TIFs have become a key ingredient in Chicago’s industrial retention and development strategy, with more than three dozen industrial TIFs already in place. A vibrant industrial sector can create living-wage jobs for Chicago residents, train the unemployed or underemployed for positions with higher wages and better benefits, and help insure a healthy and diverse tax base. TIFs can help retain manufacturing jobs and attract new companies by helping to prepare vacant industrial sites for new development (such as environmental clean-up or the demolition of vacant and outdated facilities), assist an existing company to expand their facilities, help fund job training or day care programs, and improve industrial infrastructure such as viaducts or streets.

In many cases, these TIFs are generating money for redevelopment more quickly than commercial or residential TIF districts – which means more money in the bank for industrial projects. Just as importantly, the industrial projects that have been funded with TIF revenues have generally attracted more private investment for every public dollar allocated than other types of development. These developments are good news for those who want the City to make a sustained commitment to responsible industrial development that benefits Chicago residents as well as the business community.

The State of Industry in Chicago

Chicago has 22 recognized industrial corridors. While Chicago still has a viable industrial base, some reports maintain that Chicago continues to lose large numbers of jobs, particularly in the manufacturing sector. A November 1998 study by the Woodstock Institute reports that Chicago lost 42,000 jobs – mostly in manufacturing – between 1991 and 1996. During the same period, Cook County’s northwest suburbs and towns in DuPage County gained jobs (Chicago Sun-Times, November 25, 1998, p10).

On the other hand, experts agree that Chicago remains a place of great opportunity for industry. A March 1998 Arthur Andersen report commissioned by the City of Chicago’s Dept. of Planning and Development predicted a bright future for Chicago industry, provided that the City makes a concerted effort to attract and retain industry (Arthur Andersen LLP Real Estate Services Advisory Group, City of Chicago Industrial Market and Strategic Analysis, March 1998).  Chicago remains a national transportation hub by air, rail, and highway, the report finds, noting that the City’s proximity to a large labor force is a major asset. The Andersen report forecasts potential increases in industrial property tax revenues of nearly $220 million between 1998 and 2005, as well as the creation or retention of up to 31,000 jobs. The Andersen report states that industrial growth also can help spur development throughout the community:

Importantly, industrial development can be a major redevelopment tool for the City to use in restoring economic vitality to abandoned brownfield sites and blighted city neighborhoods. The assembly and cleanup of sites restores citizen and investor confidence in areas and the attraction of expansion and new business brings the most essential ingredient of area redevelopment – new jobs [emphasis added]. Industrial redevelopment compliments residential and retail development by providing an economic base for the latter and by allowing the revitalization of sites not appropriate for either retail or residential development (Arthur Andersen LLP Real Estate Services Advisory Group, City of Chicago Industrial Market and Strategic Analysis, March 1998, p25).

Where Are the City’s Industrial TIFs?

As noted above, there are 22 recognized industrial corridors in Chicago:

There are 47 industrial TIF districts – some in each of the City’s designated planning regions.  Already, the 42 neighborhood industrial TIFs (five are in the Central area) have generated almost $86 million in increment (the new property tax revenue t/at can be used for redevelopment). So far, the City has pledged $213.2 million of TIF money to private developers and existing companies. These direct subsidies are expected to generate an estimated $1.15 billion in private investment. That translates into almost  $5.40 in private investment for each TIF dollar promised. Over their 23-year lives, the City has estimated the budgets of these TIFs to top $2 billion – including almost $132 million for job training – although these funds will not be spent unless the TIFs actually create the revenue anticipated by the City.

What Types of Industrial Projects Have Been Funded With TIF Dollars?

TIF dollars can be used to help existing companies expand their operations, lure new companies to come to Chicago, or help companies to relocate from another site within the City that is no longer viable.  While TIF funds cannot be used to pay for the “bricks and mortar” costs of new industrial construction, they can help a company building a new facility by paying for costs such as land acquisition and preparation or assist with financing. 

See a list of redevelopment projects that have received TIF subsidies in Chicago’s industrial TIF districts:

How Can Industrial TIFs Affect Job Training and Creation?

