The City’s TIF program can affect public schools in two ways:

The overall effect of TIFs on Chicago’s public schools is still not entirely clear. But this fact sheet breaks down what we do know on both sides of the issue.

How can TIF dollars be used for school construction and repair?

State law allows TIF dollars to be used for all sorts of public improvements – from roads and bridges to schools, parks, and libraries.  Money for school improvements can be found under either the “public improvements” line item in the TIF budget, or sometimes under the “capital costs of other taxing districts” category. Between these two categories, Chicago’s TIFs have budgeted a total of $1.7 billion for public works projects in TIFs. Of course, schools have to compete for this money with all sorts of other infrastructure improvements, so there’s no guarantee that these dollars will go to school projects. In fact, since TIF budgets are based on estimates of future revenues, there is no guarantee the money will ever materialize. Still, in TIF districts that have generated significant revenues for redevelopment, communities might want to look to the TIF program to help them fund pressing school improvements.

Where have TIF dollars been used for school construction and repair?

There are 170 schools in Chicago’s 101 TIFs, but so far just four of them have received TIF money, with another one slated to receive funding in the near future.  However, partly due to community pressure and partly to NCBG’s efforts to highlight the need for Chicago Public Schools to receive direct benefits from TIF funds, the amount of TIF money going to school construction has noticeably jumped over the past three years. 

In CPS’s 2000 fiscal year, $100 million in TIF funds were expected, none were forthcoming.  In 2001, CPS’s capital budget projected an expected $97 million in TIF funds.  That year, the schools received only $11.25 million in TIF funds (for Jenner Elementary School and Walter Payton High School).  For the 2002 fiscal year, CPS expects to receive $103 million in TIF funding:

In May, 2002, CPS reported that City Council had approved $52 million in October, 2001, for Jones Magnet High School and $47 million for the National Teachers Academy in March 2002.

NCBG cannot confirm that City Council has as yet approved TIF funds for the replacement facility for Simeon High School. 

It is worth noting that Jones Magnet, National Teachers Academy, and Walter Payton are all high schools with special academic programs designed to serve neighborhoods going through marked development and gentrification.  Simeon, however, is a neighborhood high school that has waited 30 years for a badly needed new building.

The following schools have been slated for TIF-funded improvements:

What types of TIF districts are most likely to generate money for school projects?

Most TIF districts do not have a ready pool of money available to fund redevelopment projects when they are first created. In fact, it takes even the most successful TIF districts several years to build up enough revenue to have enough money in the bank to pay for infrastructure projects.  Older TIFs (which have had more years to build up  that “money in the bank”) or TIFs that have received bond issues are much more likely than newer districts to have school projects paid for out of TIF dollars. CPS could pay for the projects up-front, then wait to get reimbursed from TIF funds as they become available (much like many private developers do), but it is much more likely for these projects to move forward if cash is already in the TIF fund.

How Do TIFs Affect School Revenues?

When the City establishes a TIF district, the amount of tax revenue that other local government taxing bodies (the schools, the parks, etc.) receive is frozen for the entire 23-year life of the TIF. In other words, the school board will get no new tax dollars from the redevelopment of properties within the TIF for 23 years. This can be a problem for three reasons:

1)      Inflation. Let’s say that at the time a given TIF District is established, the property within its boundaries is worth $10 million (the “equalized assessed value,” or “EAV”). The Chicago Public Schools generally impose a tax of approximately 4 percent on the EAV, which means that CPS would collect about $400,000 in tax revenues from this area. That’s the same amount that CPS will collect from that TIF for each of the next 23 years. Those $400,000, however, won’t be worth nearly as much 23 years from now as they are today because of inflation. Because the TIF freezes the property tax base available to other local government bodies, those entities actually lose money over time.

2)      Lost Revenues. TIFs are supposed to be established in areas where there will be little or no growth without the help of the TIF. But what if an area is already growing before it becomes a TIF? This has become an issue of great concern to many Chicagoans who feel that TIFs are being overused in areas that already are experiencing significant growth in property values. In other words, many residents and business owners see TIFs being used to accelerate gentrification in areas that already have begun to attract high-end development. This trend can have serious implications for the Chicago Public Schools. Let’s say our sample TIF area (with a starting EAV of $10 million) was growing at 3 percent per year prior to becoming a TIF. That growth rate probably would have continued after the TIF was established as well. That means that one year after the TIF was established, CPS would have been able to collect taxes on $10.3 million in property value – or an extra $12,000 in revenues. For each of the 23 years that the TIF is in place, that lost revenue number would grow. Multiplied by over 100 TIF districts, that number could rise into the tens of millions of dollars.

3)      Rising Costs. Development often comes with costs.  Denser development can mean higher operating costs for City services: more trash to collect, streets to sweep, electricity for street lights, and higher costs for police and fire protection. It can also mean higher capital costs: greater demand on the water and sewer system, the need to construct or repair streets and sidewalks,  and expand municipal facilities, just to name a few potential costs. New development affects schools on both the operating and capital sides of the budget. More residential development can exacerbate overcrowding in area schools, creating a greater need to construct more classrooms, hire more teachers, and pay for all the other costs of having more students in the system.

