I was at a BBQ this weekend for Labor Day and a friend of mine told me that she had been reading 'Tax Dollars and Sense,' but was embarrassed because she had no idea what tax increment financing is. That's understandable.
So, in an effort to hold up the "sense" part of this blog, here is a quick breakdown of what a TIF is and how it works:
Local and state governments sometimes use subsidies to encourage the redevelopment of economically challenged areas. Tax-increment financing (TIF) has been an increasingly common tool used for this purpose. TIFs allow cities and towns to borrow against future tax revenues from an area in order to invest in immediate infrastructure or development projects.
When a TIF district is created, it freezes the taxable value of property under a TIF agreement with a developer for 23 years, diverting any additional revenue that results from increased property values or new development into a separate fund overseen by the city. Generally, TIF money is to be used for community improvement, such as affordable housing development, improving parks and schools, fixing basic infrastructure, putting vacant land to use, creating well-paying jobs, and meeting other local needs.
No other mayor embraced TIFs more than Chicago’s previous mayor, Richard M. Daley. By the time he left office in May 2011, there were 160 TIF districts covering one third of the city. With this growth in TIFs in Chicago, there has been increased attention paid to the use of TIFs and the concern that the funds collected were being misappropriated for projects that didn’t meet their intended purposes. For example, concerns have been raised that that much of the money created through TIF has been used to develop areas in Chicago least in need of economic revitalization, give lucrative subsidies to major corporations and developers, and reward loyal aldermen -- all while diverting future tax revenue increases from the truly blighted areas that need them the most.
Until recently, much of the raising and spending of money through TIF was done behind closed doors, leaving little ability for the public or even public officials to properly evaluate the projects and use of public dollars. Thanks in large part to muckraking journalism, such as the Chicago Reader’s “Shadow Budget” series, public awareness about the abuse of TIF dollars has increased, as has the demand for reform.
In response, many elected officials, including the new administration, have been calling for increasing transparency and accountability of TIFs. Mayor Emanuel even appointed a TIF Task Force who recently submitted their recommendations for how to reform TIFs in Chicago.
Here are some additional resources if you are interested in learning more:
City of Chicago's TIF Website
The Chicago Reader TIF Archive
Mayor Emanuel's TIF Task Force Report
Illinois PIRG's Report, "Shining a Light on Tax Increment Financing in Chicago"
BGA's "How a TIF is Created"
BGA's "How a TIF Works"