TIF and Taxpayer Abuses in Chicago

Tax Increment Literally Means “Tax Increases” or “Additional Taxes”

Mayor Daley’s TIF abuses has caused you to pay higher real estate taxes or rent for the last 22 years. The acronym “TIF” stands for “tax increment financing.” According to the dictionary, the word “increment” is defined as, “an increase or addition.’” The term “tax increment” in the phrase tax increment financing literally means “tax increases” or “additional taxes.”

There are 159 TIFs in the City of Chicago. Every time a new TIF was created or an old one extended, the mayor and aldermen raised your taxes. Each TIF lasts for 23 years or longer if reinstated. When the mayor and aldermen established each of Chicago’s 159 TIFs, they approved 159, twenty-three year tax increases. Collectively the 159 tax increases cost the taxpayers $1 billion per year.

There is a simple way to understand that the creation of each new TIF also meant higher real estate taxes. Each time the city established a new TIF, the city raised and spent money that it was not spending before. The only way to pay for the additional costs is to raise taxes. Here is how you should respond when the city announces a new TIF: “Oh, no, a new TIF. The city is raising my taxes again.”

TIFs=Double Taxation

Every Chicago TIF includes a hidden or second TIF tax. The first tax is as the name tax increment financing implies. You pay additional real estate taxes because Chicago’s 159 TIFs are designed to deliberately raise and collect more real estate taxes. The hidden or second tax is the additional taxes that you pay to make up for the money that was diverted away from the Chicago Public Schools, Chicago Public Library, Chicago Park District, and Cook County government. The “double taxation” of TIFs is nothing more than a publicly funded pyramid scheme that you are paying to perpetuate. The reason why the city has so many TIFs is because new TIFs are necessary to pay for the previous ones.

The establishment of TIFs gives the impression that each TIF is independent and self-sustaining. In theory a TIF collects taxes to pay a TIF’s operating budget, but in reality, you are the one who actually pays for TIF improvements. Neither the City of Chicago nor the State of Illinois has commissioned a study to prove Chicago’s TIFs are a good investment. It stands to reason that the city or state would research Chicago TIFs given that taxpayers are shelling out $1 billion per year for them.

Every time the mayor and city council created one of Chicago’s 159 TIFs, the Chicago Public Schools, Chicago Public Library, Chicago Park District, and Cook County government had less money to cover their operating expenses. Regardless of where you live in the city or the location of a particular TIF, you end up paying more real estate taxes to make up for the money that is siphoned from the Chicago Public Schools and the three other real estate tax dependent bureaucracies. If you live on the North, South, or West side of Chicago, your taxes contributed to the development of downtown TIFs just the same, or vice versa.

TIFs are a Bad Deal for Chicago Property Owners

TIFs were originally intended only for use in areas that were deemed “blighted.” Blighted areas are neglected or rundown portions of the city. Real estate owners in blighted areas have much to gain when their property resides within a TIF. In blighted areas, the value of real estate is low or undervalued. TIF funds pouring into blighted communities make the areas a better place to live and work. A more desirable community increases real estate owners’ property values and real estate taxes. The increase in property value for real estate owners in once blighted TIF areas is worth the increased real estate taxes. A TIF real estate tax increase is acceptable if the TIF fulfilled its promise of transforming a blighted community into a non-blighted community.

Using TIFs in non-blighted areas is an unnecessary and costly burden to Chicago taxpayers. Unfortunately most of Chicago’s 159 TIFs are in non-blighted areas. TIFs in non-blighted areas increase real estate property taxes well beyond the increases in property values. Non-blighted TIFs cause disproportional and inflated real estate taxes.

Recall TIFs by their inherent design and nature increase spending and taxes. When non-blighted areas are designated as TIF districts, it is unlikely that taxpayers receive financial benefits equal or greater than the higher real estate taxes caused by the creation of TIFs. During most of Mayor Daley’s 22 year tenure, in non-blighted communities real estate values and property taxes were dramatically rising because of Chicago’s booming real estate market. Non-essential TIFs heaped more real estate taxes on heavily burdened taxpayers whose taxes already went up with the real estate market. In communities that weren’t blighted but turned into TIFs anyway, the increase in commercial and residential property value did not produce a fair return on the increase in real estate taxes that came from TIFs.

