In the last few weeks city officials have been doing the old Chicago two-step—one step forward, one step back—on the tax increment financing front.
First, the step forward: a report recently released by city inspector general Joe Ferguson zeroes in on one particularly egregious aspect of the city’s $500 million-a-year TIF scam. That would be the pretense of oversight in the multimillion-dollar subsidies the city hands out to favored companies and developers. As Ferguson put it in an interview: “There is no oversight.”
It’s good to know that at least someone in city government understands what’s going on.
At the same time, though, there’s also that step backward: Mayor Rahm Emanuel apparently wants to continue TIF business as usual.
But let me take a moment for a brief explanation. In case you’ve missed it, TIFs work like this: after aldermen, at the mayor’s behest, create a TIF district—and they’ve created more than 160 over the years—it siphons off property tax dollars that would otherwise go to the schools, parks, county, and other taxing bodies. The money is collected in slush funds controlled by the mayor.
The funds are supposed to be used to eradicate blight in the poorest communities—places where there would be no development but for the TIF. But because of loopholes in the state TIF law, the mayor’s pretty much free to spend the money on anything he wants, such as subsidies to corporations in return for unenforced agreements to keep jobs in Chicago. That’s how TIF money ended up subsidizing wealthy corporations setting up shop in the “blighted” communities in and around the Loop.
Ferguson’s July 12 report (available at chicagoinspectorgeneral.org) hones in on the role played by World Business Chicago, an economic development group whose board is appointed by the mayor and includes many of Chicago’s corporate big shots. Among them are Glenn Tilton, who used to be CEO of United Airlines, and Terrence Duffy, chairman of CME Group, formerly known as the Chicago Mercantile Exchange.
WBC’s mission is to convince other corporate big shots to move jobs if not their headquarters to town, which is supposed to make us swell with civic pride—as though persuading, say, MillerCoors to move its corporate headquarters here from Milwaukee and Denver is the corporate equivalent of the Bears beating the Packers.
By the way—fuck the Packers!
Sorry, that was extremely uncalled-for. But it sure felt good.
Anyway, as Ferguson points out, it’s not just that the folks at the WBC call on other corporate hotshots to move to town. It’s that they use handouts from the TIFs as one of the lures.
As Ferguson found, from 2005 to 2010, WBC wrote letters to the city’s TIF overseers, recommending subsidies for 12 corporations, including Accretive Health, ArcelorMittal USA, Block 37, CareerBuilder.com, CME Group, CAN, MillerCoors, NAVTEQ, United Airlines, Willis Group, and Ziegler and Ccompanies.
What WBC didn’t disclose in those letters was that two of its board members—Duffy and Tilton—headed companies that would receive TIF subsidies. That’s what Ferguson—and much of the rest of the world—calls a conflict of interest.
The CME matter is a particularly intricate cha-cha-cha that began in 2007, when the firm was bidding against another thriving exchange—Intercontinental Exchange out of Atlanta—to buy the Board of Trade.
According to Mayor Daley, if the Merc didn’t get the TIF handout, then the Board of Trade might sell out to ICE, which would move operations to Atlanta, costing Chicago a bunch of jobs.
For what it’s worth, ICE officials have told me repeatedly that they’d actually told the mayor’s office the exact opposite—that they intended to move operations from Atlanta to Chicago if they won the deal.
On December 8, 2010, the City Council voted 46 to nothing to give CME—a multibillion-dollar company run by multimillionaires—$15 million in property tax dollars from the LaSalle/Central TIF district.
Curiously, almost nine months have passed and the city and CME still have not finalized the TIF deal. While CME did not respond to a request for comment, the city’s official explanation is they’re studying the fine print, making sure that all the Is are dotted and Ts crossed. “It’s not unusual for final details to be addressed as an RDA [redevelopment agreement] is completed,” says Susan Massel, a spokeswoman for the city’s department of Housing and Economic Development. “That’s what is happening.”
The scuttlebutt at City Hall is that the Merc is balking at the deal. Why? Because they’d like to get even a better deal—they’re wrangling with the state to get a tax break. The corporate income tax rate in Illinois increased this year from 7.3 percent to 9.5 percent.
If CME were to take the $15 million the city is desperately trying to give them, they’d have a harder time leveraging the state for a tax break.
Let’s take a moment to review this. In short, we, the happy idiots of Chicago, gave the CME $15 million to keep jobs in town. And now CME is threatening to move if they don’t get a better break.
Keep in mind that many traders worship at the shrines of Milton Friedman, Ayn Rand, and other free-market zealots. Upon reflection, I may have found some people with even more chutzpah than Mayor Emanuel.
Which brings me to the step back in the TIF dance. As part of his campaign pitch to north-side independents—who should have known better than to fall for it—candidate Emanuel pledged to reform the TIF program. Under his watch, he said, TIF money would only be used for projects that really need it.
Yet just last month Emanuel’s administration signed off on a deal to give $7 million—taken from the Near West TIF district—to a bunch of developers so they can build an upscale grocery store at Monroe and Halsted.
Wow, where do I start?
First of all, the area is hardly blighted—it’s booming by Chicago standards.
Second, it doesn’t need a grocery store—there’s a Dominick’s right across the street.
And third, there are any number of more pressing needs for that $7 million. Every unit of local government is freaking broke—Mayor Emanuel just grimly announced that the city’s deficit is $600 million and counting.
I asked city officials if the developers had substantiated a claim that, but for the TIF, the land could not be developed. I’m still waiting for them to get back to me on that one.
The city says the grocery store will create 200 new jobs. That amounts to a subsidy of $35,000 a job—if we actually get all the jobs. And let’s face it—the city has never done much to monitor job agreements in the past.
I think we’d all be better off if Mayor Emanuel just closed the Near West Side TIF and sent the roughly $54 million it has in reserves back to the city, schools, parks, and county, which were all foolish to give it up in the first place.
Of course, that means much of the land at Monroe and Halsted would remain underdeveloped, for now.
Well, at risk of sounding like Ayn Rand, if a bunch of developers can’t make money building in one of the city’s hottest neighborhoods without a subsidy, maybe they should try some other line of work.
God, that sounds heartless. What can I say? Watching our mayors cavalierly toss millions to multimillionaires tends to bring out the inner libertarian in me. v
Joravsky discusses his reporting weekly with journalist Dave Glowacz at mrradio.org/benj. Subscribe to their podcast at the iTunes Store.