Introduction
TIF Districts in Sample
Objectives of the Study
Understanding How TIF Works
The Fiscal Impact Controversy
Findings
How Much Have Taxing Bodies Lost Due to TIF?
If There Were no TIF, What Would Lost Dollars Buy?
What Alternatives Does the City Have?
Property Taxes
Spending the Money
Performance Factors
Reform Strategies
State Legislative and Local Policy Reform

Introduction

At the center of the debate over Tax Increment Financing in Chicago is the issue of property taxes. Many communities, particularly the City of Chicago and the southern portion of Cook County, have been accused of overusing the TIF tool. Once a TIF has been established, it captures all new revenues from within its boundaries for the next 23 years. That leaves revenues from that area for other essential services – schools, parks, libraries, and general government operations – frozen for more than two decades.

As the proportion of our property tax base located within TIF districts climbs higher, concern grows that Cook County is flirting with financial crisis. In the short run, stagnant or shrinking property tax revenues mean fewer dollars for pressing public priorities, or a hike in the tax rate to make up the difference. In the longer term, over-reliance on TIFs could undermine the stability of our tax system as a whole. This concern is shared by lawmakers and public officials in 21 other states that capped the amount of acreage or the percent of equalized assessed value allowed to be under TIF designation. Also, the State of Illinois rescinded the authorization of sales tax TIF districts because the State budget was losing too much money from TIF districts.

Until this study by NCBG there has been little hard evidence to support the claim that TIF is taking a cut out of the public budget. Municipalities claim the benefits of TIF in turning around “blighted” areas while maintaining that the program has no substantial costs. After all, the logic goes, none of this development would be taking place without TIF. But an initial look at the evidence points to the contrary. As the TIF program has become established, more and more neighborhoods that do not meet a common-sense definition of “blight” are being pulled into the program. Over 13 percent of Chicago’s property tax base is now tied up in TIF districts. Property tax revenues from neighborhoods that are already experiencing healthy growth – even without any special government intervention – are being captured by these districts, in effect cutting off taxing bodies from some of their most promising sources of revenue growth.

NCBG’s study examines 36 of the City of Chicago’s 114 TIF districts. NCBG originally intended to look at the impact of all of the TIF districts in Chicago, but due to data limitations and the high number of recent TIFs, which have yet to produce any increment, the scope of the study was limited to a representative sample of TIF districts exhibiting prior growth.

The TIF districts used in this study and their prior rates of growth are highlighted in the chart below:

Fully half of our 36 sample TIF districts were growing at or beyond the City of Chicago’s average annual rate of growth before they were designated as TIF districts – some rather substantially. Over the 23-year lives of these TIF districts, the aggregate impact on losses to Chicago Public Schools and other taxing bodies (including the City itself) will be considerable.

The Mayor of Chicago says Chicago’s share of National and state revenues has been shrinking and the City is limited in its capacity to change tax rates and impose assessments. The City claims that TIF is the only tool it has left for economic development and, furthermore, that TIF is a cost-free tool. This is a common misperception. While National revenues began declining in the mid-1980s, we are beginning to witness an increase in the amount of National and State revenues in recent years (see table on page 22).

NCBG has found that the City of Chicago is increasingly using tax increment financing as a planning tool to influence the character of land use, which in turn provides the tax base. The City is also using TIF as a budgeting tool, to ensure that revenues are allocated to support its preferred development and land use in the TIF district. The analysis we conducted indicates that the new revenue generated is limited (see page 18).

To establish a TIF district, Illinois law requires a municipality to present data demonstrating that the project area has actually been losing valuation for a prolonged period of time. It must show that using tax increment financing in such an area would result in stabilization of the property tax base or that improvements to the property in the district would result in an actual increase in valuation when the property is returned to the tax base after the TIF district expires.

However, NCBG has found that not all TIF districts created in Chicago over the last five years were losing value or not growing prior to becoming TIF districts. We analyzed 36 TIF districts with prior positive annual average growth rates to estimate how their performance impacts Chicago. We found that some areas were already growing as much as 10% on average per year before becoming TIF districts. The city-wide rate of growth during that same time period varied from 1% to as much as 8.4% per year, or an annual average rate of 2.9% per year:

Although an area may not be growing at or above the city-wide average growth rate – or even in some cases at the rate of inflation – still the effect of creating numerous TIF districts in modestly growing areas has an aggregate impact that should be considered. Cumulatively, other local taxing bodies are still facing shrinkage of the natural growth they count on capturing to keep down tax rates.

