Chicago's Use of TIFs for Economic Development - Essay Sample

Paper Type:  Essay
Pages:  7
Wordcount:  1763 Words
Date:  2022-12-21
Categories: 

Introduction

After the devastating Great Depression that had adverse effects on the economy of the United States, the local governments experienced ruthless fiscal stress which forced them to reduce significant expenditures for basic services such as infrastructure repair, schools, and public safety. In addition to declining revenues, the cities were also faced with the challenge of creating employment to reduce high levels of unemployment; as a result, local governments had to establish economic development policies that made use of local revenue to promote job creation (Lester, 2014). One sc policy is the Tax Increment Financing (TIF) which has been extensively applied in Chicago city. TIF is a financing technique for funding capital projects from a stream of revenue that is generated from the project. It is a crucial tool for community development that is used for attracting development that will generate new taxes (Healey & McCormick, 1999).

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In Chicago, TIF policy is used to create jobs and redevelop the city. It is a "special funding tool of Chicago to promote public funding and private investment across the city" (Chicago.gov, 2019). Funds are generated through growth in Equalized Assessed Valuation (EAV) of properties within the designated district over a period of 23 years. The generated funds are then used for building and repairing key infrastructures such as roads, putting vacant properties back to productive use, and cleaning polluted land. These operations are often done in conjunction with private development projects (Chicago.gov, 2019).

The main objective of TIF policy in the city of Chicago is to "help local companies expand and create employment opportunities for Chicago residents" (Chicago.gov, 2019). The funds generated through TIF are usually channeled to local companies that employ local residents to participate in building and repairing infrastructure thus creating jobs. Also the development of designated sites known as "blighted" spots which are identified b the local governments stimulate growth and job creation.

Policy History and Implementation

TIF policy has a long historical background in Chicago. In the 1800-1900 period, Chicago Stockyards were significant economic underpinning that provided jobs for thousands of residents and promoted economic growth leading to the nickname "Hog Butcher to the World" (Healey & McCormick, 1999). However, in the 1980s, butchering industries and the traditional meatpacking declined rapidly leading to the closure of the Stockyards which left vast parcels of vacant and blighted land and buildings (Healey & McCormick, 1999). During this time, there were scarce federal resources to rebuild the area's infrastructure. The soils were also unstable, and many roads which were privately owned were unusable. The land was divided into small lots. All these factors were impeding the capacity for large-scale redevelopment for modern industries.

It was during this time that the state of Illinois resorted to a series of industrial and commercial tax increment financing districts to restore the area back to its world position as an economic hub. TIFs helped in providing a funding mechanism to clean up the Stockyards and prepare land for redevelopment. In 1977, the state of Illinois enacted TIF following acute shortage of federal and state economic development funds (Healey & McCormick, 1999). The state designated that for an area to be eligible for TIF, it had to demonstrate several problems that included obsolescence, excessive vacancies, overcrowding of facilities, inadequate utilities, lack of ventilation, excessive land coverage, deleterious land use, lack for physical maintenance, lack of community planning, and deterioration (Healey & McCormick, 1999). Although the city of Chicago demonstrated the outlined characteristics to meet the threshold for TIF programs, the leaders approached the policy with caution which delayed the establishment of the first TIF project until 1984. By 1989 when Mayor Richard M. Daley assumed office, there were just 12 TIF districts in the city most of which were poorly monitored and had not generated much private investment (Healey & McCormick, 1999).

Mayor Daley approached TIF as a critical tool that would drive economic development in the city. From 1990 to 1997, Daley raised the number of TIF districts from 12 to 32, and later to 75 by 1999 (Healey & McCormick, 1999). It was through aggressive implementation of TIFs that the Chicago was able to develop, retain and attract industry, and it has now become one of the strongest industrial markets in America today (Healey & McCormick, 1999).

Initially, the Chicago city decided not to issue general obligation bonds to directly finance TIF projects in its districts. Instead, the city limited to offering "pay-as-you-go" TIF funding on an annual basis for individual projects. However, soon the city realized that to make itself a competitive place for investments, it needed initiatives that would ensure up-front funding for private investors (Healey & McCormick, 1999). In 1992, the city allocated $25 million from the citywide general obligation bond for economic development funding. As a result, the generated funds made the city attractive to large industrial companies such as the Luster Products, Culinary foods, Farley Candy, National Wine Service, and Eli's Cheesecake. Also, matured TIFs were insured through ACA and AAA insurance to minimize uncertainty and stimulate further investments. Other funding methods such as CD Float Loans and developer notes were also allowed to stimulate further investments in the TIF districts. In ensuring that small businesses also benefited from TIF, Chicago introduced lender-backed micro-TIF investment funds targeting most needy areas of the city. The initiative empowered small businesses to also make investments and generate revenue as well as taxes (Healey & McCormick, 1999).

