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TIFs Mon Aug 23 2010
TIF for That: Fritchey Teams Up With Teachers, Parents on Reform
State Representative John Fritchey, who will be giving up his seat in the state house representing the 11th District to replace Forrest Claypool on the Cook County Board of Commissioners (assuming he wins in November), is teaming up with the Chicago Teachers Union and the Raise Your Hand Coalition to push comprehensive reform of the tax increment financing, or TIF, program. The reforms could end the exploitation of TIFs by the Mayor's office as a cudgel, and restore significant funds to taxing bodies--particularly the schools--that have seen billions of dollars disappear over the last couple decades.
Tax increment financing was created by state statute in the 1970s as a way to provide incentives to develop blighted areas. TIF areas are designated by municipalities; within those areas, property tax assessments are frozen at the level they were at when the zone was designated. The land is still assessed and the taxes on the increase are still collected, but they are diverted into a site-specific fund rather than being paid to the various taxing bodies that typically collect them. Those bodies are, primarily, school districts, counties, the municipality itself, and sanitation and fire districts, among others. The idea is that without the incentive, that tax money would never have been raised in the first place, and so those taxing bodies are not actually losing anything.
The problem has come historically with the fact that the TIF statute is not particularly well written. In particular, there is very loose language around what kind of area can be designated a TIF area, and how the funds must be administered and monitored. For example, to be TIF'd an area must be "blighted", but there is little further definition of blight. This has allowed developers and municipalities to designate almost anything as blighted. The statute also doesn't provide for much specific administration or oversight, which has obscured the program from the public.
The three reforms Fritchey is proposing along with the CTU and RYH would cover administration and oversight, but also introduce two more sweeping elements: first, unreserved or surplus funds--meaning funds in TIF accounts that have not been dedicated to a specific program or use--would be returned to the taxing bodies. Second, and more sweepingly, the Board of Education (meaning Chicago Public Schools) would be exempted from (future) TIFs completely. Given that more than half of TIF funds come out of the schools' budget, this would mean a serious change to the entire character of the program.
From a policy standpoint, it would keep potentially millions of dollars in the CPS budget that would otherwise go into funds controlled by the City's executive (ie, the Mayor). From a political standpoint, it would rob the program of its power to keep aldermen at heel for funds they need and restore some budgeting independence to the Board of Education (and end the annual doomsday scenarios the CPS faces).
More than a third of the city is currently TIF'd, and since TIF money must be spent in the zone where it was generated, this means there are millions in tax dollars not allocated in the budget that the Mayor can disperse. Aldermen have complained in the past that this forces them to play nice in order to get their fair share.
The Mayor has been coquettish with the "surplus" TIF funds as well, but his arguments have been laid low, particularly by Progress Illinois, in the past. These funds should not remain under the discretionary power of the executive. The "power of the purse" resides in the legislature for a very good reason: it is the body closest to the people. One of the good things about Chicago's unwieldy City Council is that each legislator is responsible for a comparably small number of people, and is therefore vulnerable to pressure from those people. The Mayor by contrast is not, and his control of what in recent years has been more than a billion dollars a year in surplus funds is inexcusable.
The exemption of the Board of Education from all future TIF areas is even more significant. Mayoral control of the schools in Chicago is fairly recent--as of the so-called 1995 "Amendatory Act"--and has been the subject of increasing scrutiny lately. The ability of the city to essentially sap the CPS' relevancy as a taxing body and take control of their funds only adds to the complete domination of the school system by the Fifth Floor. More importantly, TIFs would be less disruptive to the school budgeting process. The schools have lost billions to TIFs over the last fifteen years, and given the way the city has played fast-and-loose with the definition of "blighted" areas, the argument that those funds wouldn't have been there in the first place without the TIF doesn't hold water.
These reforms represent the first serious effort to change the TIF statute at the state level in years. However, one question comes immediately to mind: given that Fritchey will be leaving the state house one way or another come the end of the year, will these bills have a legislator champion in Springfield? Via statement, Fritchey addressed that concern:
"I am certain that there will be no shortage of legislators willing to stand up and fight on behalf of taxpayers to make sure that they are getting the most for their hard-earned money....And in one capacity or another, I intend to be right there with them."
Certainly we can expect the CTU and RYH to double down on this effort: but if no legislators step forward soon to adopt these bills as their own, these common-sense reforms could flounder and disappear quickly.
AK / August 23, 2010 2:08 PM
Doesn't the State make up for the money diverted by TIF away from the school system's budget? I thought state foundation level funding played that role.