Certainly, not all TIF districts are bad for Chicago’s economy. However, nor do all TIF districts create an undue burden on our taxing bodies. NCBG is, however, asking several questions:

What has been the rationale for government intervention in redevelopment?

Does TIF correct market failures or simply redistribute revenue? Is TIF the right tool?

Are the fiscal costs of TIF worth the public benefit?

Would a straightforward expenditure of general-purpose government money achieve the same objective at a lower cost in a truly blighted area instead of using TIF?

This study alone cannot provide an answer to all of these questions, but it illustrates the importance of asking such questions.

TIF Districts in Sample

Objectives of the Study

Objective One: Estimate how much “lost revenue” each taxing body (including the City of Chicago and the Chicago Public Schools) has suffered as a result of the TIF program.

NCBG’s approach is based on the assumption that TIF districts are likely to continue growing at approximately the same rate after TIF designation as they were in the period prior to becoming TIF districts. Had the TIF district not been established, that “natural” growth in property values and tax revenue would have gone to the other taxing bodies rather than the TIF district. By multiplying this amount by the tax rates of each taxing body, we can calculate how much money each taxing body is estimated to lose over the 23-year life of the TIF district.

If a TIF district is growing at its prior rate of growth, or slower, then it may be argued that TIF has done nothing to create new revenues for development. In such an instance, TIF is solely a planning tool and not a revenue generator.

Objective Two: Translate the “captured” revenue estimates into Community Benefit Scenarios.

By calculating what the estimated lost revenues could have been used to pay for by the various taxing bodies, we can illustrate the impact of this loss on the community. By capturing property tax revenue that would otherwise have been available a TIF district reduces the benefits that the rest of the City would enjoy from additional schools, parks, infrastructure improvements, libraries or additional public services.

Understanding How TIF Works

There is an ongoing and often heated debate about the effect TIF has on the tax bills of residents and businesses inside a TIF district. To sort out the misunderstandings, it is necessary to distinguish between two different concepts: tax rates and property values:

• It is true that TIFs do not directly affect the tax rate paid.
  The tax rate is determined by the public agencies (the City, the Chicago Public Schools, the Chicago Park District, etc.) based on how much money these taxing districts must raise through property taxes. The tax rate is the same across the City, regardless of whether property is located in a TIF district.
  
  
• However, the successful use of TIF is supposed to increase the value of property, which would lead to a higher tax bill. Tax increment financing works by raising property values in the district, which leads to more tax revenue that can be used to pay for redevelopment activities. A TIF district aims to raise property value in one of three ways: (1) new buildings can be built on vacant land, (2) improvements can be made to existing buildings, or (3) existing buildings without improvements can be assessed at a higher level.

  This third category –often referred to as “gentrification” – is the result of a neighborhood becoming a “hot” real estate market. Improvements to the area (new, upscale residential development, extensive rehabbing or high-end commercial development) make the area more “desirable” to potential property buyers, and therefore drive up prices. This increases the market value of similar properties, and therefore drives up the assessed value of properties in a given area. To the extent that TIF is responsible for accelerating the appreciation of property values, it can impact a citizen’s property tax bill by raising the total amount owed in property taxes.




• TIFs may also have a long term impact on tax rates and levies
  Keep in mind that TIFs freeze the amount of new taxes that go to existing taxing bodies (the City’s general operating fund, the Chicago Public Schools, the Chicago Park District, etc.) for 23 years. Eleven percent of the City’s tax base is already tied up in TIF districts, meaning that all the new growth in those areas does not help to fund basic City services, or the services that other taxing bodies must provide.

  If there is no growth from year to year in the value of the property tax base (EAV) while the costs of government services escalate, then the tax rates will have to go up to keep pace. The possibility of this taking place is a cause for concern about the long-term overuse of TIFs. In fact, the Chicago Public Schools has raised its tax levy each year for the past five years.

The Fiscal Impact Controversy

Policymakers tend to view TIF as operating in one of two ways: "pure attribution" or "pure capture."

Proponents of TIF tend to take the former view, fully attributing TIF revenues to a specific project area and arguing that no increase in property values would have occurred "but for" the project. According to this view, requiring the taxing bodies to participate by foregoing their share of growing property tax revenue is fair because development costs are shared in exact proportion to their participation in future revenues.

Others see TIF as a device designed to "capture" from other governments revenues from increases in property value that would have occurred without the project. The result is a net loss to other taxing bodies such as school districts.