One of the most important ways for industrial development to benefit the City as a whole is through its ability to create good-paying jobs. Overall, the City reports that TIF deals are creating 12,767 jobs and retaining 21,289 more.   As the above chart shows, 3231 of the new jobs and 7374 of the retained positions are in industrial companies. On the whole, jobs in the manufacturing sector tend to pay better wages and provide better benefits than the retail jobs created through many other TIF subsidies. In fact, the U.S. Dept. of Labor’s Bureau of Labor Statistics reports that the average hourly manufacturing sector wage (including supervisors on down) is $16.66, a third more than the $11.44 for comparable retail sector jobs. Total compensation – including benefits, which are generally considered to be part of a worker’s overall pay – averages $24.30 per hour for manufacturing jobs compared to $14.71 for retail positions (U.S. Dept. of Labor, Bureau of Labor Statistics, March 2001.)

In addition to the type of jobs that are being created, residents should also be concerned about who are getting these jobs. Preferably, low- and moderate-income residents of the TIF district – or at least Chicago residents –  should get first access to  jobs created with the City’s TIF dollars. One effective way to accomplish this is for the City and the company receiving the TIF subsidy to work with a community-based organization to recruit job applicants from the surrounding community.  For example, the New City YMCA LEED Council has been successful in matching low-income residents of the Near North Side with TIF-created jobs in the Goose Island industrial area.

Job Training

Community-based organizations can also play a major role in training Chicago residents for the new jobs available in TIF districts. State law allows TIF funds to be used for job training, as long as the people who receive the training are employed by companies within the TIF.  The estimated budgets for the 47 industrial TIF districts s include $164.7 million for job training over the 23-year lives of these districts, although there is no guarantee that the money will actually be spent for that purpose. Still, the size of the job training budgets – particularly in the newer industrial TIFs – indicates a real interest in the use of TIF dollars for workforce development.

So far, the City has interpreted the State law to mean that only companies that receive a TIF subsidy for other purposes (such as expanding their facility or building a new one) can receive job training dollars.  The actual language of the State TIF law, however, only specifies that the programs be limited to “persons employed or to be employed by employers located in an economic project area.”

The need to train unemployed Chicago residents, as well as incumbent workers in Chicago’s industries, has been pointed out by NCBG, industry councils, and other community-based organizations, which emphasize that creating career-path jobs for city residents is one of the strongest measures of true economic development, for which the TIF program was created.

During 2002, the Regional Manufacturing Training Collaborative (RMTC) and the Policy Research Action Group (PRAG), asked NCBG to act as a research partner in the preparation of a study on industrial sectors within Chicago’s TIF districts.  The Study, “Job Training and Tax Increment Financing: Untapped Dollars for Chicago’s Manufacturing Sector” (May 2002), demonstrated that Chicago’s most important industrial sectors are represented strongly in industrial TIF districts, point to the need to target sectoral training as the most efficient use of TIF dollars for training both unemployed and incumbent workers.  The model focuses community-based job training centers in each industrial corridor that would evaluate the personnel needs of local companies and gear their training programs to fill those job openings. The centers would recruit community residents, complete basic workforce preparation when necessary, and train workers in specific skills needed by employers within the TIF.  A proven example is the Greater West Town Community Development Project woodworking training program which is able to serve a specific industry with relevantly trained workers.

The PRAG/RMTC study offered the following recommendations to the City and the Mayor’s Office of Workforce Development:

TIF  Job Training Policy Statement

While TIFs are designed to return maximum benefit to the TIF itself, through an appropriately designed job training strategy, the benefit can be extended to nearby communities and the city as a whole, while still serving companies in the district.  To achieve this benefit, we recommend a TIF job training policy based on the following principles:

1. To enhance the quality of the city’s labor pool, make TIF job training dollars available to train the unemployed and underemployed, as well as incumbent workers.
2. Establish as policy that all TIF agreements for industrial TIFs earmark at least 10% of the development budget for job training.
3. In a manufacturing environment where the average number of employees per firm is 50 or less, support a sectoral approach to training that prepares workers for employment in multiple companies in a particular industry.
4. Sustain and increase the city’s capacity for training over time by prioritizing funding for training programs/schools v. one company at a time.
5. Support training that integrates vocational skills with job readiness and language and math upgrades.
6. Support the full cost of training for the unemployed and underemployed which includes recruitment, assessment, case management, instruction, management of sectoral company relationships, and  placement and retention assistance.
7. Since a fair evaluation of outcomes and benefits associated with comprehensive sectoral training requires a longer monitoring period than is now required, allocate funds to allow for that longer term follow-up by training organizations. 
8. Provide training support for companies that meet a minimum set of standards for good business practice, that embrace the goal of family-support wages and strive to remain competitive.
9. Consider the value of hands-on training in the manufacturing sector and allow training dollars to cover the cost of investment in appropriate equipment.
10. Support the opportunities for self-sufficient, career track employment training in manufacturing for special populations such as women and ex-offenders.
11. Allow us to help create the most effective program by working with you to refine (TIFWORKS) and work out a user-friendly administrative structure.

Source: “Job Training and Tax Increment Financing: Untapped Dollars for Chicago’s Manufacturing Sector,” a study and policy statement of the Policy Research Action Group and the Regional Manufacturing Training Collaborative, in partnership with the Neighborhood Capital Budget Group, May 2002.

Such an approach would have advantages over the current company-specific model of job-training subsidies. Participants would learn hands on, real-world skills that are applicable to a broad range of companies. In other words, instead of just learning the policies and procedures of a specific company, trainees would learn basic skills marketable throughout an entire sector of the economy (such as, metals and metal fabrication, food, transportation, electronics, printing, paper, rubber, and woods, shipping and receiving, etc.). This skills-based approach would give job seekers much more flexibility to find good positions for which they are qualified.  Moreover, companies in the TIF district would benefit from access to a better-trained workforce, encouraging retention and future expansion.

As of spring, 2002, the Chicago Department of Planning and Development and the Mayor’s Office of Workforce Development, had introduced, for City Council consideration, the TIFWORKS program, which outlines a policy under which TIF dollars would be utilized for job training.  NCBG, RMTC, PRAG, and organizations such as the Cosmopolitan Chamber of Commerce, are actively working to influence the design of TIFWORKS so that it brings meaningful job training to both the residents and the businesses of Chicago.

Accountability

The overriding problem with the job-creation and training components of the TIF program is tracking their performance over time. It is virtually impossible, for example, to track job training dollars through the available public records. Discovering whether or not companies actually met the hiring agreements they made in their contracts with the City is usually just as difficult, and the City doesn’t even collect data on whether low-income or City residents got the TIF-created jobs, how much those individuals were paid, or how many people have remained with the company after the initial hiring period.

To fix the problem, the City should take three steps:

1. Spell out clear commitments. Each company that receives a TIF subsidy must negotiate a “redevelopment agreement” with the City – essentially, a contract that spells out their rights and responsibilities in exchange for the public funds. In this contract, the City should require clear commitments from companies about how many people they will hire, how they will recruit local residents for those new jobs, what sort of job training program they will have, what the wage scale and benefits will be, how long they are required to retain those positions, etc.
2. Establish detailed reporting procedures. The City should be more vigilant in collecting the information it needs from companies to make sure they are complying with the commitments they have made.
3. Set up strong mechanisms to enforce the companies’ commitments. If a company does not meet its hiring or job training goals, the City should have a clear way to compel it to meet its obligations, or else to take away the public subsidy. There are two ways the City could do this. First, it could simply stop payment on “pay-as-you-go” TIF redevelopment projects. In most cases, a company puts up its own money to complete a project and then is reimbursed from TIF funds as the revenue becomes available. In these cases, the City could simply suspend payments from the TIF fund until the company complies. Second, the City could establish “clawback” rules which actually would take back subsidies if companies don’t live up to their promises. These rules already exist in places like Austin, Texas, New Haven, Connecticut, and the states of Ohio, Iowa, and Connecticut to penalize companies that receive public dollars and then move out of State. There is no reason that Chicago couldn’t adopt them for companies that receive TIF subsidies.