If TIFs reduce the amount of revenue that CPS is receiving, the public school system has two choices: either raise its tax rate to collect more dollars, or make do with less and less money each year.

The State School Aid Formula

Because the amount of State aid a public school district receives depends in part on property values, many people are concerned about the effect that TIFs are having on the amount of State school funding that Chicago receives. In fact, in December 2000, when CPS voted to raise its tax levy by 4.3 percent, it cited the need to offset reductions in state aid due to EAV growth as one of the main reasons.

How does this relationship work? In general, there are two key factors in determining the amount of State Aid a given district will receive:

The Illinois State school aid formula is based on a simple principle: wealthier school districts should pay for more of their costs with local funds, while poorer school districts should get more help from the State. The State law establishes a “foundation level” – the minimum amount of funding per student that is available to each school district. For the 2001-2002 school year, Illinois’ foundation level is $4560 per student. The idea is that between local funds (called “available local resources”) and State aid, each district should be able to meet the minimum per-student spending level. That means:

Foundation Level = Available Local Resources + State Aid

To figure out available local resources, the State calculates 3 percent of the EAV for the school district and divides it by the number of students in the district. For enrollment, the State uses the average daily attendance for schools in the district, not the total number of children signed up to attend school. In other words:

The amount of available local resources determines how much State aid a district will receive. School districts fall into three categories:

If available local resources are less than $4240 per student [1] . . .

. . . then the State makes up the entire difference between the foundation level and the available local resources.

Total State Aid = (Foundation Level – Available Local Resources) * Average Daily Attendance

If available local resources are between $4240 and  $7980 per student [2] . . .

. . . then the amount of State Aid declines as the property tax base gets larger. In other words, the bigger the local property tax base is, the less money the district gets from the State.

If available local resources are greater than $7980 per student . . .

. . . then the district receives $218 for each student in the district.

There has been heated debate about how to change the School Aid formula to make it more equitable. There is growing agreement that the foundation level is too low and that students in wealthier districts continue to receive much greater resources for public education despite the State formula. For more information about the effort to reform the State’s School Aid process, contact the Chicago League of Women Voters at  (312) 939-5935 or the Cross City Campaign for Urban School Reform at (312) 294-2263.

How do TIFs affect the school aid formula?

The State School Aid law specifically states that increases in property values within a TIF are not taken into account when calculating the amount of aid a district should receive.  Instead, the State adds:

The value of property not in TIF districts

plus

The initial EAV of the TIF districts.

This means that rapid growth within a TIF district will not reduce the amount of State Aid the schools receive. However, there is some anecdotal evidence that TIFs are spurring rapid development even in areas outside their boundaries, especially in gentrifying parts of the City. This is especially true given the irregular boundaries of some TIF districts. Take for example a commercial TIF district that includes only businesses along major streets in a neighborhood and excludes neighboring residential areas. If the TIF is used for high-end commercial development along the major streets, there is a good chance that property values will also increase in the residential areas adjacent to the TIF. The State School Aid law, however, has no way of accounting for that indirect TIF-fueled growth in property values. Consequently, it could reduce the amount of State Aid that CPS receives.

As TIFs begin to expire, however, the situation will change considerably. When TIFs expire, the EAV that they have been accumulated over their 23-year life will again become part of the City’s EAV. That means that in certain years (such as 2021, 2022, and 2023, for example, there will be a sudden and significant jump in the EAV of the City, and a resulting sudden decline in the State Aid formula. The problem will be here well before then, however. The first and largest TIF – the Central Loop – is due to expire in 2007, at which time $510.8 million of property value will be returned to the general tax base (1.4 percent of Chicago total current property tax base). While that EAV will provide more tax revenue for the schools, it will also reduce State Aid.

Can School Districts Get Reimbursed For New Costs Resulting From TIFs?

As a result of the 1999 TIF reform legislation, municipalities are now obligated to reimburse the school district for some of the increased costs the district must assume when new housing is constructed in a TIF. In other words, the TIF has to help pay for the enrollment increase it creates. The formula for this reimbursement is:

(# of new pupils living in development) x (district’s per-capita tuition cost) – (additional State Aid)

These payments are capped at between 17 and 40 percent of the value of the increment generated by the project, depending on the type of district, the amount of state aid, and the per-capita tuition cost of the district.

In Chicago, there are additional restrictions:

1.       No increased costs will be reimbursed unless the district shows that each of the schools affected by the TIF-subsidized housing developments is at or over its student capacity.

2.       The amount reimbursed must either be reduced by (1) the value of any property donated to the school district by the developer or (2) the value of any improvements made to the school by the municipality.

Chicago Public Schools Located Within TIF Districts

Note: While these schools are located within the boundaries of TIF districts and are therefore eligible for TIF dollars, there are not necessarily any plans on the books to fund specific school improvement projects in these TIFs.

Total: 170 Schools

[1] 93 percent or less of the foundation level ($4560).

[2] 93 to 175 percent of the foundation level.