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TIFs Wed Jun 30 2010

City's Inspector General Has Some Words on TIFs

The city's Inspector General, Joseph Ferguson, sent the Mayor an audit on several city TIFs, and the result confirms what TIF critics have been saying: that no matter what the potential benefits of so much TIF creation, the lack of transparency both to the public and to public officials is leading to waste and corruption. TIFs, or Tax Increment Financing districts, are special taxing districts that freeze the property taxes paid to the usual taxing bodies (mainly the school district, County, and park district) and diverts that money into a special account meant to finance development.

The report, dated yesterday, details numerous ways the lack of public accounting for the TIF funds resulted in wasteful spending, abuses, and corruption. The audit criticizes the city for lacking sufficient "internal controls" as required by the state statute that authorizes cities to create TIFs.

Of the litany of problems with TIF management the IG cites, this one jumps out: "Decisions to move money from one TIF district to another contiguous district--so called 'porting' of funds--are not adequately documented and are made without sufficient transparency to assure adequate accountability and public scrutiny."

The porting of TIF funds between contiguous districts is what changes TIFs from a tool for development into a de facto shadow budget. The justification for porting is meager, and the impact is enormous: a look at the city's TIF districts shows that contiguity is common. Since TIFs are meant to eliminate concentrated blight (with a creation process take that targeting as an assumption), porting money from one district to another defeats the purpose of the program.

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Map via Windy Citizen

The ability to move money through TIF districts also creates unpredictability and volatility in the use of the funds, often used as a cudgel against aldermen who may be critical of the program.

The Inspector General's report offers a fairly tame recommendation for this problem:

We recommend that in order to reduce the appearance of undue influence and increase transparency in the porting decision process, TIF Task Force meeting minutes be retained by DCD indicating who was involved and the criteria used in the decision-making process. Additionally, DCD should establish a formal authorization list, to be retained by DCD and the DOF. This list should be updated on a yearly basis, and when authorized employees leave or job duties change, indicating who has the authority to approve porting and what the dollar level of that authority is, as higher dollar levels may require dual signatures or higher level management approval. We also recommend that porting decisions and meeting minutes be disclosed to the public on the DCD website, on a timely basis so that taxpayers know where their tax dollars are being spent. Publishing the minutes online would also provide timely disclosure to the City Council.

The City's response is of course inadequate. It also reflects something we've discussed here at Mechanics before, namely, that this is a scandal without a scandal. The city is not breaking any rules or even violating the spirit of the law, not really. The system is fundamentally flawed and needs to be overhauled, from top to bottom. Not only the TIF program, but the political priorities that activate and animate it.

First and foremost, porting TIF funds is a legal and allowable process under the IL TIF statute, and it is most often used to spark redevelopment in areas where new TIF districts are being established. And the City only ports funds when needed and always for uses allowable under the state TIF statute.

Most commonly, uncommitted funds in a mature TIF are transferred to a new TIF to "jump-start" a project, thus accelerating the new TIF's ability to generate increment. The TIF will thus be more productive and efficient over its 23-year life. Otherwise, it may take several years for a new TIF to generate sufficient increment to support projects. Because funds can only be ported to adjacent TIFs, residents in the original TIF boundary will often benefit from investments made to an adjacent TIF, as the items funded through porting serve an area that extends well beyond a TIF's boundaries. This is especially true of new schools and parks, but also commercial and industrial development that generates and preserves jobs. And in this way, porting helps both new and older TIFs by spreading economic activity over a larger community area.

The IGO was unmoved:

During the ten year period 1997 through 2007, $138,384,232 was ported between TIF districts, much of this money being used to renovate and build schools. This audit does not draw any judgment on the use of TIF money for such purpose. However, we note that when money is ported from one TIF district to another for the purpose of renovating and building schools, the school benefiting may not be within an area that allows children from the porting TIF district to attend. Additionally, the issue of what schools benefit and why is not transparent to the taxpayers of the porting TIF district. We fully recognize the process of porting is legal, but this should not relieve the City's responsibility to have candid and open discussion with TIF district residents on the use of their tax dollars. Nor should it relieve the City of proper documentation and record keeping that is readily accessible and transparent to the public.

It says something that the city's initial reaction was to say, "Hey, we're not breaking any laws." What a high bar they've set for themselves.

Note the passage in bold--my emphasis. The city seems to be creating TIFs that sap money from the schools, and then deciding with little (really, no) public input that the money they've taken should be moved from one school to another. Legal. Scandal?

The full report is below.

Chicago IG TIF Audit

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