This study uses the prior annual growth figure to determine how much of the increment growth is attributable to “natural” growth that likely would have occurred anyway and how much may be attributed to the TIF program.

NCBG’s analysis found that so far, some TIF districts have done little to create new money for development. Instead, tax increment financing is serving as a tool to ensure that any new tax revenue is budgeted to a particular neighborhood or development project. This process sidesteps the public debate about setting budget priorities. It is also one of the few planning tools with a built-in financing mechanism for implementing the redevelopment plan. NCBG’s findings lead us to ask several important questions about the City’s TIF program: Do the redevelopment plans include the community’s vision? Are certain TIF districts truly blighted? Is it more important to keep investing in a particular TIF district, or is there some other, more universal budget priority that should be considered?

Findings

• The City of Chicago is creating TIF districts in areas that were growing at or above the City-wide average rate of growth.
• Overall, taxing bodies are “foregoing” $1.6 billion dollars of property tax revenues over the next 23 years due to TIF districts.
• Had these TIFs not been established, all of the “natural” growth of property values would have increased the revenue going to the taxing bodies. It therefore represents lost revenues to those taxing bodies. NCBG estimates that taxing bodies in Chicago have suffered $1.3 billion in “lost revenues” as a result of the TIF program.
• Over 23 years, the City of Chicago’s TIF districts will capture $1.3 billion worth of revenue that would likely have occurred without TIF just from the NCBG sample of 36 TIF districts. By capturing this revenue, the City is controlling land use and development for particular areas.
• Some TIF districts are growing at their prior rates of growth, or slower; therefore TIF has yet to create new revenues for development. Why are these TIFs not performing well?
• The City of Chicago has really generated only $362 million in “new revenue” from the 36 TIF districts in our sample. Are the costs to taxing bodies worth the benefits that this “new revenue” is bringing to Chicago?
• Although some TIF money is going toward public improvements, the public and the State have no tools to gauge the costs and benefits of tax increment financing. Without a comprehensive evaluation of costs and benefits, it is impossible to gauge when market forces could take over and alleviate the need for public subsidy.

How Much Have Taxing Bodies Lost Due to TIF?

By projecting the value of the property using prior average annual growth rates and the current tax rates of each taxing body, we can estimate how much money each TIF district is estimated to lose over its 23-year life.

If the estimated amount of increment generated by the TIF district is higher than the “lost” projection, we can estimate the increment due directly to TIF. The difference between the total increment generated minus the natural growth increment equals the “new” increment due to TIF. The sum of “lost” and “new” increment is the total increment “foregone” by the taxing bodies over 23 years.

Of the sample 36 TIF districts that were growing prior to TIF designation, the eight major taxing bodies (over the next 23 years) will:

• Gain $361.9 million of projected “new” increment attributable to TIF.
  
• “Forego” a projected total of approximately $1.6 billion.
  
• “Lose” $1.3 billion of tax revenue that would have probably occurred without TIF

The table below shows the total amount of “lost” revenue for each taxing body based on the sample 36 TIF districts. If data were available for all TIF districts with prior rates of growth, these numbers would, of course, be larger.

The answer to the question about loss to taxing bodies is based on the assumption that TIF districts are likely to continue growing at approximately the same rate after TIF designation as they were in the period prior to becoming TIF districts. Had a TIF district not been established, that “natural” growth in property tax revenue would have been shared among all the other taxing bodies rather than to the TIF fund. TIF therefore represents foregone revenues to those taxing bodies.

TIF helps local governments pay for part of a development project or public improvement without state or National funds and without payments out of their general budget. Thus, TIF is referred to as a "self-financing tool" that supposedly distributes new benefits without imposing costs. However, in areas with prior growth in property value there are real costs to the public associated with TIF.

Local governments and taxing bodies expect to benefit from higher property tax revenues if the TIF district is successful in growing the EAV and the TIF district is dissolved after 23 years. However, the local taxing bodies wait 23 years for that portion of the tax base to be available to pay for any increased service needs within the district. In the meantime, the taxing bodies must find other revenue to help pay for 23 years of increased services. In addition, the taxing districts have to cover any shortfall if the projected tax increment fails to materialize.

If There Were No TIF, What Would Those Lost Tax Dollars Buy?

Chicago Public Schools

After five years of work on the Capital Improvement Program, CPS acknowledges that $2.5 billion worth of unfunded capital needs still remain. This $2.5 billion estimate only addresses today’s capital problems. It does not take into account the ongoing costs of maintenance, upkeep, expansion, and modernization of school facilities or the need for growing operating expenses, such as teach salaries and instructional materials.

