For the city’s finances, July’s been a month of carnage. The perpetually broke Chicago Public Schools announced plans to empty their reserves in order to pay basic bills. The police department’s got cops working overtime—amid the latest wave of shootings— because there’s not enough money to hire police at the pace they’re retiring.
And it looks as though the magical goose may be laying its last golden eggs.
I’m talking, of course, about the tax increment financing program: the favorite slush fund of the mayor—whoever the mayor is—which is intended to help the poorest of the poor but generally winds up going to the richest of the rich.
This year the TIFs are supposed to take in $454 million, according to a report released this week by Cook County clerk David Orr. That sounds like a lot of money—and the schools and police could certainly use some of it—but it’s dipped 11 percent from last year’s $510 million haul, which was down from the record $550 million take of 2007. Ah, the good old days of the real estate boom.
Most notably, the last big downtown TIF, the LaSalle Central, will take in zero money, Orr says. That could spell trouble, since the city anticipated collecting $12.5 million in each of the next three years and is already on the hook to pay millions in subsidies to MillerCoors, United Airlines, and other profitable firms.
Of course the downturn hasn’t stopped the city from throwing around TIF dough like it’s confetti. The city recently revealed that it’s gearing up to spend money on City Hyde Park, a housing and retail project at 51st and Lake Park, a relatively unblighted corner of the south side. The developers are hoping for between $10 million and $15 million.
That’s about two blocks north of the $20 million or more in TIF dollars the city is spending on Harper Court, whose chief beneficiaries are the University of Chicago and the Hyatt hotels, speaking of wealthy institutions that can afford to build their own projects without taking money from schoolchildren to do it.
It just goes to show you that no matter how broke the city may be, there’s always a few million dollars—or ten or 20—for the well connected.
Of course the downturn hasn’t stopped the city from throwing around TIF dough like it’s confetti
Why is the city’s TIF take falling? Well, TIFs are gerrymandered areas in which a portion of the property taxes are diverted to bank accounts largely controlled by the mayor. Hence, the concept of a slush fund.
But as property values fall, less money goes into the slush fund, which means Mayor Emanuel faces a quandary: how does he take care of his friends?
And property values are falling in TIF districts for a bunch of reasons, starting with the most obvious: TIFs really don’t do a very good job of stimulating economic development, which is what they’re supposed to do in the first place. In fact, more often than not, the city gives TIF dough to people who don’t need it.
And what does this mean for our two handouts in Hyde Park, which originate with the 53rd Street TIF district? Well, if property in that TIF doesn’t generate enough money to cover the loans, look for the city to transfer money from other TIFs to pay the obligations. Like they’re probably going to have to do for deals in the aforementioned LaSalle Central TIF.
“I know every community needs development, but I don’t like the process,” says George Rumsey, who runs a computer business on 53rd Street. “I’ve never seen any explanation of accountability or why they got the money in the first place.”
The 53rd Street TIF was created in 2001 by the City Council and Mayor Richard Daley, largely remembered as the guy everyone pretends they didn’t vote for. Somehow or other much of the TIF’s intake was emptied to subsidize Harper Court, which will include a 12-story office tower for the University of Chicago and a Hyatt hotel. The university says it desperately needs a hotel to house visiting parents.
Fair enough—a world-class institution should have a nearby hotel. But the 53rd Street TIF was created to help small businesses, not a university with a $6.6 billion endowment, which should be enough to build one lousy hotel without a handout.
In reality, the TIF’s been a nightmare for existing merchants in and around 53rd Street. By my count, at least three small businesses—Dixie Kitchen, Dr. Wax records, and the Calypso Cafe—have been thrown out of business by the Harper Court development. And owners of other small establishments have been calling me for months asking me to write a story about how the construction has cost them money by blocking access to their stores.
For the record, I do not blame the University of Chicago for signing on to this deal. If the city’s dumb enough to take money from its bankrupt public schools to give it to one of the world’s wealthiest private universities, the university would be dumb not to take it. And nobody ever said the U. of C. was dumb.
Curiously, Antheus Capital, the developers of City Hyde Park, originally said they wouldn’t need TIF dollars for their project, which will include a Whole Foods.
But now “the total cost of development exceeds the value created by the development and we’re looking for incentives,” explains Peter Cassell, director of community redevelopment for Antheus Capital.
Translation? They got theirs so we need ours!
Specifically, the university used its TIF handout to lower rents for its future tenants at Harper Court. That means Antheus’s prospective tenants at City Hyde Park also want lower rents. In short, Antheus needs millions to offset the consequences of the $20 million handout for the university deal.
At this point, I’d like to pause to appreciate the irony of a U. of C. governmental handout screwing up the dynamics of the marketplace. That’s the university where acolytes of Milton Friedman worship at the shrine of free, unfettered economic markets.
So far I haven’t heard a peep of protest from my many free-market friends at the U. of C. Like their pals at the Chicago Mercantile Exchange, their love for free markets lives in the abstract, a fantasyland far removed from Chicago, where those with clout get what can be got.