Tax increment financing (TIF) has been a hot topic in the news over the past couple days. The Chicago News Cooperative’s article, “Tracking TIF Spending,” analyzes how and where TIF money is spent in Chicago using new data collected by CNC. Over at the Reader, Ben Joravsky is fuming against them again. And Progress Illinois covered a “corporate welfare trolley tour” that was held by community groups and the Chicago Teacher’s Union, calling for the end of the “TIF slush fund.”
Despite all of the controversy surrounding it, tax increment financing is not necessarily a bad thing. It’s a tool that is used to encourage development in economically challenged areas. It allows cities to borrow against an area’s future tax revenue to in order to invest in immediate projects or encourage present development. When it’s used properly and sparingly, TIF can promote enduring growth and stronger communities.
When it is used improperly–as is obviously the case in Chicago– TIF can waste taxpayer resources or channel money to politically favored special interests.
So aside from getting rid of TIF altogether, what can be done to change the way TIF is used in Chicago?
After taking office, Mayor Emanuel appointed a TIF Task Force to develop recommendations on how to reform TIF in Chicago, and they released their report last month.
Essentially, the TIF Task Force is recommending a new system in which every TIF district has clear goals and performance metrics, is part of an overall economic development plan and budget, is up for review every five years and if the TIF district does not deliver expected returns, there will be “consequences.” They are also calling on the Mayor to appoint an internal body to oversee all aspects of TIF. To read their full report and recommendations, go here.
These recommendations are a good start. But, they do not go far enough in protecting taxpayers. First, there is no mention of public oversight or transparency. In fact, their recommendations do not mention the public at all. Second, the Mayor still has full control over the process. The Mayor is responsible for appointing the internal TIF body. The Mayor is responsible for creating an economic development plan and a capital budget. The Mayor is responsible for holding developers accountable. Surely, in order for TIFs to work for the people of Chicago, Aldermen and the public must be part of the process. Third, the “consequences” that recipients of TIF funds will face if their goals aren’t met are not defined. Finally, if these recommendations are implemented, there will still be no way to ensure that TIF money is only used to spur development in economically challenged areas.
So, Mayor Emanuel should use the TIF Task Force recommendations as a starting point– not an end point.
Here are principles that should guide TIF reform in Chicago to ensure that the public is protected:
TIF districts must be targeted and temporary. TIF should only be used in service of a specific development strategy and only in cases where evidence shows that it is likely to succeed. TIFs should not become an all purpose tool to woo developers. TIF should only be targeted toward areas in special need of development, for projects that are unlikely to occur without public intervention, and with a defined time limit at which point the property’s tax revenue will once again be used for general public purposes.
Subsidy recipients must be held accountable for meeting goals. TIF agreements should include measurable targets for success, and regular performance reviews should measure progress towards those benchmarks. Where possible, municipalities should retain the ability to demand return of some or all of the money used to subsidize private investors in the event that development promises are not fulfilled.
Information on TIF must be transparent. Because TIF has long-term implications for a jurisdiction’s finances and ability to provide public services, the decision to create a TIF district should come with the highest level of transparency and public participation. In addition, jurisdictions should supply detailed, ongoing information about the finances and performance of TIF projects via the internet, following “Transparency 2.0” standards of budget and spending disclosure.
Citizens must have the tools to evaluate the benefits and trade-offs of TIF. Governments should account for the costs of TIF districts as part of a jurisdiction’s overall budget—enabling the public and decision-makers to evaluate the trade-offs involved in tax-increment financing and the impacts on other public services.