With regard to NCBG’s sample TIFs, the Chicago Public Schools would have had an extra $631.8 million in tax revenue to spend on its school buildings, students and teachers. This is equivalent to 25 percent of its unfunded capital needs. This revenue could pay the salaries of an additional 686 teachers earning a $40,000 a year salary annually for 23 years.
If the $631.8 million of tax revenue lost by CPS (see table on page 18 was made available to the schools, 20 new high schools or 33 new elementary schools could be built to alleviate Chicago’s overcrowding problems and improve deteriorating building conditions.

The Chicago Park District

Many communities lack adequate open space and recreation facilities for all ages. Some parks have not seen capital improvements in several years, while they have experienced diminished maintenance of facilities and grounds, and a lack of staffing. In our sample TIF districts, the Chicago Park District could lose $94.75 million (see table on page 18. These revenues would go a long way towards improving recreational opportunities for Chicago residents. The lost revenue would be equivalent to a 35% cut in the Park District’s 2000 Capital Budget of $270 million.

The City of Chicago

Our sample of 36 TIF districts could cost the City of Chicago’s operating fund up to $254.8 million in tax revenue. If this money were available to the City to spend on infrastructure that improves the quality of life in Chicago’s neighborhoods, the City could fund 56 new public libraries, or 11 new police stations, or 63 new fire stations, or 14 new transit stations, or 64 miles of new streets. There are many possibilities for different combinations of infrastructure investment that could be made with $254.8 million dollars.

What Alternatives to TIF Does the City Have?

A key to understanding the impact of using TIF for neighborhood redevelopment is the nature of the other financial resources available to the City of Chicago. The City receives approximately 27 percent of its operating revenues from the National government and the State of Illinois in the form of intergovernmental transfers. Taxes on real estate property generate 19 percent of revenues, other taxes 32 percent, and the remainder comes from various fees and charges.

In addition, the City can borrow money in the form of revenue bonds (which are paid off with revenues generated by the funded project) or general obligation bonds (which are paid primarily from property tax revenues and are backed by the full faith and credit of the City).

The revenue categories that comprise the city budget are: the Corporate Fund, Special Revenue Fund, Debt Service Fund, Pension Fund, and Enterprise Fund. The total amount of revenue available to the City has been increasing over the last five years.

National and State grants have declined in total amounts since the 1970s and 1980s, but were on the rise again since 1998. The City’s budget has relied on those funds to make up more than a quarter of the total budget each year.

Since the 1980s when the Reagan Administration drastically reduced National involvement in local government affairs, cities have struggled through the change. One of the most visible actions during the 1980s was the elimination of National General Revenue Sharing (1987) which had been in place since 1972.

General Revenue Sharing was not a major revenue source, but Chicago did use it for a major portion of capital improvements funding. Loss of these funds may have caused a reduction in expenditures for infrastructure in the 1980s. But since 1992, the City has been able to use its bonding capacity to generate over $7 billion in new infrastructure investment. It utilized the strength of its property tax base to provide the backing for these bond issues.

In constant dollars, cities like Chicago have seen a loss of National aid from an average of $34.61 per capita in 1977 to an average of $25.70 per resident in 1997. However, state support for municipalities has increased in both current and constant dollars.

The main revenues received by cities are the state tax on motor fuels and a share of the state income tax. The largest growth revenue sources are sales taxes, utility taxes fines, and licenses and permits.

Property Taxes

The real estate property tax is critical to funding education and municipal services. Within the boundaries of the City of Chicago, for example, eight separate political jurisdictions levy taxes on the value of real estate. Some jurisdictions, such as the Chicago public school system, are highly dependent on the tax levied on the owners of property.

The distribution of the 2000 total property tax revenues among the eight jurisdictions that operate within the physical boundaries of the City of Chicago is shown in this chart.

Tax Levies

A tax rate is set by each government, measured in dollars per $100 assessed value. This rate is multiplied by the assessed value in the jurisdiction to determine the amount of revenue to be raised. This revenue figure is called the "tax levy." The County is responsible for issuing tax bills, collecting taxes, and distributing tax revenue to local governments within the county.

In theory, if assessments go up and government spending stays the same, the levies should decrease because the tax base is larger. In most cases, the local government limits the annual levy increase to 5 percent. Without growth in the assessed value of the property tax base, a unit of government that wishes to increase its levy must increase its tax rate. If the assessed value grows enough, local policy allows a rate cut. If a government is not taxing at its maximum levy ceiling, it may increase its levy by more than 5 percent.

