I can barely believe what I’m about to write: Thank God for Mayor Daley and his tax increment financing program.
The great TIF scam might turn out to be useful in a way no one—particularly the mayor—ever imagined. It might provide hundreds of millions of dollars in rainy-day relief to get Chicago through these hard economic times.
I’ve described the program as a slush fund, with the mayor and his cronies lining up to gorge themselves. But maybe we should be thinking of it as a piggy bank.
And after more than 20 years of stuffing more than $2 billion in property taxes into that piggy bank—which to all intent and purposes he controls—Mayor Daley has nearly $700 million socked away in about 160 bank accounts, one for every active TIF. On July 31 the city’s budget director, Gene Munin, stunned reporters by saying the mayor might tap those reserves to help erase a $650 million deficit.
Of course, it was never the mayor’s intention to use TIF money for emergency relief, and he might have to be dragged kicking and screaming to the point of actually doing that.
A little necessary background on property taxes: To oversimplify dramatically, setting aside wrinkles like assessments and the multiplier and the homeowner’s exemption, the tax property owners pay is determined by multiplying the value of their property by the tax rate.
The tax rate is actually the sum of all the tax rates set individually by the governmental entities with the authority to tax property. The full list is on your property tax bill. There’s the city, Cook County, the Board of Education, the Park District, and so forth, each taking its bite.
Despite the hullabaloo every fall when the City Council approves Mayor Daley’s budget, the city’s general fund only gets about 19 percent of the property taxes paid in Chicago. The Chicago Public Schools get the most—roughly 50 percent.
Why am I telling you all this? Because you need to know it to appreciate how the TIF scam works.
When the City Council creates a TIF—at the mayor’s urging—what it does, in effect, is freeze the taxes that taxing bodies receive from properties in the TIF district. Let’s say, for simplicity’s sake, that when a TIF is created a property in the district has an assessed value that throws off $100 in taxes. As far as the schools and other taxing bodies are concerned, that assessed value won’t change for the next 24 years, the life of the TIF, even if the property’s actual value doubles. Taxes paid on the added value go into the slush fund—er, piggy bank.
Think of it this way: the city of Chicago chips in 19 cents of every tax dollar that winds up in the TIF kitty. The schools, the parks, etc, chip in the remaining 81 cents. But the mayor controls it all. From the point of view of City Hall, what’s not to like?
And how do these taxing bodies make up for the revenues they’re missing out on in TIF districts? Simple. They raise their tax rates. That’s why I keep telling you folks a TIF is a tax hike everybody pays, whether or not they own property in a TIF district. Those tax rates appear on your tax bill. What you don’t see there is the bite taken by the city’s TIFs—even if you live in a TIF district.
But now the city’s broke—$650 million in the hole this year. Where can the mayor find the money to balance the books? He can’t spend the $1 billion he got for selling the parking meters because he pretty much spent all that money last fall.
So we come to the $700 million sitting in TIF reserves. How, you ask, did the TIF fund accumulate so much money?
Welcome to part two of the scam. TIFs are intended to subsidize economic development deals in blighted communities that but for the public subsidy would never get developed.
In other words, they’re supposed to help the poorest of the poor.
In the good old days, when Harold Washington was mayor, the city created TIFs to help finance single, specific projects, promising that as soon as each project was completed the city would close the TIF so all the property in the district again could be fully taxed by the schools and parks and so on.
In the 1990s someone in the Daley administration got the great idea of uncoupling TIF districts from specific projects. A TIF could raise far more revenue than the district had a particular need for at a given moment. And because of the loophole-laden way TIF laws were written, TIF revenues don’t even have to be spent in the districts that produced them, even though that was the original intent of the program.
During the boom time of the early 2000s, when the number of TIF districts rose to more than 160, the mayor had so much TIF overflow that even he couldn’t spend it all. I’ve always believed he was planning to use that overflow to pay for his Olympics—which the mayor swore were going to pay for themselves.
Whatever. The International Olympic Committee gave the games to Brazil, and today the mayor has $700 million sitting in banks.
Daley’s problem is that if he turns it back over, the money won’t be all his to spend anymore. The Chicago Public Schools’ share alone is roughly $350 million. The city’s general fund would have a claim on only about $140 million.
Imagine an investment banker—say, Goldman Sachs—calling on other investors to contribute millions to a fund intended to pay for the construction of new shopping malls. If the malls weren’t built, the investors would want their money back, right? Goldman Sachs couldn’t just, you know, spend it on bonuses for executives.
Well, by state law, if Mayor Daley raids the TIF reserves, he has to apportion the money and give it back to the taxing bodies that gave it up in the first place.
Would the mayor do that? Tough question. For one thing, he’d have to admit, at least tacitly, that his administration has been fibbing about the program for years. The city’s formal position is that TIF is not a tax and has no financial impact on property owners or on other taxing bodies—in other words, there’s no money to give back because none was ever taken. If you don’t believe me, check out the city’s “fact” sheet, “The ABC’s of TIF,” on the Department of Community Development’s website.
I’m reminded of a conversation I had years ago with a high-ranking Daley administration number cruncher who made me promise never to tell anyone that he’d met with me.
As he explained it, there was nothing diabolical about the TIFs. To him they were simply an important source of revenue coming in to help the city pay its bills. Whether TIF funds were earmarked didn’t concern him.
Yes, he said, the TIFs hiked taxes, though the city denied it. And here he paraphrased Jack Nicholson in A Few Good Men: The public couldn’t handle the truth about TIFs because if the people knew how much it cost to do all the things that Mayor Daley liked to do, they’d be outraged. Better to keep them a little in the dark by keeping TIF taxes off the tax bills.
Why would the taxing bodies go along with this scam? That reminds me of another conversation, with another official—this one an aide to former schools CEO Arne Duncan—about four years ago. After I explained to him how the schools give the mayor all these TIF dollars, he told me to take a look at that day’s New York Times, which featured a glowing write-up of Millennium Park.
The point, he said, is that Millennium Park was a great triumph for Daley, which made it a great triumph for Duncan and everyone else at CPS because they were all part of the Daley team. As far as he was concerned, so long as the schools had enough money to pay their bills—and back then, they did—why should they care if Daley diverted some of the money that would otherwise be coming to the schools to pay for things that made Chicago look good.
Well, that was then. This is now. The Chicago Public Schools are about $370 million in debt. They’ve fired several hundred teachers and told the remaining teachers to give up a 4 percent raise due in September, or else they’ll fire some more. Apparently the teachers, unlike my pal in the Duncan administration, don’t think of themselves as part of the Daley team. At least they’re not willing to give up their jobs and raises while the mayor siphons off millions of dollars of school money for his TIFs. Along with a citywide group of parents called the Raise Your Hand coalition, they’re demanding that CPS pull out of the TIF game.
So the pressure’s building on the mayor to raid the reserves. I can just see the press release—dutifully reprinted by the mainstream press—praising Daley as a financial wizard.
Yet even though raiding the reserves should get him through the coming election, I don’t believe Daley will do it. Money’s only power until it’s spent, and if Daley taps the TIF reserves he’ll lose control of four-fifths of the money even before it’s spent. And if he taps them one year, the public will want them tapped every year—they’ll think of them as a piggy bank forever after.
Ben Joravsky discusses his reporting weekly with journalist Dave Glowacz at mrradio.org/theworks.