The Central Loop tax increment financing district—the oldest and largest TIF of them all—came in with a boom and went out with a binge.
It was created more than two decades ago, to great fanfare, to try to lift what was then a struggling downtown, and it quickly amassed millions of dollars for Mayor Daley and other elected officials to play with. In 2008, at the legally mandated end of its 24-year life, the city spent about $365.5 million from the Central Loop TIF’s coffers—more than the city has ever spent in a single year from any TIF fund, and more than the total expenditures from the TIF over the previous three years combined. For a little perspective, that’s the equivalent of about 70 percent of the city’s predicted budget shortfall for 2010.
The process for phasing out a TIF is fairly straightforward, at least according to state law. The city can either spend all the money before it’s closed or hand over what it didn’t spend to the schools, parks, county, and other taxing bodies.
Well, in early July, when the city finally got around to releasing the 2008 reports on its 160 TIF districts, we found out which option the mayor went with. I’ll give you a hint: the schoolkids didn’t win. Instead the Daley administration went on a spending spree Paris Hilton could only dream about. In fact, the city burned through so much money that it drained the Central Loop TIF account and then had to borrow a little money from neighboring TIF districts ($1.45 million each from the LaSalle Central and River South TIFs) to pay the Central Loop TIF’s final bills. That’s perfectly legal, by the way, since our state TIF laws are conveniently pockmarked with loopholes.
I’d like to tell you what the city was thinking when it decided to spend all this money, but I can’t because the Department of Community Development, which oversees TIFs, didn’t get back to me about it.
And before I tell you where all that money went, please allow me to offer one more tutorial on the TIF program—or as Mayor Daley has called it more than once, the only game in town for economic development.
Tax increment financing, by law, is intended to spur development in low-income, underdeveloped neighborhoods that wouldn’t attract any substantial investment otherwise. When the mayor and City Council create a TIF district they freeze the amount of property taxes the schools, parks, county, etc get from taxpayers within the district for up to 24 years. If these bodies were getting $100 a year from taxpayers when the TIF was created, that’s roughly all they’ll get until it expires.
That doesn’t mean taxpayers don’t cough up more as the years go by. They do, as property values rise and assessments climb with them. But anything collected above that $100 is skimmed off into the TIF fund. Plus, since the amount the schools and parks get from that area is frozen, they’re forced to raise their tax rates, so everyone—including people who don’t live in the TIF district—pays more. This is how TIFs result in tax hikes across Chicago, even though almost every elected official follows Mayor Daley’s lead in pretending they don’t.
If that were the end of this scam, it would still be pretty impressive. Unfortunately we’re just warming up. When a TIF district is created, the City Council earmarks some of the money collected to fund a specific project. But what’s diverted to the TIF fund often far exceeds the cost of the project. So every year the dollars pour in—the TIF total was $550 million in 2007, the most recent year for which a tally’s available. (The city’s 2008 reports don’t include a citywide total; for that we’ll have to wait for Cook County clerk David Orr to issue his annual TIF report this fall.) And since Mayor Daley controls the government bodies that regulate TIFs, he gets to spend most of the money however he wants each year.
The Central Loop TIF was the first in the city, created in 1984 at Mayor Harold Washington’s urging to pay for the transformation of Block 37, the city block bounded by Washington, State, Randolph, and Dearborn.
Washington proposed it because in those days the Loop was “not perceived as an attractive or safe area, particularly after office hours,” as the original report by his planning department stated. “State Street retail sales volumes and the quality of merchandise have fallen, and entertainment and cultural facilities and programming have severely deteriorated. Major improvements are mandatory to reverse these trends.”
The TIF was promoted as an innovative answer to these problems and granted a maximum 23-year life span (the city took advantage of a loophole in the state TIF law to keep it alive for an extra year, but that’s another story—one you can read in the Reader‘s online archives). But Washington promised that as soon as Block 37 was completed the TIF would be abolished and all of the property taxes generated within it would flow back to the schools, parks, and other taxing bodies. He predicted that this could happen by 1995.
That’s funny—and the joke’s on us.