Tax Levy Trends Last Five Years

Tax levies increased for the Chicago Public Schools by 10.9 percent from 1995-1999. The Cook County Forest Preserve witnessed the largest levy increase of all taxing bodies, jumping 12 percent in five years. The Community College District has also increased its levy by 7 percent in the same period.

Spending the Money

TIF dollars can be spent for infrastructure and other public improvements (including improvements to schools, parks, and other public buildings) or to directly subsidize private residential, commercial, or industrial development.

These priorities are laid out in a “Redevelopment Plan” for each TIF district. Approved by the City Council, the Redevelopment Plan outlines the priorities for a TIF area and presents an estimated budget. The major limitation on TIF funds is that they cannot be used for the “bricks and mortar” costs of construction (except for affordable housing), or for privately owned equipment. TIF money can b used for:

• Planning expenses, such as studies and surveys, legal and consulting fees, accounting, and engineering.
• Acquiring land and preparing it for redevelopment, including the costs of environmental clean-up and building demolition. Especially in older areas, site preparation reduces costs and eliminates a major barrier to redevelopment. To aid this process, the TIF law gives the City expanded powers to acquire private property through its power of “eminent domain.” If the City can show it is acting for a “public purpose” – a very loosely defined idea – it can force property owners to sell their land to the City at “fair market value.” The City then re-sells the land to private developers, often at deep discounts, or uses it for public buildings.
• Job training and day care expenses for companies located within the TIF district, or for companies that are planning to locate within the district. Proposals are currently on the table that advocate establishing job-training centers that would serve the job-training needs of all companies within a TIF district, regardless of whether or not these companies have received a direct TIF subsidy.
• Renovation and rehabilitation of existing buildings.
• Financing and interest subsidies for the loans a developer takes out to pay for a project.

The chart below shows the estimated total budget for the 36 TIF districts examined in this study. The City plans to spend the most TIF revenue on public improvements, property acquisition and the rehab of existing buildings. The estimated expenditures tell us a lot about the potential benefits from these TIF districts. Is it worth it to the taxpayer for the city to capture billions of dollars of property tax revenue in order to spend it on acquiring property for development and or subsidizing the rehab of a building for a developer over the next 23 years? Will the type of development that is being subsidized in these TIF districts benefit the community?

Notes to table above: "Public Improvements" refers to public infrastructure improvements undertaken with TIF funds in the TIF district, such as streets, alleys and sewers. "Capital Costs of Other Taxing Districts" refers to projects paid for by TIF district funds for schools, parks and other projects that are under the jurisdiction of taxing districts that overlap the TIF district (such as Chicago Public Schools or Chicago Park District, Cook County Forest Preserve District, etc.).

A large part of the TIF estimated budgets is targeted for infrastructure investments. Will these capital improvements benefit the entire community or just one particular development? Should we be diverting tax dollars for infrastructure improvements at all? Or should the capital improvement plan cover these expenses? Are we supplementing the capital improvement budget with TIF or supplanting it?

The estimated budget for the 36 TIF districts in this study provides only a glimpse into the potential benefits derived from TIF districts. Careful measurement of the costs vs. the benefits of actual expenditures needs to be done to fully analyze the impact of these TIF districts on the taxpayer. However, NCBG’s analysis illustrates that there is a definite trade off to using TIF.

Is your neighborhood waiting for a new school? An alley, sewer, street or sidewalk repair? Park improvements? If so, you may be waiting a little longer than you would be if there were no TIF districts in areas that were already growing in value. The City is capturing those growth dollars to help pay for projects in TIF districts for up to the next 23 years. If the City is using those captured tax dollars for projects that the community decides are needed and improve the quality of life for a neighborhood, then the benefits may outweigh the costs of the TIF district. However, if the community is not benefited by those targeted investments, then the costs outweigh the benefits to usually everyone but the developer.

The following table summarizes some of the actual expenditures made by the City of Chicago in the 36 TIF districts in this study. This table shows how much a private developer invested in a project, how much the City provided in TIF subsidy and how many jobs were created and retained by the development. As of 2001, the City provided $93.9 million in TIF subsidy in areas that were already growing in value. This investment by the City of taxpayer dollars leveraged nearly $363 million in private investment. At first glance this might seem like a good return on the City’s investment. But, it is important to keep in mind that in many of these areas the same development most likely would have occurred on its own without public subsidy. If that is the case, then $93.9 million dollars could have gone to the taxing bodies to support schools, infrastructure improvements, parks and other services throughout the City.

