Tax Increment Financing (TIF):
“The only game in town”
- Chicago Mayor, Richard M. Daley
Andrea Clinkscales
Brian Henry
Function of TIF

A specific geographic area for TIF district is defined.

Tax assessment values for properties this area are
“frozen”.

Taxing jurisdictions may only collect taxes from these
properties at the frozen or base value for a specific period
(usually measured in decades).

As real assessment values rise, property owners continue
to pay higher taxes.

The difference between the taxes collected at the base
value and the real value is diverted to a special TIF fund.

This fund is used to finance investments within the TIF
district.
Assessed Value
TIF Conceptual Scenario
Increasing assessed value with
redevelopment
Tax
increment
Frozen tax base
TIF
base
year
Time
History: 1950s – 1990s

Introduced in 1950s as last resort to finance slum or
blighted areas

Federal development money in grants, tax breaks, and
bonds decreased in 1970s

Used sparingly until 1980s when many states passed
TIF-enabling laws or amended old laws to expand TIF



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Redefined blight more broadly
Added economic development as essential public purpose
Included industrial areas with labor surplus or
decommissioned military bases
More amendments to TIF-authorizing laws

Allowing construction of low to moderate-income housing
or workforce development
TIF Theory & Central Conflict
• TIF spurs economic development that otherwise would not
occur
• An area is blighted or stagnant, it needs help
•Without help there will be no change
• Investments are made which make the area more attractive
• New investment in the area starts a positive cycle for further
private improvements
* BUT: There are conflicting academic studies which disagree on
this central point.
Other Pros & Cons



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Not a new or direct
tax
Self-financing
Less effected by debt
limits and other
checks
Flexible and specific
to problems




Takes money from
other jurisdictions
(like schools)
Can be seen as
developer subsidy
Can cause an
increase in tax rates
(just a backdoor tax
increase)
Administrative costs,
higher interest rates
Industry Opinion
“As I see it, TIF is another tool in the
community toolbox; works best in portions of
community where new development is
anticipated; and should be focused at a
rather limited set of specific improvements. It
does not take the place of regular capital
improvements; is really only a bookkeeping
concept, but wow . . . it has accomplished so
much.”
Peter Ryner
Director of Community Development
Peterborough, NH
TIF Today


Legal in 49 states and Washington D.C.
 Prohibited in Arizona
APA’s Planning magazine (March 2007):
“development credit card for the city: Buy a
project now and pay it off in the future”

Often first “municipal government revenue
development tool” considered by local governments

Once used to restore blighted areas – now used to
restore “blighted municipal budgets”

Funding all kinds major building projects
Does it really work?

Most cities report increases in property
values as a result of TIF


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Few cities report declines
Success depends on location, markets, local
wealth
Best results in metropolitan communities and
rapidly growing suburbs
Two examples to illustrate


Successful TIF
Heavily criticized TIFs
Success: Portland Development
Commission (PDC)


Citizens of Portland, Oregon voted
to create PDC in 1958 to improve
neighborhood livability
PDC is the agency in Portland that
administers TIF
Characteristics

Controlled by a 5-member board of
commissioners


Quasi-governmental in nature


Local citizens appointed by the Mayor and
approved by City Council
Because executive reports to the board of
commissioners rather than directly to the Mayor
or other City Commissioners
Unique organization: high degree of
coordination in urban renewal, housing,
economic development, and
redevelopment
The River District

PDC controls 11 urban renewal
areas
One of the most successful is the
River District


River District plan calls for a
high density urban residential
neighborhood
The Pearl District



The Pearl District neighborhood is located
within a sub-area of the River District
Many achievements here can be credited
to Hoyt Street Properties, a major Pearl
District landowner and developer
In 1994 Hoyt Street purchased the old
Burlington Northern rail yard

34-acre Brownfield site
River District
Map
1980s



1980s initiated strong potential for improvement
 Availability of low cost warehouse-to-loft
conversions attracted a number of artists to the
area
Adventurous investors began to buy property
Met all conditions for TIF success:
 Blighted
 Potential for redevelopment
 Central location near downtown
 Strong private-public partnership
Hoyt Street Properties
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Initially, site was hampered
by the Lovejoy Street offramp from the Broadway
Bridge
 Divided the property in
half
PDC removed the ramp;
Hoyt Street promised to
build a world-class, mixeduse, urban community
Pre-TIF
The Pearl District is now
one of Portland’s most
distinctive, thriving, upscale neighborhoods
Post-TIF
Critiques