TIFs and Industrial Infrastructure

TIF dollars can be used to make public works improvements in TIF areas, including infrastructure projects that benefit industry. There are two main types of infrastructure projects that benefit industry in Chicago: industrial street improvements and viaduct clearance improvements. Industrial streets are the roads that directly serve companies or industrial corridors. When they are inadequate or in a state of disrepair, truck traffic often is diverted onto residential or commercial streets in the area. In extreme cases, deliveries and shipments are unable to reach the company at all. Similarly, many of Chicago’s viaducts are too low for modern trucks. Deliveries and shipments have to take roundabout routes – often through residential neighborhoods – to reach their destination. When trucks get stuck under those viaducts, it touches off a traffic nightmare for the entire area. By improving the transportation routes to industrial corridors, the City can not only directly benefit companies but also help to improve relations between those manufacturing areas and the communities that surround them.

So far, NCBG can track $22.4 million in TIF revenues have been used for infrastructure improvements in Chicago’s Industrial or mixed Industrial/Commercial (and sometimes Residential TIF districts).  Of that figure, only $8.5 million in TIF funds has been earmarked – although not all has as yet been spent --  for true industry-related infrastructure improvements in industrial areas, while $13,661,170 has been spent in mixed industrial-commercial/residential districts on infrastructure projects that do not directly impact industrial companies or workers.

Infrastructure Projects Funded by TIF in Industrial Areas

Infrastructure projects generally only receive TIF dollars in older districts that have already generated a lot of money for redevelopment, or in TIFs where the City issued a bond to provide “front funding” -- a pool of money to spend on redevelopment activities. Unlike subsidies to companies or developers, which can be paid off over several years after construction is completed, some industrial projects may require expensive infrastructure improvements up front, before private redevelopment projects can begin. In industrial TIFs, the City needs to carefully weigh the option of issuing a bond, or at least coordinating the TIF’s strategic plan with other sources of funding. The City already has a five-year public works plan which includes State and Federal funds, along with local General Obligation Bonds. This money can be used to “front-fund” key infrastructure projects that  could jump-start other redevelopment projects in the TIF. This approach has been used with Illinois FIRST dollars for the planned Ford development in the 126^th/Torrence TIF, as well as for the new Solo Cup plant in the South Works Industrial TIF. While TIF funds can make a difference in making public works improvements, remember that they should supplement other public funding sources, not substitute for them.

Planned Manufacturing Districts

Dealing With Competition From Residential Development:

The resurgence of Chicago’s residential housing market is putting increasing pressure on much of Chicago’s industrial base, particularly in industrial areas near downtown or in neighborhoods where residential areas and industry exist in close proximity. Rather than converting older manufacturing buildings to make them suitable for today’s industry, many prime industrial sites are being converted into expensive residential lofts and condominiums. Once one industrial building converts to residential use, tensions often mount between these two conflicting land uses. Often, complaints from new residents about noise and truck traffic pressure other businesses to leave the area, taking good jobs with them.

Unless the City enforces strict adherence to its own land-use guidelines in industrialized areas, TIFs can fuel industrial displacement by subsidizing residential development in largely industrial TIF districts. While the City has promised to use TIF proceeds in Model Industrial Corridors to retain or expand manufacturing, the City has so far failed to issue bonds to provide up-front funding for improvements to the model corridors. Given the ease with which the City can amend TIF redevelopment plans — including changing land-use and zoning rules — there is no guarantee that these areas will retain their industrial character. PMDs prevent the sort of piecemeal, parcel-by-parcel zoning changes that can, over time, undermine the stability of Chicago’s recognizable industrial corridors.

One promising solution is to expand the number of “planned manufacturing districts,” known as “PMDs.” A PMD is a special zoning designation for a defined geographic area that limits the types of development that may occur in the area to industrial activity and other compatible land uses. PMDs can be an important tool for insulating industry from the pressures of residential development and ensure that Chicago maintains and expands its industrial base. Ultimately, that means more good jobs in Chicago.

Chicago currently has only five PMDs. Three of them are located along the North Branch of the Chicago River: Goose Island, the Elston Corridor, the Clybourn Corridor, and a new one at Chicago and Halsted. The fifth PMD is located in the Kinzie Industrial Corridor. Expanding the number of PMDs used in conjunction with industrial or mixed-use TIF districts could help alleviate tensions between potentially conflicting industrial and residential developments, and ensure that TIF-funded redevelopment will actually be dedicated to industrial revitalization projects. We have provided a list Chicago’s Industrial Corridors with information on their locations and TIF districts that you can view in a new window.