Tax increment financing may have started out with the best of intentions, but, as with so much ingovernment, those good intentions have gone bad and we all know where the pathway of good intentions often leads.
In 1977, the Tax Increment Allocation Redevelopment Act was passed with the lofty intention of giving municipalities a powerful financial tool that could be used to address adverse conditions of blighted and conservation areas through the funding of redevelopment projects to improve their communities. TIFs essentially allow local governments to redirect tax money back to businesses in exchange for making improvements to blighted locations within the community.
Companies get a tax incentive to make improvements to their business locations and local governments get local businesses to improve properties that are sitting vacant. On paper, it sounds like a win-win.
But not so fast.
Just 20 years into TIF districts in Illinois, there were signs that TIFs were not working the way they were originally sold to the public.
Professors of Economics Richard Dye of Lake Forest College and David Merriman of Loyola University concluded in a 1999 study on TIFs that there is “clear and consistent evidence that municipalities that adopt TIF grow more slowly after adoption than those that do not.”
In 1999, the legislature enacted some reforms to specifically define “blighted” and “conservation” areas, which one would have thought should have been done when the Act was first implemented, but even these reforms did not improve the situation.
One specific example of how TIFs have not lived up to expectations is the city of Chicago. In 1986, the Chicago had fewer than 5 TIF districts, which were bringing in about $2 million annually. By 2017, TIF revenue increased to more than $660 million with 1 in 4 Chicago properties being located in a TIF zone. Adding in the rest of Cook County, 1 in 6 properties are in a TIF zone generating an eye-popping record of $1 billion in annual revenue!
In 2011, Chicago formed a TIF Reform Panel “to create accountability systems that will ensure our TIF investments go to projects that have real return for taxpayers – new jobs and new economic development.”
So, TIFs have gone from a way to repurpose blighted areas of community to now becoming an economic development tool.
The intent of TIFs was to help provide some incentives for private businesses to spend money rehabbing and repurposing blighted properties. The thinking was that rather than having to deal with potential safety hazards of old, abandoned properties – municipalities could provide some tax incentives for local businesses to develop these properties. Unfortunately, TIFs have stopped being about improving blighted locations and have become an economic development tool that more and more businesses are asking to be able to use.
In the case of the Chicago, the city wants Illinois to provide a bailout because the city cannot meet the demands of everyday expenses and pay all the money owed to the city’s pension funds. How can the city realistically dig itself out of the current budget hole when 1 in 4 commercial properties are in TIF zones? This is a real problem.
Another problem with TIFs is the temptation to use them as political favors (this is Chicago, after all). In many cases, TIF money is not about blight or even as something as lofty as economic development. In many cases, TIFs are about the business-as-usual politics in Illinois. In other words, TIF money has become a political slush fund for the well-connected.
The Better Government Association reported that “Mayor Rahm Emanuel’s administration signed off on an elaborate financial shell game that obscured payment of $55 million for renovations at Navy Pier with tax dollars reserved to fight urban blight.”
When has anyone visited Navy Pier and thought about how blighted the area had become?
Clearly, the money earmarked for Navy Pier was politically motivated and had little to do with improving blighted parts of Chicago.
Another example of government being ill equipped to choose winners and losers is the Sears Economic Development Area agreement, first created for Hoffman Estates in the late ’80s with a 2012 expiration that was extended by the General Assembly under former Gov. Pat Quinn to retain Sears’ headquarters in Illinois.
Less than six years after the 15-year extension of the special Hoffman Estates TIF zone was passed, Sears filed for bankruptcy, and now Algonquin-based School District 300 is suing for the millions in diverted taxes.
There have been some efforts to address TIFs. A legislative task force was formed in 2018 and made its final report in June, but it wasn’t formed to fundamentally question the veracity of TIF. Instead, the task force reviews four minor aspects of TIF procedures.
I believe there needs to be a more comprehensive analysis of TIFs in Illinois, which is why I have filed legislation (H.B. 2426) calling for a 2-year moratorium on establishing new redevelopment projects to provide time for a thorough review of the entire TIF process and enactment of reforms to bring the act back to its initial scope, or for the whole process to be scrapped.
Local units of government, especially schools, and taxpayers can ill afford yet another scheme that diverts their hard-earned dollars to the politically well-connected.
• Allen Skillicorn, R-East Dundee, represents the 66th State House District, which includes parts of Algonquin, Crystal Lake, East and West Dundee, Elgin, Gilberts, Huntley, Lake in the Hills, Lakewood and Sleepy Hollow.