Few exist to-date
Pioneering tenants priced out of the
market



Average five-year appreciation rate of 50%
made property taxes and rent unaffordable
Not strong critique because very few people
actually lived there pre-TIF
Likely the City won’t let the profitable 20year River District TIF expire

Threatens public schools – already in danger
Rebuttals / Added Protections


The Pearl was blighted to begin with and
wasn’t generating significant property tax
With TIF, the PDC has been able to fund
numerous affordable housing projects

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Private developers wouldn’t initiate without TIF
incentives
If Hoyt Street defaults on development
agreement, the City can recover damages
in court
If tax increment revenues surpass what is
needed to meet PDC debt obligations,
additional money goes to the general fund
Heavily Criticized: The Midwest


Over-use and abuse
Leads the nation in the number of
TIF districts per state

Top 3 in the U.S.
1. Minnesota: 1,782 TIF districts
2. Wisconsin: 871 TIF districts
3. Illinois: 458 TIF districts
Chicago


TIF is the dominant economic
development tool used by Mayor
Daley’s administration
140 TIF districts that cover nearly
30% of the land area, generating
nearly $400 million in TIF funds
Establishing a TIF in Chicago
1.
2.
3.
4.
5.
6.
7.
8.
9.
Politician, developer, and/or CDC enters discussions
with the City planning dept
Eligibility study is conducted and a redevelopment
plan is created
Special public hearing is held if existing housing will
be impacted
General public hearing is ordered
Joint Review board reviews
Public hearing is held; City does not have to respond
to or act on public input
Community Development Commission meets and
almost always approves the TIF
Plan Commission holds another public hearing; again
– it isn’t required to respond to or act on public input
Proposal goes to City Council for designation
“The only game in town…”



Chicago Theatre District
67% of Chicago TIFs were
created after 1996
 Indicating recent
momentum
25% of taxable real estate is
subject to TIF diversion
 Indicating breadth
A study of 36 TIF districts
showed Chicago Public
Schools will lose a hundreds
of millions in property tax
revenue
 TIF were administered in
areas where property
value was growing at a
healthy rate – i.e. not
blighted
Lack of Checks and Balances

Unlike Portland


Chicago TIF
revenues aren't
itemized on
property tax bills
No annual TIF
budget or
independent
oversight
Can You Spot the Blight?
Central Loop TIF (Dearborn at Randolph)
Other issues

Causes gentrification


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Long-time stakeholders are forced into
less desirable neighborhoods
Uses eminent domain
2007 property taxes in the hot
condo markets are projected to
increase by 100%

Due to TIF, property taxes are
increasing faster than people’s incomes
Reform in Chicago
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TIF excesses lead to push for
accountability and transparency
This summer, Cook County Commissioner,
Mike Quigley, introduced three TIF-reform
proposals
Increasing negative publicity is affecting
perception of TIF and raising awareness
TIF in Washington
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First passed in 1982 as Community
Development Refinancing Act
Ruled unconstitutional by WA Supreme
Court in 1995
Resurrected by 2001 TIF Act
TIF in Washington
• 2001 TIF Act: incredibly weak statute
• School districts exempt
• Fire districts can veto
• Only 75% of increment captured
• Expires in 2010
• Not tested in court
Questions?
Wal-Mart

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90% of Wal-Mart stores are subsidized
Equals more than $1 billion in tax payer monies
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Most Texas (30 deals worth $108 million)
Then Illinois (29 deals worth $102 million)
In 2002, Wal-Mart sought an $18 million subsidy for a
project to be located on the Near South Side of
Chicago.

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Often from TIF
Project was abandoned due to controversy
In Niles, adjacent to Chicago’s south-side, a TIF was
granted to a Wal-Mart developer for redeveloping an old
manufacturing
Wisconsin designated a cornfield and apple orchard as
blighted so Wal-Mart could qualify for TIF to build a
superstore