Public school officials say they’re dismayed that a $20 million budget deficit is forcing them to lay off teachers and teacher’s aides. But they might have an alternative if they’d just stand up to Mayor Daley and demand that he stop siphoning millions of dollars in property taxes away from the public schools every year.

Some of those officials tell me no one’s going to confront the mayor publicly but that privately they’ve been pleading with him to give them some of that money back. And they think they’ve finally persuaded him. “Things are happening behind the scenes,” says one official.

The tax dollars they’re referring to are going to TIFs, or Tax Increment Financing districts, which are astoundingly unregulated. TIFs were originally set up to help “poor and blighted” communities that weren’t likely to attract much private investment without them. By law the amount of property taxes the city gets from such a district–to spend on schools, parks, libraries, and other services–is frozen at whatever everyone within its boundaries is paying when it’s set up. The city then borrows money and spends it on infrastructure that might make the area more attractive, such as sidewalks and streetlights, or lends it to developers to build shopping centers or rehab run-down apartments. Any new property taxes generated by these improvements–the “increment”–goes into a TIF fund, which is used to build more infrastructure or seed more development, generating even more property taxes. A TIF is supposed to last no more than 23 years, at which point all the property taxes from the district go directly to the city again to pay for services.

Early on, municipalities that set up TIFs had to tell the state exactly what they intended to spend TIF funds on, and the state had to approve the plan. But state legislators and administrators long ago dropped their oversight role, and TIF districts are no longer required to be set up in blighted neighborhoods. Chicago now has 131 TIFs–some of them in wealthy areas such as the Loop and Lincoln Park–and they cover nearly a third of the city’s geographic area. According to the city clerk’s office, they sucked up $129 million in property taxes in 2000 and $287 million in 2003 (there are no figures yet for 2004)–all money that once would have gone to fund schools, parks, libraries, etc.

If you live in a TIF district it isn’t easy to figure out how much of your property taxes go to the TIF, because tax bills don’t say. According to the bill for one new building on West Wacker, all of its property taxes pay for city services, including $693,329.87 for the Board of Education and $96,872 for the Park District. The bill also states that $0.00 goes to the TIF. But in fact, all of the building’s $1,419,538.85 in taxes goes to the TIF–and none to schools, parks, or libraries. That’s because the building was constructed on a vacant lot after the TIF was created.

Why does the tax bill say the money goes to schools and parks and libraries even though it doesn’t? City officials say they don’t know and refer all questions to the county, which collects property taxes. County officials say they don’t have the computer technology to break out the TIF expenditures, even though the technology is perfectly capable of giving a phony breakdown of where the money goes. Privately county officials tell me the city and the county have a gentleman’s agreement not to let the taxpayers in on how much of their property taxes goes to TIFs.

None of the entities that supposedly oversee the process seem to care. “Right now there is very little accountability with TIFs,” says Jason Hardy, a researcher for the Center for Economic Policy Analysis and an expert on TIFs. “I think officials like it that way.” TIFs are no longer monitored by anyone at the state level. The City Council, the Community Development Commission, the Chicago Plan Commission, and the Joint Review Board do have to approve the creation of a TIF, but they’ve never voted against one. Everyone on the board and both commissions is appointed by Mayor Daley or by someone he appointed. The plan commission does have to approve major projects but not their funding; the aldermen are supposed to have some say when it comes to spending TIF funds in their wards, but the ones I talked to say they often don’t know how much money’s available, much less what it’s being spent on. There’s no TIF budget for the council to approve or the public to review, and there are no public hearings on where the money will be spent.

So who’s deciding where TIF money gets spent? The mayor and the planning department, according to aldermen and city officials. “It’s a great program for the mayor because it cuts everyone–the schools, the parks, the libraries–out of the deal,” says one former alderman. “They raise the taxes–and Daley gets the money. No wonder Daley loves TIFs. He controls it all.”

And what do Daley and the planning department spend the money on? Pretty much anything they want. Over the past few years they’ve used TIF funds to renovate subway stations, build schools, create Millennium Park, and shower developers with millions of dollars in subsidies they probably didn’t need. Daley says he plans to use TIF funds to build the massive train station underneath Block 37 for the express trains that supposedly will someday run to and from O’Hare and Midway (even though he doesn’t have the money to build the tracks they’ll run on). Yet as the city has created more TIFs and as development within those TIFs has exploded, so much money has poured in that Daley and the planning department can’t spend it fast enough. At least $271 million is now sitting in reserves.

In the meantime, institutions such as the schools are begging for money just to provide basic services. “This doesn’t happen in the suburbs,” says the former alderman. “In the suburbs school boards are generally more independent from the mayors or city councils. They demand some sort of subsidy for diverting tax dollars for TIFs.”

But Chicago school officials–including CEO Arne Duncan and board president Michael Scott, both of whom were selected by Daley–aren’t demanding anything. Privately some officials grumble that the program’s flawed, but they say they feel compelled to defend it publicly and to choose their words carefully so as not to offend the mayor. They argue that if they were given all of the property taxes that are diverted to TIFs they’d get less money from the state, because schools lose state aid when they get more from property taxes. And they say the mayor’s been generous with TIF money, turning over nearly $270 million over the past decade to build nine new schools. School board spokesman Peter Cunningham says the schools expect to get even more TIF money for capital projects in the next few years, though he offers no specifics: “All I can tell you is that we’ve been looking at TIF dollars to see if there are opportunities to build some more schools.”

Privately city and school insiders tell me Daley’s planning to announce a major program, probably when the school year begins, to build new schools or repair old ones with about $500 million in TIF funds. “They have something up their sleeves,” says one aldermanic aide. “Some of the mayor’s guys are telling us to get our TIF projects in, ’cause the schools are going to be getting a lot of the money.” The school insiders say this is evidence that behind-the-scenes pressure can work.

But the aide, like some other City Hall insiders, thinks school officials will be making a mistake if they let themselves be bought off with such an offer. “Say they give the board $500 million in TIF funds to build schools over the next ten years,” he says. “Meanwhile they’re taking about $1 billion in property taxes that the schools should be getting. The schools wind up losing money on the deal. Duncan should be screaming, ‘Hell, no!'” He also points out that so far all the TIF money that has come to the schools has been for capital expenses, but if the schools could get the property taxes directly they could spend them on hiring teachers or classroom aides or on art, music, and drama programs.

Other analysts argue that the whole notion of using TIF funds for schools’ capital expenses is misguided. “I think it’s a terrible idea to use TIFs for the construction of public buildings like schools,” says Hardy. “I’m not saying it’s bad to build schools. I’m saying that TIFs need new money to fund themselves–the whole point of the TIF program is to spend TIF money so it generates new property taxes. But if you use TIF funds to build buildings that don’t pay property taxes you’re permanently taking tax dollars out of the system.”

Some City Hall insiders suspect that Daley would be giving the TIF funds to schools as a way to rationalize extending the term of several TIFs, including the Central Loop TIF, which is set to expire in 2008. As the largest and oldest TIF in the city, the Central Loop TIF sucked up about $75 million in property taxes in 2003, and developers are pressing Daley to extend its life and to expand its size in order to subsidize more downtown construction. “It’s so obvious Daley’s going to use the schools as the poster child to extend that TIF–just watch,” says the aldermanic aide. “The schools would be better off if they just said, ‘Thanks, but no thanks. Just get rid of the Central Loop TIF and let us keep our property taxes.’ But who talks to Daley like that?”

Art accompanying story in printed newspaper (not available in this archive): illustration/Laura Park.