City gives a little in TIF battle

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Last month, a resolution co-sponsored by 34 aldermen that would identify and redirect surplus funds from the city’s tax-increment finance (TIF) districts failed to reach a vote in City Council. But the issue is not going away.

The use of TIF districts as an economic development tool in Chicago has long been controversial. When a TIF district is created, property tax revenue that usually goes to governmental bodies that levy taxes — for example, the city, park district and public schools — is capped at the amount then being generated. As property values increase, creating additional tax revenue, the new money goes into a fund controlled by the mayor — for up to 23 years.

Debate rages over whether this process shortchanges resources for Chicago Public Schools and other units of local government. Though there’s disagreement about the impact of TIF on general school revenues, everyone agrees that TIF money alone can’t solve the district’s budget problems.

“The property tax cap, the state funding formula — these are bigger issues when it comes to the amount of money CPS needs,” observes Rachel Weber, a professor of urban planning at the University of Illinois at Chicago who has studied TIFs. But because TIFs draw from school revenue, “there’s both an empirical and a moral argument to be made to return some money to CPS.”

There’s also strong precedent. Chicago has repeatedly turned to TIFs to finance school construction. During the building boom of the Paul Vallas years, gentrifying areas like Bronzeville, the Near North Side and the South Loop received TIF money for school projects.

However, historically, the amounts involved were a minuscule portion of total capital spending by CPS. In 1998, when CPS faced challenges taking on additional construction debt, it anticipated only $37 million in TIF money, mainly from the TIF district in and around Cabrini-Green.

See “Board has high achievers in mind here,” Catalyst November 1997 and “Funds not assured past 1998-99,” Catalyst November 1998.

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In 2006, over aldermanic objections, Mayor Richard M. Daley used TIF money to back a bond deal that brought in about $500 million dollars and laid the financial foundation for his billion-dollar school construction initiative, Modern Schools Across Chicago.

Equity concerns have been raised about using TIF funds to build and renovate schools. A 2013 analysis by Stephanie Farmer of Roosevelt University found disproportionate spending on college preps and other schools with admissions criteria, relative to the amount spent on non-selective, neighborhood schools.

And using TIFs to raise capital money can pit school renovations against broader economic development needs. As the Chicago Tribune reported in 2013, TIF funds intended for street repairs, commercial revitalization, job training and other supports in revitalizing neighborhoods have been diverted to pay the debt incurred to build schools. The article highlighted South Shore International College Prep High School. The new South Shore — now a selective-enrollment high school — enrolls just 567 students, far short of its 960-student capacity.

Meanwhile, the South Shore TIF and neighboring TIF districts paid nearly $30 million of the construction debt between 2007 and 2013, and will pay another $30 million by 2020. Leslie Hairston, the neighborhood’s alderman, told the Tribune, ”It was very frustrating — when I had development ideas or businesses that we were trying to bring into the community — to be told there’s no money in the TIF.” (Note: Two of the Tribune reporters on this story, Heather Gillers and Jason Grotto, previously reported for Catalyst Chicago.)

See “Building plan hinges on TIFs,” Catalyst November 2006.

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As the financial pressures on CPS have increased, so have efforts to redirect TIF funds back to the district. Since 2010, the Chicago Teachers Union and the parent advocacy group Raise Your Hand have loudly advocated for TIF reforms as a way to increase funds for schools.

In 2011, Ald. Scott Waugespack (32nd Ward) and 14 of his colleagues began pushing an ordinance that would have automatically triggered a surplus in TIF districts that took in more than $1 million and sent a portion back to CPS. Though the measure eventually acquired 30 co-sponsors, it died in committee.

Since taking office, Mayor Rahm Emanuel has regularly declared TIF surpluses and sent some of those surplus funds back to CPS. According to city budget director Alexandra Holt, the city has returned nearly $350 million in TIF surplus funds to the district since 2011.  But critics charge the yearly amounts are small, and the process to determine what counts as surplus is opaque.

In February, 34 aldermen, led by Carlos Ramirez-Rosa (35th Ward), sponsored a resolution to find unused TIF funds and send them back to CPS. But City Council Budget Committee Chair Carrie Austin referred the measure to the Finance Committee.

At press time it was unclear whether the resolution would resurface for a vote in March. Ramirez-Rosa says that with or without a vote in City Council, the immediate next step is up to Mayor Rahm Emanuel. “We don’t need the resolution for the mayor to act. He could do it right now.”

The day the resolution was tabled, Holt sent a memo to aldermen saying that if they choose to stop TIF projects in their wards, City Hall will would add its share of the proceeds to the CPS share. This would give the district 70 percent of any surplus rather than the usual half. (Ramirez-Rosa provided Catalyst with a copy of the memo.)

However, the Mayor’s Office has been silent regarding declaring surpluses in the TIFs it controls, which hold the bulk of potential funds.

Some longer-term revenue solutions involving TIFs would be tough for Chicago to put in place. Other cities exempted their school systems from TIFs at the get-go, allowing them to keep all new property tax revenue generated by development. But in Chicago, says UIC’s Weber, “that train has left the station.”

However, another strategy used elsewhere might eventually have a better chance here. In other cities, school systems can contest City Hall’s TIF policy in various ways, such as blocking efforts to open a new TIF district. This is especially true when they have an elected school board. Given the recent Illinois House of Representatives’ overwhelming vote in support of an elected school board in Chicago, it’s possible that someday CPS might put up more of a fight regarding TIFs.

See “Aldermen sign on to CTU-backed TIF ordinance,” Catalyst October 2011 and “Rahm and Reform: How Far Did He Go?” Better Government Association, September 2014.

Photo: coins and skyscraper/shutterstock.com

  • Anton Cermak

    Articles about TIF consistently mention that it is a program that is “controlled by the Mayor,” but fail to note that these projects also must secure approval from City Council. If the majority of the Alderman really do not wish to see TIF-funded projects move forward, then they have the ability to see that accomplished.