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In 2006, the city established a special taxing district in one of Chicago's busiest areas.

The life of a TIF: more money, more questions

by Markham Heid
June 02, 2009

Death and taxes. As the saying goes, nothing else in life is certain.

But in Chicago the final resting place of all tax dollars is far from certain, and one widely used program has re-routed enough cash to have policy makers and property owners asking questions.

Consider two hypothetical Chicago taxpayers, Jon and Jane.

Jon owns commercial space in the Sears Tower, while Jane owns commercial space across the river at the corner of Canal and Monroe. Each pays Cook County $10,000 a year in property taxes.

While tax revenue from each pays for services such as transportation and education, some of Jon’s money will go toward the construction of a new $23.6 million corporate headquarters for a company called NAVTEX.

Why? Because Jon lives in the LaSalle/Central TIF district.

Established in 2006, the LaSalle/Central TIF encompasses a broad strip of the city’s financial district, including the Sears Tower. The T.I.F. stands for “tax increment financing,” and there are currently about 175 such districts in Chicago racking up roughly half a billion dollars in taxpayer money.

First used in Chicago in the 1980s, the TIF program was designed as an urban development tool to help struggling areas increase revenue when all other sources of income were insufficient.

In Jon’s neighborhood and in TIF districts across the city, as property values go up additional tax revenue is diverted into a special fund, which is ostensibly used to redevelop, rehabilitate or in some way improve the condition of the area.

That improvement can take the form of a public works project. But it can also be used to subsidize private developments like the new NAVTEX headquarters.

[For a deeper explanation of TIF districts, see the related links box.]

Too Much of a Good Thing?

While new TIF districts are popping up every year, some people say that the program is overused and cite the LaSalle/Central TIF as one example.

“TIFs were supposed to be a tool to be used particularly where private capital couldn’t do anything,” said Cook County Clerk David Orr. “But in areas like the LaSalle/Central … and many of the downtown TIFs, we’re talking about some very successful areas.”

A representative from the city’s Department of Community Development had no comment on the planning behind the creation of the LaSalle/Central TIF.

When it comes to corruption in government, some say that sunlight is the best disinfectant. The city’s TIF program has plenty of shadowy corners.

“We’re looking at massive abuse,” Orr said Wednesday. “TIFs can be a good tool, but this has become a giant slush fund in the city of Chicago.”

Many of the details surrounding the awarding of TIF contracts are not made public, and it is not known whether the city employs a bidding process to ensure competition among contractors. Some have suggested the possibility of illegal patronage arrangements.

“The mayor has exploited this really strategically,” said Don Haider, a property tax specialist and former budget director for the City of Chicago. “You’ve got all these hundreds of TIFs running around and the mayor has constantly used this as his private piggy bank.”

In response to criticisms of the program, Susan Massel, director of information at the Chicago Department of Community Development, said that “TIF funds help private industry come into a community and then private industry is obviously ultimately what is going to enrich the community.”

Calls to the mayor’s office for comment were not returned.

Death of a TIF

While new TIF districts keep springing up, only one TIF has ever died. And questions surrounding the disbursal of its millions of dollars in assets have yet to be answered.

The venerated Central Loop TIF expired on December 31, 2008 at the passed-ripe age of 25.

TIF districts normally only live to 23. But thanks to legislation enacted in 2000, the Central Loop TIF was allowed to cheat death for two years before increasingly loud calls from a handful of local policymakers led to its expiration.

“I’m not in favor of them being recycled over and over again,” said Cook County Commissioner Robert Steele (2nd District). “I think TIFs are a valuable tool, but they have to be used in the right manner to develop opportunity for growth.”

When the Central Loop district expired, roughly $110 million of taxpayer money previously swallowed by the TIF became available to organizations that receive funds from county taxpayers, such as the Chicago Board of Education and the Forest Preserve District.

But because those organizations would have to formally request the money via new tax levies – a move that would appear to raise the burden on taxpayers – none has thus far asked for any of the Central Loop TIF’s revenue.

“It would have been viewed as a tax increase,” said Marlo Kemp, chief financial officer of the Cook County Forest Preserve district. “It would be very difficult to explain to folks that this is just a redirection of TIF funds.”

Since no one is levying for additional tax funds from the expired TIF, the $110 million will go toward the existing Cook County budget, thus lifting the burden on county taxpayers.

“It’s as if someone just built a multi-million dollar office building and now that office building is going to be paying more in taxes,” said Bill Vaselopulos, Cook County Manager of Tax Extensions, describing the property tax money that will flow out of the expired TIF district.

“Everyone else in the district gets to pay a little bit less because the big gorilla at the corner is paying more,” Vaselopulos said.

But Cook County taxpayers shouldn’t expect much of a pleasant surprise in their bills later this year.

Because of the size of the county budget (roughly $3 billion) and the number of taxpayers in Cook County (about five million residents), the savings from the expired Central Loop TIF aren’t likely to add up to more than a buck or two per taxpayer, not counting inflationary costs and normal increases in tax levies.

And so the death of one TIF may not mean a lot to the average Jon or Jane in Chicago. But the total amount of taxpayer cash pumping into all of the city’s TIF districts is enough to raise eyebrows.

A Heavier Burden

In 2007, Chicago TIFs collected about $555 million from property owners. Filling the hole left by those redirected TIF dollars is one reason why Cook County sales taxes are among the highest in the nation.

[Click here for a map of Chicago's youngest and oldest TIFs.]

“The county is starved for revenue sources and has decided to expand the sales tax to being the highest point in the country,” said Don Haider, who currently serves as the director of Northwestern University’s Kellogg School Center for Nonprofit Management.

And with more new TIFs on the horizon, the taxpayer burden could continue to rise.

However, most agree that the TIF program contributes to the growth of the city and to the influx of tourist money and other revenue.

“This city happens to be going through a tremendous rebirth and regeneration and redevelopment almost everywhere,” Haider said, crediting the TIF program as a major factor in Chicago’s expansion.

But without more transparency on the part of the city, the TIF program will continue to raise questions.

“There certainly could be some good programs here,” Clerk Orr said of the city’s TIF districts Wednesday. “But how corrupted this process is versus how valuable it could be is very hard to know because there’s not enough transparency and public information.”