1. Creating the TIF
2. Collecting the "Increment"
3. Spending the Money

Creating the TIF and Making a Plan

The State law that allows Illinois cities and towns to create TIFs requires that they are only established in areas that are “blighted,” or in danger of becoming blighted (often called a “conservation area” TIF). To determine if an area is eligible, the City hires a consultant to conduct an “eligibility study” of the proposed TIF. If the area meets the State standards, then the City (actually a consultant the City hires) conducts a study of the area and writes a “redevelopment plan” and a “project budget” – an overview of the development priorities for the area and how TIF dollars will be spent during the TIF’s 23-year life. The redevelopment plan must be approved by the City Council, but the TIF district’s project budget may change at any time.

“Freezing” the Tax Base and Collecting “Increment”

TIFs are politically appealing tools because they do not require the City to raise your tax rate. Instead, TIFs generate money for redevelopment by raising the value of the property that is taxed. It works like this:

• When the TIF is established, the County looks at the value of all the property in the TIF. (The County uses the term “EAV,” or “Equalized Assessed Value,” to describe property value.) This is the “Base EAV.”
• Remember, TIFs capture money by devoting all new property taxes to redevelopment. That means that once a TIF is established, taxing bodies (the City of Chicago’s general treasury, the Chicago Public Schools, the Chicago Park District, etc.) get no new revenue from the TIF. Their share of the property taxes is “frozen” at the level it was at just before the TIF was approved. The taxes on all the new property value in the TIF go into the TIF fund and are reinvested in that area.
• But where does this new property value come from? It can happen in one of three ways. First, there could be new development on vacant land that, before the new project was built, paid little or no taxes. Second, there could be improvements to existing properties, such as an addition to a house, a factory, or a store. Third, the taxes on existing properties could go up, either because of inflation (sometimes called “natural growth” in property values) or because of gentrification in the neighborhood. In any of these cases, the new tax dollars go to the TIF district’s fund, not to the City, the schools, or any other taxing body. Money can be transferred between TIFs, but only between adjacent TIFs (see “portability” in the glossary at the end of this fact sheet).

Let’s take an example:

Spending the Money

TIF dollars can be 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” approved by the City Council that outlines the priorities for the area and an estimated budget. The major limitation on TIF funds is that it cannot be used for the “bricks and mortar” costs of construction (except for affordable housing), or for privately owned equipment. TIF money can be 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 cleanup and building demolition. Especially in older areas, making a site ready for a developer 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 a private developer, often at a deep discount, or uses it for a public building.
• Job training and day care expenses for companies located within the TIF, or for companies that are planning to locate within the TIF. There are also proposals on the table that advocate establishing job-training centers that would serve the job-training needs of all the companies within a TIF district, regardless of whether or not they 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.

(For more information, see TIFs and.. Neighborhood Improvements, TIFs and... Housing, and TIFs and.. Small Business)