advertisement

Associated Press article about TIF districts

Eric Fodor

A thought-provoking article about TIF districts by Zachary Colman of The Associated Press:

A thought-provoking article about TIF districts by Zachary Colman of The Associated Press:

LA SALLE, Ill. (AP) - One of the most popular rooms at LaSalle's Dimmick Elementary School is the library-turned-computer-lab-turned-classroom. Children jostle for elbow room and can't use the library at all when class is in session.

Down the hall, the school counselor and speech pathologist share an office that used to be a janitor's closet. The gymnasium serves as storage space for school files and records.

Supt. Ryan Linnig blames the tight quarters at least partly on an economic development tool that shifts local tax money to developers. He estimates Dimmick has lost out on more than $405,000 since 1994 - $75,000 of it last year- through a state-created program for local communities called tax increment financing, or TIF.

But that's just his best guess. No one measures the total costs and benefits of Illinois' 1,100 TIF districts, which the state began allowing two decades ago to help revitalize run-down neighborhoods.

Rep. Marlow Colvin, D-Chicago, said TIF districts are "clouded in controversy." He has introduced legislation that would require local governments to file annual reports with the state comptroller detailing TIF boundaries, money collected and how that money is used.

It's not just legislators who can't follow the money.

The State Board of Education, the Illinois Revenue Department, TIF experts - all agree that no one in Illinois measures the overall cost of TIFS, whether they're used effectively or what economic benefits they produce.

"I don't know, quite honestly, if we have tried to track this stuff," said Deb Vespa, administrator for school business services with the State Board of Education.

Another question mark: The cost for state government.

When TIFs divert tax money from schools, the state is often required to make up the loss. But it's not clear how much the state's contribution to schools is being driven up by TIF districts.

The unknowns are particularly important now, when state and local governments alike are struggling to balance their budgets and must keep a close watch on costs.

Communities face pressure to keep their TIFs and add new ones. With a weak economy and the state's recent income tax increase making things tough for business, local officials are looking for any tool that might create jobs.

"While some people believe TIFs are very controversial, I have to say in Belleville our TIF districts have helped us revitalize a lot of different parts of our town," said Belleville Mayor Mark Eckert. "Our downtown Belleville has really come to life."

Here's how TIFs are supposed to work.

Local officials identify a decaying part of town that could use a boost. They designate it a TIF district for up to 23 years. During that time, any increase in property tax revenue goes to the city to spend on improving the district.

Generally, cities sell bonds based on the future tax money they expect to get and then use that bond money to offer incentives, such as construction money or site improvements, to businesses willing to open inside the district.

As property values climb and tax revenue goes up, the money goes to developers or to paying off the bonds instead of going to schools, park districts and other units of local government.

In theory, they aren't losing out because TIF districts are blighted areas where property values are stagnant. In practice, say critics, the districts often include prosperous spots that would have produced more tax money, which is now off limits to schools and parks.

"Most of the time, TIF adoption happens even though economic growth was going to take place," said Richard Dye, an economics professor at the University of Illinois at Urbana-Champaign.

Larry Frang, executive director of the Illinois Municipal League, said TIF is one of the only local economic development tools that does not require state approval. He said some blighted areas would continue to deteriorate were it not for TIF incentives. They bring business and jobs, he said, which then bring sales taxes, income taxes and rising property values.

Driving through LaSalle, it can be hard to find any rhyme or reason in what the city has declared a blighted TIF district.

On one side of a major thoroughfare is a new Holiday Inn Express; on the other is a bustling strip mall. Not far away are swaths of farmland. Here and there are empty storefronts.

The Holiday Inn was built on the promise, later kept, that a TIF district would be created around it if possible. The strip mall was built without any TIF support (although with a different kind of tax break). A nearby hotel was built around the same time without a TIF. The farmland is part of a TIF district, while some empty storefronts are and some aren't.

Peru City Clerk David Bartley said the area incorporating the Holiday Inn Express definitely qualifies as blight. With flooding that required site remediation and two dilapidated, out-of-business motels on a nearby corner, Bartley said no developers would have come to the area without TIF. He added the strip mall facing the Holiday Inn Express came at a great cost to the city by agreeing to abate the mall's sales taxes.

An Associated Press review of state data shows that Illinois TIFs contained $19.7 billion worth of property in 2008, the last year for which information is available. That generated $1.2 billion a year in property taxes for local governments. Any future tax money above that level goes to the TIFs and the developers.

TIF districts are a serious issue in Chicago. Cook County Clerk David Orr said taxpayers have no practical way of finding out which businesses benefit from the districts or whether they have connections to influential politicians.

"You need a Ph.D.-plus and a staff of 1,000 to try to track down the really deeper things. That's the heart of the problem," Orr said.

Chicago Mayor Richard Daley has made ample use of TIFs, and critics have accused him of using the money as a slush fund. During the recent campaign to replace him when he retires in May, some candidates demanded that the money be returned to the city's financially strapped school system or to help fill the city's gaping budget deficit.

One valuable use for TIFs might be to lure businesses away from other states. But Illinois border counties don't seem to use TIFs as much as the rest of the state. As of 2008, 82 percent of border counties had TIF districts, compared to 88 percent of the remaining counties.

Albert Humpage, a former school administrator who is now a TIF consultant for school districts, likened TIF to a welfare system for developers.

He said the state created a climate in which cities are held hostage by developers, who can threaten to go to other communities if they don't get the deal they want. Public officials who promise job creation to get re-elected are happy to oblige, Humpage said.

There's a lot of leeway on what can be included in a TIF district. Only 51 percent of a district must be labeled "blighted." The rest can be perfectly prosperous.

So districts can include big chunks of farmland or even the heart of Chicago's financial district.

"The definition of blighted now is so convoluted," said Ben Schwarm, associate executive director for Illinois Association of School Boards. "It's mostly now a tool used by a municipality anywhere they want to have business growth."