Jordan Schneider
Policy Analyst
Tax increment financing (TIF) is a tool intended to provide cities with funds to redevelop economically troubled or declining areas. Unfortunately, it can also be used to spend public funds without proper accountability, transparency, or democratic oversight. Chicago's TIF program, between the late 1980s and late 2000s, grew into a "shadow budget" from which hundreds of millions of dollars of development subsidies were disbursed at the mayor's discretion. "Cleaning Up Task Increment Financing" lays out the problems with Chicago's TIF program, and describes how local leaders can bring the program back in line with its original purpose.
Policy Analyst
Every year, $500 million worth of property tax revenue collected in Chicago flows into funding pools shielded from public scrutiny and democratic control—the bank accounts of the city’s Tax-Increment Financing (TIF) districts. That money—10 percent of Chicago’s annual property tax revenue—is intended to promote development in struggling areas of the city, but the fashion in which it has been handled in the past—without full transparency, democratic oversight, or accountability for the recipients of funds—has opened the door to misuse of public money.
Chicago has 163 TIF districts, or areas in which a portion of tax revenue is set aside into special accounts. The revenue collected by those districts is spent outside ordinary city budget processes, allowing for unsupervised spending, political horse-trading, and a concentration of spending authority in the mayor’s office.
Mayor Rahm Emanuel has vowed to reform the city’s TIF process, and convened a reform panel to recommend improvements. The reform panel’s recommendations point in the right direction, but would not correct the fundamental problems with Chicago’s TIF program. City leaders should adopt the reform panel’s proposals and then go further—taking the steps necessary to rein in overuse of TIF, prevent TIF districts from becoming a piggy bank for projects unrelated to their original purpose, and provide transparency and accountability in the TIF process.
Chicago’s TIF process is in need of reform. TIF spending takes place without full public transparency, making it hard for residents to determine how their tax dollars are being used. Residents cannot, for instance, find information about TIF spending in a convenient form online.
Vowing to reform Chicago’s TIF process, Mayor Rahm Emanuel created a panel of TIF experts to review the city’s policies and historical use of TIF and recommend improvements. Mayor Emanuel’s TIF commission has proposed reforms that would move the city in the right direction, but more needs to be done. The mayor and the City Council should:
After years in which Chicago’s TIF program was allowed to grow into an unaccountable, unsupervised program accounting for 10 percent of the city’s property tax revenue, the city government is beginning to take steps to return TIF to its originally intended uses. Further action and long-term commitment from city leaders will be required, however, if the city is to transform the TIF program from an overgrown shadow budget into an effective and targeted tool for promoting development.
Policy Analyst