Performance Factors

It takes at least two to three years for most TIF districts to produce any measurable increment. Chicago did not begin to use TIF widely until 1996; 67 percent of all Chicago TIF districts were created since 1996. The available data to measure performance has only recently become available through the Cook County Assessor’s office and the County Clerk. TIF districts also need time to attract private investment, to begin development, and for the new development to be taxed by the County.

The City of Chicago’s TIF Annual Reports include information about how much new tax revenue the TIF has created, how much property values have increased, job creation, and private investment. These are important performance measurements. If we were to look only at these standards, we would conclude that TIF has been highly successful, with an average equalized assessed value growth rate of 7 percent compared to an average growth rate of 2.9 percent for the entire City.

However, we cannot rely on only one standard to measure the performance of such a complicated economic development tool. Determining whether a TIF is successful should go beyond measuring whether or not the equalized assessed value of the property in a TIF district has increased. There should be a uniform, State mandated system for measuring performance, so the public and policy makers can better assess the true benefits versus the fiscal costs of TIFs. Currently, the State TIF law does not require the City to evaluate the performance of TIF districts and there is very little data available on the public benefits of the TIF districts. The NCBG TIF Task Force is concerned about this problem and proposes several reform strategies at the local and state level.

Reform Strategies

Illinois cities and villages are given the almost exclusive role in determining whether economic development should be encouraged through the use of tax increment financing districts. These districts have the ability to capture, for up to 23 years, some or all of the added real estate tax revenues paid on parcels of land after they have been improved under the terms of redevelopment agreements.

Tax Increment Financing (TIF) was implemented in Illinois by state enabling legislation in 1977. As more municipalities began to use TIF as an economic development tool, the need to reform the law became apparent. Public school districts and affordable housing activists, led by the Statewide Housing Action Coalition (SHAC), supported changes in the Illinois TIF law in 1999. The reform attracted substantial bipartisan support. For example, Chicago State Senator Miguel del Valle (D) and LaGrange State Senator Christine Radogno (R) were prominent among legislators calling for reform.

The 1999 reforms brought some welcome changes to the TIF process in Illinois. Among the reforms were provisions providing for earlier community input, incentives for developing affordable housing, and a requirement to assess the impact on housing in the prospective TIF district – all favorable to Chicago neighborhoods and citizens. In the same reform law, however, the Illinois TIF Association successfully championed a provision allowing TIF districts to be created even in areas that have growing assessed valuation if the rate of growth is below the overall city average growth rate.

Obviously, the struggle to reform Illinois TIF law is not over. NCBG, after studying TIF for the last six years and working closely with communities that are meant to benefit from TIF, has concluded that a TIF district should:

• Create jobs, not merely transfer them from another location.
• Lead to value added activity and have multiplier effects on the local economy.
• Prioritize blighted areas, not ones with substantial value
• Improve the public infrastructure.
• Stimulate the rehabilitation or removal of deteriorated or dilapidated buildings and the creation of mixed-use in-fill redevelopment.
• Provide the full range of basic neighborhood goods and services and employment opportunities.
• Increase the supply of decent, accessible and affordable homeownership and rental opportunities.
• Support development of industrial sites to attract new industries and provide suitable locations for expansion and relocation of existing industries.
• Provide financial assistance to new and existing businesses.

State Legislative and Local Policy Reform

Taxpayers and other taxing bodies should have a greater voice in the TIF approval process. Tax increment financing is usually sold to the public with assurances that “TIF does not increase your taxes.” However, NCBG’s study indicates clear warning signs that the liberalized use of TIF captures the natural growth in property tax base, putting more strain on taxing bodies to compensate.
The City’s departments, schools, public library and park district must expand services to accommodate development in a TIF district. Thus, the capture of natural growth places an unfair burden on taxpayers whose property tax payments must make up that difference.

The Illinois TIF legislation, initially passed in 1977 was amended in 1999 to include clearer definitions of blight factors. The 1999 reform mandated housing impact studies for certain TIF districts, added early public notice provisions, created an Interested Parties Registry, and required an annual report for each TIF district, and inclusion of a public member on Joint Review Boards . These reforms have been valuable in ensuring increased accountability and public participation in the creation and administration of TIF districts. However, especially in the City of Chicago, this study points to further needed changes in state law. Therefore, NCBG recommends that Illinois TIF legislation be revised in the following ways: