"Once again, our students are benefiting tremendously from our city's commitment to its schools," Chicago Public Schools CEO Arne Duncan said at a press conference last week at Powell Elementary, cheering the city's recently unveiled development project, "Mayor Daley has made education the city's top priority, and he has backed that up with unwavering leadership and support."
The Mayor's plan entitled "Modern Schools Across Chicago"—a $1 billion project to build 24 schools with state-of-the-art facilities and renovate 3 more across the city—is the largest school construction endeavor in Chicago history. In addition to $400 million from school bond funds, another $600 million to finance the project will come from tax-increment financing (TIF) money.
"This is a creative use of existing dollars which have accrued from our successful TIF program and will not require any property tax increase by the City of Chicago to fund," the Mayor explained at the press conference. "Our taxpayers have been generous beyond words. Today, we're giving back to those taxpayers something real and meaningful—something they will see and touch and feel and know that their dollars are being invested carefully and appropriately."
Although, in truth, TIF money actually comes from property taxes, the method is much more complicated than merely having the revenue go directly to things like school funding and infrastructure. In essence, the process involves privately financed development deals that the city hopes will pay-off in the future to finance community needs. Mayor Daley has often employed this strategy for various projects— but the revenue generating scheme is not without controversy. While one may argue that the "Modern Schools Across Chicago" project is a shining example of the benefits of the TIF program, this 'free lunch' as some have called it—due to beneficiaries receiving what they have paid through increased assessments—often comes with a real cost. How TIF Works
TIF is a process that allows a municipality to use increased property taxes and even eminent domain, while providing incentives for private developers, all in the name of bolstering economically depressed areas. Ideally, the procedure turns out economic development, job creation and higher property values—in addition to the infrastructure needs that would have been provided by property tax alone— but no money is pulled directly from the city budget. Some see it as a valuable to tool in regenerating blighted areas, but there is a downside as well.
"Chicago neighborhood organizations and tax payers alike have expressed concern about the possible negative effects of TIF," write Patricia Nolan, Director of Community Planning and Helene Berlin, Research Director Neighborhood Capital Budget Group (NCBG)—a coalition of Chicago-based communities working to improve the city through targeted investment—as part of a 2002 report from the Pragmatics journal (a publication dedicated to local policy research) exploring the TIF program. "Community residents are concerned that TIF fuels gentrification and accompanying displacement of long-time residents, excessive and abusive use of eminent domain powers, the rapid transformation of a community's historic character, and skyrocketing rents and property taxes that eventually push long-time residents out of a neighborhood. Also, since imposing TIF on large areas of a city means that significantly less of the property tax base is available to local government agencies to help pay for day-to-day services, we are all paying more in property taxes."
Yet if TIF is able to afford a marvelous infrastructure, than perhaps some sacrifice is worthwhile. The "Modern Schools Across Chicago" project builds on the more than $4 billion the city has already invested in school construction since the Mayor assumed responsibility for the Chicago Public Schools in 1995. To pay for this massive undertaking with money already generated from the program, the Mayor's proposal makes a persuasive justification for continuing with TIF in the future.
"Taken together, this means that we will have built 64 new schools and 66 additions and annexes, while renovating hundreds of other schools," Daley boasted at last week's press conference. "What other city has done that?"
Nolan and Berlin continue, "While the Chicago Public Schools is now starting to tap TIF revenues for its school construction program, school officials, who effectively work for City Hall, have said little about TIF's true impact on its overall revenues. Municipalities claim the benefits of TIF in turning around "blighted" areas while maintaining that the program has no substantial costs. After all, the logic goes, none of this development would be taking place without TIF. But…evidence points to the contrary."
As per the 2002 Nolan and Berlin report, more than 13 percent of Chicago's property tax base comes from TIF districts with an increasing trend toward communities that many argue are not at all "blighted" as the legislation demands. The result is that some Chicago communities that already enjoy substantial economic development are being swallowed by TIF—more than a quarter of the city's acreage is included in a TIF district. For a period of 23 years, according to Illinois law, these communities are left unable to use the revenue that would have otherwise been available to them. The money is instead used to subsidize TIF development and in turn, tax rates to go up. One can see that raising property taxes appear to be necessary to keep the program going as Daley has issued 10 property tax hikes within the 12 years since he took over the Chicago Public Schools.
A Call For Reform
Some changes were made to the TIF program due to a 1999 public outcry, but many suggest that more reform needs to occur. Upon a 2005 analysis of the program, the Heartland Institute—a national, nonprofit research and education organization based in Chicago—made four recommendations for policymakers considering TIF. In addition to giving residents more of a say in the process, the Heartland Institute report suggests alternatives to TIF which they concur, when weighed against its problems, "has not proven effective at generating jobs or new businesses." The organization also calls for more public education of the process and some neighborhood committees have already taken the initiative to educate residents when faced with an impending TIF.
As TIF has city revenue placed evermore into the hands of private developers—with the community at large being largely shut out of the process—the question remains: in regard to Daley's unprecedented school development project, what could have been accomplished had the city's tax base been used to fund it directly? Findings from a 2002 NCBG TIF study entitled, "Who Pays for the Only Game in Town" (the title referencing Daley's characterization of TIF) suggest that such a strategy could have been significant: "The Chicago Public Schools will lose out on a projected $631.7 million in property tax revenue that it would have received if [the study's TIF district samples] had continued to grow at their pre-TIF rates."
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