Policy Design and Structure

In Chicago, TIFs is systematically organized and administered through a collaborative process. The city leadership works with businesses, community groups, aldermen, and developers to spot areas that have not lived up to their potential. The city determines if the identified land is eligible for a TIF district and if it qualifies TIF development plan is created to revitalize the neighborhood. Public hearings are held to receive input to the project plan. Once the redevelopment plan is ready, the City Council votes formally on the TIF district (Healey & McCormick, 1999).

The created TIF districts are intended to increase revenue for the local government as well as creating employment. Once the city creates a TIF district, the amount of tax currently collected in the area is set as a baseline which indicates the amount of money that the local government taxing bodies will receive from the area for the next 23 years which is the life of the TIF. Dilapidated and vacant properties are developed with the help of TIF leading to increasing in value and tax revenue. Tax above the baseline is used to improve and redevelop the area. Once the TIF expires, and the city's investments are repaid, all property taxes are shared local governments which include the municipality, county, fire district, school district, park district and other special districts meant to receive the funds (Briffault, 2010). In this sense, the structure of the TIF is closed circuit in the manner that incremental revenues are used to pay for public expenditures aimed at inducing private investment which again generate the incremental revenue that goes back to paying for public expenditures.

The TIF programs are supported through funding from other different sources. The city allocates a portion of the bond issue for economic development funding in the TIF areas. In addition, up-front funds such as developer notes and CD Float Loans are used to fund projects. The city councils in conjunction with the Department of Planning and Development are in charge of the administration of the TIF and set up programs to ensure it accomplishes the set goals. One of the programs set was the lender-backed micro-TIF investment fund which ensured that homeowners, small businesses and sub-scale downtown projects benefit from TIF. The program ensures improvements in housing and business programs in needy areas as well as the central business district through reimbursing business and building owners (Healey & McCormick, 1999). The program also makes neighborhood businesses to improve their commercial behavior, remain competitive and expand. Another program established was the Neighbourhood Investment Program that issued grants to businesses to stimulate their growth. There was also the Central Loop Improvement Fund which aimed to help property owners to enhance the standards of their buildings to meet predetermined standards for the district (Healey & McCormick, 1999). These programs were designed to accelerate the effects of the TIF policy to be felt immediately.

TIF districts seek compliance through generating collecting and funding development projects. The increment revenue from the increase in the value of property within the district is supposed to be used to fund public expenditures or redevelopment projects within the area or pay back bonds issued. To ensure that the TIF districts comply with these requirements, state statutes have been established to govern the entire policy (Chicago.gov, 2019).

Policy Evaluation

Chicago TIF policy has been considered a remarkable development tool by many, but it has also been criticized in one or more areas. Scholars have disagreed over the potential impacts of the project with some commending the policy achievements while others believe it has not made any meaningful progress for the city. As of 2016, there were 145 active TIF districts in the city (Chicago.github, 2019). According to Healey and McCormick (1999), the TIF programs have created new jobs, retained existing ones and added new housing units. For instance, as of 1998, TIF had created 9,800 new jobs and retained 24,000 jobs with 3,000 new housing units (Healey & McCormick, 1999). Also, TIFs have increased tax revenue. For instance, in 2016, the TIFs contributed a total of $493.1 million (Chicago.github, 2019). McGreal, Berry, Lloyd, and McCarthy (2002) observed that TIF has enhanced property values, increased tax base, promoted economic development through job creation and retention, expanded the pool of affordable housing units, and encouraged neighborhood infrastructure improvements.

On the other hand, TIF projects have been criticized for some limitations. The policy has been cited as lacking democracy, accountability, and lacking well-enforced protections for taxpayers (Lindsey, 2012). It has also been criticized for not increasing any tangible economic development benefits for local residents (Lester, 2014). Despite the contradicting views of the scholars, TIFs may have been significant in the creation of jobs and promoting economic growth since there is empirical data showing quantifiable jobs created. The fact that the program allows the local government to earn its loaned money is a strength because it ensures that taxpayers' money is never lost. So the invested money is recovered after the economy has been expanded meaning that double-benefits are earned. However, the fact that some TIF districts would eventually attract investments without the need for TIF intervention implies wasteful investment by the government (Eagon, 2017). Similarly, the program forces taxation for the newly established businesses which may be detrimental to their expansion. Also, the collection of incremental taxes allows the taxing authorities to collect a lot of money even when it...

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Chicago's Use of TIFs for Economic Development - Essay Sample. (2022, Dec 21). Retrieved from https://midtermguru.com/essays/chicagos-use-of-tifs-for-economic-development-essay-sample

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