The Real Estate Market’s Invisible Hand

Like any other market, the Chicago real estate market involves competition, supply and demand. The term, “the invisible hand of the market” refers to the market’s ability to naturally regulate itself. If a market is left to its own devices, competition, supply and demand allow the market to find its natural level. In a capitalistic country, the market mostly regulates itself, not the government. TIFs in blighted areas naturally aided the invisible hand of the market, but once blighted areas turned into stable communities, it should have been time to end the city’s intervention into Chicago’s real estate markets.

Each time the City of Chicago established TIFs in a non-blighted areas, the city extended too heavy of a hand into Chicago’s real estate market. The excessive use of TIFs in non-blighted areas may eventually cause Chicago’s real estate market to free fall. Indeed, the national economy’s downturn adversely impacted Chicago’s real estate market, but Mayor Daley’s irresponsible TIF spending made Chicago’s budget shortfall, tenuous real estate market, and real estate tax gouging much worse.

Mayor Daley’s Hidden TIF Motive

Mayor Daley’s love of TIFs can be summed upped in one word: Greed! The greed that led Daley to lease the Chicago Skyway for 99 years; the parking garages for 99 years; and the parking meters for 75 years is the same greed that led him to create 159 TIF districts in the city. Altogether Mayor Daley received $3.6 billion in upfront lease money to spend during his administration. Mayor Daley’s money grab damned future Chicago mayors with financial black holes for 99 consecutive budgets.

Many citizens have complained about the leasing of Chicago assets, especially the parking meters, but consider this. Every three years, Daley garnered nearly as much TIF money to spend as the 75 year parking meter lease, 99 year Skyway lease, and 99 parking garage lease combined.

Daley’s Absolute Power Corrupted Daley Absolutely

Money and political power are synonymous, especially in Chicago where “pay to play” is not only legal, but encouraged. Mayor Daley applied the might of his political machine to gain absolute control over TIF expenditures. Once Daley had complete control over the TIF funds, Daley used TIF dollars to fuel his political machine. Given Mayor Daley’s absolute power over TIF regulations and complete control of TIF spending, it is no surprise that Daley misspent a large fortune of TIF money. Indeed, many multi-millionaire dollar TIF subsidies went to Mayor Daley’s personal friends or politically connected businesses that were not in need of financial aid.

Mayor Daley’s absolute political power was the reason there was a lack of TIF checks and balances, transparency, and financial controls. Daley doled out TIF funds similar to how Congress doles out “earmarks.” Daley controlled aldermen via TIFs. The aldermen who were loyal to Daley received TIF money. The city councilmen who bucked Daley received little or no TIF support from the mayor.

Aldermen wanted TIFs in their ward because it helped them retain their city council seats. For aldermen to get a TIF in their ward, they had to vote in favor of all the TIFs in the remaining 49 wards. When incumbent aldermen ran for reelection, they touted the new schools, police stations, or libraries that were paid for with TIF money as their greatest accomplishment. But what the aldermen did not tell you is that frivolously TIF spending caused your real estate taxes to spike upward.

Several months before Mayor Daley announced he wasn’t running for reelection, Daley pledged $450 million in TIF funds for Alderman Sandi Jackson’s 7th ward. Jackson’s husband, Congressman Jesse Jackson Jr., threatened to run for mayor against Daley in 2007. In this case, Daley spent 450 million TIF dollars to eliminate a potential political foe.

The State of TIFs

Most U.S. states have a higher income tax and a lower real estate tax, but not Illinois. The Illinois General Assembly’s decision to continue with lower income taxes and higher real estate taxes allowed Mayor Daley to completely control a $1 billion TIF treasure chest each year without proper checks and balances.

City workers in the Daley administration often doubled as patronage workers in Daley’s political army. According to witnesses at the Al Sanchez and Robert Sorich Federal Court corruption trials, members of the Daley administration unlawfully campaigned for state representatives and state senators (Both Sanchez and Sorich were convicted and are now serving their federal prison sentences). Once Daley’s patronage army elected state representatives and state senators, they were beholden to Daley.

State legislators who owe their elected positions to Daley would have never imposed any state level restrictions on Daley or TIFs. The Daley Machine legislators would have committed political suicide if they merely hinted at regulating Chicago TIFs. Now that Daley is leaving office, the Illinois General Assembly may enact serious TIF reform if for no other reason than to send Mayor Rahm Emanuel a message: “We have power to control you.” We should hope they do.

Jay First Opposed TIFs in 2003

Jay Stone may have been the first Chicago candidate to challenge the feasibility of TIF districts when he ran for alderman in 2003 (see video below).