#452: The 1,001 TIF Guide, Part 1 of 2

March 18th, 2015

I recently went to a political thing that had a courageous, honest, truthful speaker who clearly knew diddlysquat about TIF districts.

While I admire the passion the man (who was not either of the mayoral candidates) exhibited, it drove me nuts that media efforts to educate the public on how city finances work have culminated in “TIF bad.”

With that in mind, I’m going to use the next two of my 1,001 afternoons to tell you what tax increment financing is and how the current system is screwing you with your pants on.

Why TIFs are good

The first thing to understand is that TIFs can be very good things.

Here’s a list of Illinois cities and towns with TIF districts. The good ones brought jobs and infrastructure to areas that need them. The best did it without the stuff and nonsense we’ve seen in Chicago.

A TIF is a very powerful funding tool, but like any other tool (a hammer) it can be used for good (building a home) or bad (bashing people’s heads in like in that deceptively peppy Beatles song.)

Yes, the last two mayors have used TIFs to fund, well, whatever they wanted. But Daley and Rahm are smart guys – they would have figured out other questionable ways to buy what they wanted. In fact, between big-deal private contracts and high-interest taxable bonds, they did.

So, for the record, the person writing this TIF guide does not think TIFs should be eliminated.

What we should focus on is reform, setting very high standards for when that particular funding tool can be used. If we get rid of TIFs, the politicos will find some other fund to fleece and we’ll have deprived ourselves of a powerful tool for fighting blight.

You might think it naïve that I believe reforming TIFs would make Chicago politicians responsible. I think it naïve that you believe eliminating TIFs would make Chicago politicians honest.

Why TIFs are bad

A TIF isn’t really like a hammer. If anything, it’s like a credit card you give your kid when they go off to college. You can tell them all you want it’s “for emergencies only,” but you know they’re going to keep finding more and more things they consider “emergencies.”

With TIFs, that’s the “but for” rule. That means the city can’t create a TIF unless the area would stay blighted “but for” this money. (Clarification added 11:30 a.m.: More technically, the “but for” rule refers to the fact that once the TIF is set up, it can only borrow against money that wouldn’t have been created “but for” the TIF. But that’s needlessly complicated for today. It’s all the same concept: Things would stay crappy but for the TIF.)

The first TIF project in Chicago was under Harold Washington, patron saint of progressive Chicago political wonks. He set up a district to benefit Block 37. That’s an area that had resisted development efforts for decades, so there’s a strong case to be made that “but for” the TIF, it would stay a squalid mix of discount stores, vacant lots and theaters showing dirty movies.

(It ended up a sort of meh shopping mall, but that’s a different, horrifying story.)

However, when you get a major source of cash with very few restrictions on how you use it — and all you have to do to get to it is say “but for” and “blight” — you better believe those terms got twisted like the college kid trying to convince his mom not having pizza is an “emergency.”

Mayor Emanuel’s administration has approved $1.3 billion in TIF projects. This adds to the $1.7 billion in TIF money approved under Daley.

Advocates cite things like low-income housing, “L” station improvements and road repaving.

Detractors cite things like $55 million to buy land for a Marriott hotel/DePaul sports arena that won’t pay any property tax because we own it.

I think of it in terms of the beautiful Medinah Temple downtown. The one that’s now a Bloomingdale’s. The building and adjacent Tree Studios was saved in 2000 by a $59.5 million redevelopment project that included $12 million of TIF money.

First, that area of downtown is in no way blighted. It’s the shopping district. Second, there was an alternate development plan. It would have ravaged the buildings for condos and a parking garage. Daley just didn’t like it.

They used money meant to spur development to stop a development. That’s not what the money was meant for, even if I’m thankful each day these beautiful, historic buildings were spared.

The world’s a bit more nuanced than “TIF bad.”

What the law says

So Chicago’s using money meant to create development in blighted areas to stop developments in ritzy areas and it’s creating projects that won’t pay property taxes when a TIF district’s only job is to “enhance the tax bases.”

Surely the state of Illinois — which created the law that allows TIFs — is going to crack down on that like a mama who just got the credit card bill for two cases of Natty Light.

Here’s what the state law that lets TIFs exist has to say:

“Redevelopment project” means any public and private development project in furtherance of the objectives of a redevelopment plan.

In the ‘90s, they added some specific restrictions, including (literally) that it can’t have a golf course, but in general you can call something a redevelopment project if it… redevelops.

Ah, but what’s a redevelopment plan then? That has to have some requirements.

“Redevelopment plan” means the comprehensive program of the municipality for development or redevelopment intended by the payment of redevelopment project costs to reduce or eliminate those conditions the existence of which qualified the redevelopment project area as a “blighted area” or “conservation area” or combination thereof or “industrial park conservation area,” and thereby to enhance the tax bases of the taxing districts which extend into the redevelopment project area.

So this limits TIFs to… whatever you say would make bad things good.

You don’t want to have too many restrictions (“I’m sorry, we can’t build that shopping mall here because we can only use that money for industrial jobs”) but, come on! The law lets the college kid define “emergency.” Damn right you’re going to get some bills for pizza and beer.

Your head’s spinning, right? Well, take two day’s breather because on Friday we’ll get into how TIFs work.

Read part 2

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You are currently reading #452: The 1,001 TIF Guide, Part 1 of 2 by Paul Dailing at 1,001 Chicago Afternoons.

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