In 1997 the City Council, this time at Mayor Daley’s behest, expanded the district even though Block 37 still hadn’t been developed, enabling it to consume even more property tax dollars. At its end, the district stretched as far east as Michigan, as far north as Wacker, and as far south as Congress, zigzagging west to Franklin. With the added area the Central Loop TIF wound up absorbing about $1 billion in property taxes over the years, including more than $300 million just since 2006.
By the end of 2007 there was about $255 million in the fund that hadn’t been allocated yet—apparently not even Mayor Daley could figure out how to spend so much money. The TIF collected another $103 million in 2008 before it was finally closed last December, in large part because then-governor Rod Blagojevich refused to support Daley’s plan to extend it another 12 years. (Hey, maybe the guy wasn’t so bad after all.) By then all of the money had been spent—and then some.
Remember how the whole point of the TIF program is to spark economic development in blighted communities? Somehow between the end of 2007 and the end of 2008 the Daley administration managed to spend more in the Central Loop than has ever been raised—much less spent—in TIF districts in truly poor and blighted Englewood, Roseland, and North Lawndale.
So who got a piece of that action? The list includes such needy supplicants as some of the area’s most successful and connected construction firms. G.F. Structures, owned by Daley family friends and best known for getting paid millions of dollars to install wrought iron fences around the city, received $1.1 million. Another big city contractor owned by friends of the Daleys, Walsh Construction, got $7.9 million. Aldridge Electric and construction firm F.H. Paschen, which have both received tens of millions of dollars in city deals, got $13 million and $5 million respectively. The Central Loop TIF report says all this money went toward “public improvement” but doesn’t specify what that means. The city didn’t respond to requests for details.
About $100 million of last year’s expenditures went to close the books on TIF deals approved before 2008, including grants to at least eight corporate giants rebuilding their offices. Among them were CNA Financial, which got $13.7 million; United Airlines, which got $5.7 million; and Careerbuilder, which got $2.5 million. A consortium led by John Buck, one of the city’s most prominent developers, received $7 million for a piece of property they’re turning into a park on Randolph.
At least $72 million more was spent on good old Block 37. Of that, $60 million went to the CTA to finish the underground station that’s one day supposed to service an express train for passengers zipping in and out of downtown from O’Hare and Midway; now the city just needs to find the money to lay the track, which seems fairly important for such a project.
Please, ask me again why I wouldn’t trust the mayor and his people with an Olympics.
Block 37 is still not finished, by the way. In 2008 the city gave Loews Hotels permission to build there. So far the hotel hasn’t used any public money, at least not from the Central Loop TIF. But if and when construction ever starts, don’t be surprised if the city ports in money from adjoining districts.
All of which really raises the question of whether the Central Loop TIF was worth it. The answer, of course, depends on how you look at it. It’ll be a long time before the schools and the parks come close to recouping the property tax dollars they’ve been losing for the last 24 years, particularly at Block 37. And there’s no sign that the underground station will be used any time soon, so right now that’s looking like hundreds of millions of dollars thrown into a hole in the ground.
The Loop, meanwhile, is hanging in there. It’s certainly worth noting that TIF money went to several cultural institutions that have brought life to the Loop, such as the Goodman Theatre, the Chicago Theatre, and the Chicago Symphony Orchestra. In fact, if it makes you feel better about spending $1 billion over the last 24 years on one corner of the city, you could join people like Mayor Daley and former downtown alderman Burt Natarus, who give the TIF credit for everything good that’s happened there since the 1980s. I’ve been at public hearings where Natarus essentially claimed that without it downtown would be a wasteland with tumbleweeds blowing through it.
Now that the Central Loop TIF piggy bank has been smashed, Mayor Daley no longer has access to one of his favorite sources of cash. But don’t cry for him yet. In 2006 the mayor, always looking ahead, got the City Council to create the LaSalle Central TIF to help that blighted portion of town known as the financial district, just west of the Central Loop. In 2008 the LaSalle TIF brought in $19.1 million in property taxes, up from $9.8 million in 2007—a 95 percent increase, for folks keeping score at home.
And so one TIF ends and another begins.
Ben Joravsky discusses his work for the Reader weekly with journalist Dave Glowacz at mrradio.org/theworks. And for more on Chicago politics, see our blog.