Study shows TIFs are ripe for reform
April 24, 2007
In recent years, local governments, especially Chicago’s, have relied on tax increment financing districts as if they’re a magical and painless solution to their economic development needs. But now a new report from Cook County Commissioner Mike Quigley exposes some of the myths behind TIF districts and recommends some worthwhile reforms. His report should not be ignored.
When a TIF is created, the city determines the value of all property within its boundaries in the first year. For all taxing bodies, that base is used for the next 23 years to determine their share of the property tax pie, which essentially means their property-tax take is frozen for more than two decades. But property taxes are not frozen — they increase as the value of property in the district increases. The extra taxes generated by the rise in property value go into a pot that the city uses for development.
One of the myths of TIFs is that those taxing bodies are not losing money, because property values would not have increased if the TIF hadn’t spurred development. But as Quigley’s study found by comparing areas within a TIF with those outside a TIF, “there is evidence that a significant portion of the growth taking place inside the TIF districts would have happened even without the TIF, which means that the property tax revenues of local taxing bodies do in fact suffer.” Taxpayers suffer too, because dollars diverted to TIFs are dollars that must be collected elsewhere.
Quigley proposes several reforms. First, he wants the state’s TIF laws be changed so that the base year is adjusted for inflation annually, to help taxing bodies keep up with natural increases in their costs. He also proposes requiring an analysis of the effects on taxing bodies before any TIF is created; requiring TIFs to have detailed budgets tying every dollar to a spending goal; requiring TIFs to better account for surplus amounts each year, and requiring all taxing bodies affected by a TIF to have a say on a joint review board that oversees them. He also wants the county’s representative on the review board to vote as directed by the County Board. And he would replace Chicago’s TIF oversight board, which he says is too much of a rubber stamp for the Daley administration, with neighborhood-level oversight.
Those and other proposed reforms — such as making information about TIFs more easily accessible, particularly on tax bills — should not be seen as anti-TIF. Instead, they are ideas that would improve oversight, temper some of the negative effects of TIF districts and make the process far more transparent.
Many people have been beating this drum long enough, Thanks Ben Joravsky. Patrick McDonough