recently, MillerCoors would have considered Chicago had they not been given TIF designation. Could you imagine if the incentive package had to be approved by the City Council or state legislature? Just look at the State's budget process to see how well that system works.

The simple fact is, a city without a growing economy is a dying city. There is pretty good evidence that, had Chicago not aggressively pursued developments that attract a 21st century workforce and the companies that employ them, Chicago would have suffered a fate similar to other Rust Belt cities.

Pedro / July 16, 2008 10:35 AM

Ramsin,

So the city is basically making money off of the spread between the real tax-assessed value and a "fixed" tax assesed value. And then the money is funneled off to pet projects and cronys?

What is your estimation of the amount of money that is being skimmed off the tax revenue due to TIFs?


corinna / July 16, 2008 2:24 PM

I just want to know when that Dual Node Percussion Massager shipped. It's summertime and Mama's gettin' antsy.

Ramsin / July 17, 2008 4:03 PM

Pedro,

I wouldn't say it is "funneled off to pet projects and cronys" that's a little strong; but yes, the city is taking that significant difference, and spending it in a non-transparent way, and a way that doesn't reflect the people's spending priorities because it is not appropriated by the legislature.

As for the estimation of total, the County Clerk provides the figure: in 2006, the last year with data, $500,369,348.17

Carl-- You're right. The legislature is too slow. Why have them appropriate money and be accountable to their constituents at all?

What the hell did the framers of our republic know when they decided that the people's house--the legislature--should have the sole power to appropriate and spend money? Clearly they were wrong; better to invest that power in one person so he can more easily hand that money out to special interests who demand favors in order to grace us with their presence.

Is your contention seriously that TIFs are the only reason companies locate here? What about the fact that Chicago was the second largest and most financially important and powerful city in the union up through the 1970s (hey, isn't that when TIFs started!?)?

There is no evidence that the only way you city can grow economically is through defunding services that improve quality of life and handing that case over to private pockets in order to relocate their corporate headquarters.

The partnership of private interests and overly-powerful executives in municipalities have caused a "race to the bottom" between cities and states, where we all pretend that business would prefer to not do business at all than have to pay their fair share of taxes.

 

About the Author(s)

Ramsin Canon studies and works in politics in Chicago. If you have a tip, a borderline illegal leak, or a story that needs to be told, contact him at rc@gapersblock.com.

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