Transforming Tax Increment Financing
Panelists from left to right: Carole Brown, MPC board member, managing director at Barclays Capital, and chair of Mayor Emanuel's TIF Reform task force; Jacques Sandberg; and Ald. Ameya Pawar.
By Chrissy Mancini Nichols
Sep 21, 2011
This post first appeared at metroplanning.org
There’s no question that Tax Increment Financing (TIF) is a hot topic in Chicago, and it should be; since 1986 more than $7.5 billion has been collected in TIF funding in the City and suburban Cook County. While a sizable portion of these proceeds have supported school construction, community improvements, and affordable housing in neighborhoods, growing public concern has focused on the perception that TIF is over-used in the Loop, in particular to attract corporations to relocate downtown, resulting in calls for stronger standards for defining blight, as well as greater accountability and transparency in the funding allocation process.
In response to these concerns, Mayor Rahm Emanuel created the Task Force on TIF Reform, charged with a top-to-bottom evaluation of the City’s TIF program and chaired by Carole Brown, MPC board member and managing director at Barclays Capital. On Sept. 15, Brown along with 47th Ward Ald. Amaya Pawar and Jacques Sandberg of The Community Builders spoke to a packed crowd at MPC’s “Reforming Tax Increment Financing” roundtable, moderated by Steve Quasny of BMO Harris Bank.
Brown kicked off the roundtable explaining Mayor Emanuel made it clear that he wanted the Task Force to take a hard look at the TIF program and find ways to make it more transparent and accountable. All options were on the table, said Brown; the Task Force even contemplated ending the TIF program but determined that TIF is an important tool to maintain in the City. After its own months-long investigation, which included public hearings and feedback from business and community stakeholders, the Task Force was surprised to learn that no person or agency at City Hall owns the TIF program, it is not incorporated in the larger capital plan, and there is no overall TIF plan.
The Task Force issued the following key recommendations to improve the transparency and efficiency of the program:
• Establish goals for the TIF program through a multi-year economic development plan that guides all future TIF district designations and project allocation.
• Create a multi-year capital budget that details the funding of all infrastructure needs, including those in the economic development plan. All TIF allocations should be made in accordance with the capital budget.
• The City should establish benchmark metrics for TIF performance and publish the outcomes for each TIF on an easy-to-use web site. Metrics should go beyond funding allocations and property wealth growth to performance and outcomes of those allocations. For example, for each TIF, the City ought to track how many jobs have been created/retained, the total amount of private investment compared with public investment, number of affordable housing units created, number of people receiving quality job training, and property value growth.
• The City should monitor all private TIF projects over the long term to eensure private enterprises that accept TIF funds deliver on their commitments (e.g. more and better jobs, affordable housing, and energy efficiency improvements) If benchmarks are not met, the City should “take action,” said Brown, whether that means reclaiming funds, amending the redevelopment agreement, or closing the TIF.
• Review TIF performance thresholds every five years and update benchmarks as necessary.
• Enhance oversight and administration of the program by an internal body appointed by the Mayor and increased staff to administer these reforms.
Though the Task Force recommended quite a few reforms to make TIF work better, it’s also preserving much of what’s right with the City’s TIF program. Jacques Sandberg, director of development-Midwest, for The Community Builders, Inc. (TCB) pointed to two TCB mixed-income/mixed-use development projects in the City that TIF financing made possible. Sandberg explained that most development costs, like construction and labor, are fixed, so building housing units affordable to people and bringing needed amenities to neighborhoods requires some subsidy to balance costs. He called TIF an “absolutely critical” financing mechanism.
Oakwood Shores, a TCB project on Chicago’s Near South Side, is a redevelopment of the former Madden/Wells/Darrow public housing into a new vibrant mixed-income community with an array of housing choices, civic spaces, an educational campus, and lakefront location. Chicago’s old barracks-style housing was torn down, to be replaced with 3,000 traditional low-rise below-market and market-rate rental and for-sale condominiums and homes. To date, approximately 700 units have been built, and the Oakwood Shores Senior Building is in the financing phase. Together, these buildings will provide additional rental units and a medical clinic. Oakwood Shores also features green roofs and uses solar panels. With TIF financing, TCB was able to turn zero-value real estate into a community asset.
TCB’s Shops and Lofts at 47th and Cottage Grove originally was slated as big-box retail with market rate condos above. When the housing crisis put the deal in jeopardy, the developer brought in TCB to help keep the project alive. With help from then-Ald. Toni Preckwinkle, TCB used TIF funds to bridge the financing gap and move the development forward as a five-story mixed-use building with 101 rental units above what will be a full-service grocer, dry cleaner, and coffee shop – all services the neighborhood needed.
Sandberg proved that when used properly, TIF is a good tool to build the kinds of communities that strengthen Chicago’s neighborhoods. Both projects satisfy the “but for” test: “But for” the public investment provided through TIF funding, redevelopment or development would not otherwise occur.
Lastly roundtable attendees heard from newly elected Ald. Amaya Pawar (47th Ward) who believes TIF is a powerful tool that can propel a community forward, but agrees that reforms to ensure transparency and accountability need to be implemented. Pawar also noted that as federal funding for cities has basically vanished, cities must get creative, and TIF is a great creative financing tool in part because of its flexibility.
Ald. Pawar already has implemented changes to the TIF process in the 47th ward, creating a form that developers seeking TIF funds must fill out to make it clear to the community the benefits they’ll bring from the use of TIF dollars. He’s also bringing together a working group of all elected officials in the 47th ward to map out underused or vacant spaces and stack incentives available across all levels of government, including TIF.
Ald. Pawar highlighted the Grow 47 program, his local education initiative. While his ward has some of the best elementary schools in Chicago, many families choose to move to the suburbs when their child hits middle school if they can’t test into a magnet school. Pawar’s data found that less than 25 percent of 47th Ward eighth graders attend neighborhood high schools. To keep people from leaving the ward, he wants to create a complete, viable, K-12 system. He believes when local public education is a competitive option, it stabilizes the community and the tax base, strengthens the economy, and increases property values, demand for rental housing, and traffic in business districts.
Pawar said that four elementary schools in the 47th Ward have successfully partnered with parents and community members to become some of the best in the city. He wants to scale up that effort to all public schools in the ward and use TIF dollars to improve these schools. The aldermanic office will work with a new committee chaired by former Illinois state Comptroller Dan Hynes and Paul Rosenfeld to develop “Friends of…” committees for each public school in the 47th Ward. The committee will be tasked with identifying key nodes in the footprint of each school to help organize parents, community leaders, landlords, and businesses. The committee will work with the Chamber Committee to identify school sponsors, fundraising opportunities, and connect business owners to school in their footprint. As the committee raises private private funds to support the schools, Ald. Pawar will trigger TIF funds for the schools to build everything from soccer fields to science labs.
Pawar also noted that TIFs in his ward often do very well and, he is a proponent of sharing some of those funds with other city TIF districts that don’t have as high a return, because when one community does well, the entire city benefits.
Unable to attend the “Reforming Tax Increment Financing” roundtable? Listen to it here on Chicago Amplified.
“Reforming Tax Increment Financing” was generously sponsored by BMO Harris Bank and is the first in a three-part series of innovative infrastructure financing roundtables. The next, “Innovative Financing for Transportation,” is Monday, Oct. 3, from noon to 1:30 p.m. at MPC offices. It will feature Rob Puentes, senior fellow and director of the Metropolitan Infrastructure Initiative at the Brookings Institution, Paul Hanley, director of the Transportation Policy Research Program at the University of Iowa, and Ill. Sen. Heather Steans (D-Chicago). Register online now.