tax increment financing (tif): andrea clinkscales brian henry “the only game in town” - chicago...
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Tax Increment Financing (TIF):
Andrea ClinkscalesBrian Henry
“The only game in town”- Chicago Mayor, Richard M. Daley
Function of TIF
A specific geographic area for TIF district is defined.
Tax assessment values for properties this area are “frozen”.
Taxing jurisdictions may only collect taxes from these properties at the frozen or base value for a specific period (usually measured in decades).
As real assessment values rise, property owners continue to pay higher taxes.
The difference between the taxes collected at the base value and the real value is diverted to a special TIF fund.
This fund is used to finance investments within the TIF district.
TimeTIF base year
Frozen tax base
Tax increment
Increasing assessed value with redevelopment
TIF Conceptual ScenarioA
sses
sed
Val
ue
History: 1950s – 1990s
Introduced in 1950s as last resort to finance slum or blighted areas
Federal development money in grants, tax breaks, and bonds decreased in 1970s
Used sparingly until 1980s when many states passed TIF-enabling laws or amended old laws to expand TIF
Redefined blight more broadly Added economic development as essential public purpose Included industrial areas with labor surplus or
decommissioned military bases
More amendments to TIF-authorizing laws Allowing construction of low to moderate-income housing
or workforce development
TIF Theory & Central Conflict
* BUT: There are conflicting academic studies which disagree on this central point.
• TIF spurs economic development that otherwise would not occur • An area is blighted or stagnant, it needs help
•Without help there will be no change
• Investments are made which make the area more attractive
• New investment in the area starts a positive cycle for further private improvements
Other Pros & Cons
Not a new or direct tax
Self-financing Less effected by debt
limits and other checks
Flexible and specific to problems
Takes money from other jurisdictions (like schools)
Can be seen as developer subsidy
Can cause an increase in tax rates (just a backdoor tax increase)
Administrative costs, higher interest rates
“As I see it, TIF is another tool in the community toolbox; works best in portions of community where new development is anticipated; and should be focused at a rather limited set of specific improvements. It does not take the place of regular capital improvements; is really only a bookkeeping concept, but wow . . . it has accomplished so much.”
Peter Ryner Director of Community Development
Peterborough, NH
Industry Opinion
TIF Today
Legal in 49 states and Washington D.C. Prohibited in Arizona
APA’s Planning magazine (March 2007): “development credit card for the city: Buy a project now and pay it off in the future”
Often first “municipal government revenue development tool” considered by local governments
Once used to restore blighted areas – now used to restore “blighted municipal budgets” Funding all kinds major building projects
Does it really work?
Most cities report increases in property values as a result of TIF Few cities report declines Success depends on location, markets, local
wealth Best results in metropolitan communities and
rapidly growing suburbs
Two examples to illustrate Successful TIF Heavily criticized TIFs
Success: Portland Development Commission (PDC)
Citizens of Portland, Oregon voted to create PDC in 1958 to improve neighborhood livability
PDC is the agency in Portland that administers TIF
Characteristics
Controlled by a 5-member board of commissioners Local citizens appointed by the Mayor and
approved by City Council Quasi-governmental in nature
Because executive reports to the board of commissioners rather than directly to the Mayor or other City Commissioners
Unique organization: high degree of coordination in urban renewal, housing, economic development, and redevelopment
The River District
PDC controls 11 urban renewal areas One of the most successful is the River District
River District plan calls for a high density urban residential neighborhood
The Pearl District
The Pearl District neighborhood is located within a sub-area of the River District
Many achievements here can be credited to Hoyt Street Properties, a major Pearl District landowner and developer
In 1994 Hoyt Street purchased the old Burlington Northern rail yard 34-acre Brownfield site
River District Map
1980s
1980s initiated strong potential for improvement Availability of low cost warehouse-to-loft
conversions attracted a number of artists to the area
Adventurous investors began to buy property
Met all conditions for TIF success: Blighted Potential for redevelopment Central location near downtown Strong private-public partnership
Hoyt Street Properties
Initially, site was hampered by the Lovejoy Street off-ramp from the Broadway Bridge Divided the property in
half
PDC removed the ramp; Hoyt Street promised to build a world-class, mixed-use, urban community
The Pearl District is now one of Portland’s most distinctive, thriving, up-scale neighborhoods
Pre-TIF
Post-TIF
Critiques
Few exist to-date Pioneering tenants priced out of the
market Average five-year appreciation rate of 50%
made property taxes and rent unaffordable Not strong critique because very few people
actually lived there pre-TIF Likely the City won’t let the profitable 20-
year River District TIF expire Threatens public schools – already in danger
Rebuttals / Added Protections
The Pearl was blighted to begin with and wasn’t generating significant property tax
With TIF, the PDC has been able to fund numerous affordable housing projects Private developers wouldn’t initiate without TIF
incentives If Hoyt Street defaults on development
agreement, the City can recover damages in court
If tax increment revenues surpass what is needed to meet PDC debt obligations, additional money goes to the general fund
Heavily Criticized: The Midwest
Over-use and abuse
Leads the nation in the number of TIF districts per state
Top 3 in the U.S.1. Minnesota: 1,782 TIF districts2. Wisconsin: 871 TIF districts3. Illinois: 458 TIF districts
Chicago
TIF is the dominant economic development tool used by Mayor Daley’s administration
140 TIF districts that cover nearly 30% of the land area, generating nearly $400 million in TIF funds
Establishing a TIF in Chicago
1. Politician, developer, and/or CDC enters discussions with the City planning dept
2. Eligibility study is conducted and a redevelopment plan is created
3. Special public hearing is held if existing housing will be impacted
4. General public hearing is ordered 5. Joint Review board reviews6. Public hearing is held; City does not have to respond
to or act on public input7. Community Development Commission meets and
almost always approves the TIF8. Plan Commission holds another public hearing; again
– it isn’t required to respond to or act on public input9. Proposal goes to City Council for designation
“The only game in town…”
67% of Chicago TIFs were created after 1996
Indicating recent momentum
25% of taxable real estate is subject to TIF diversion
Indicating breadth
A study of 36 TIF districts showed Chicago Public Schools will lose a hundreds of millions in property tax revenue
TIF were administered in areas where property value was growing at a healthy rate – i.e. not blightedChicago Theatre District
Lack of Checks and Balances
Unlike Portland Chicago TIF
revenues aren't itemized on property tax bills
No annual TIF budget or independent oversight Can You Spot the Blight?
Central Loop TIF (Dearborn at Randolph)
Other issues
Causes gentrification Long-time stakeholders are forced into
less desirable neighborhoods Uses eminent domain 2007 property taxes in the hot
condo markets are projected to increase by 100% Due to TIF, property taxes are
increasing faster than people’s incomes
Reform in Chicago
TIF excesses lead to push for accountability and transparency
This summer, Cook County Commissioner, Mike Quigley, introduced three TIF-reform proposals
Increasing negative publicity is affecting perception of TIF and raising awareness
TIF in Washington
First passed in 1982 as Community Development Refinancing Act
Ruled unconstitutional by WA Supreme Court in 1995
Resurrected by 2001 TIF Act
TIF in Washington
• 2001 TIF Act: incredibly weak statute
• School districts exempt
• Fire districts can veto
• Only 75% of increment captured
• Expires in 2010
• Not tested in court
Questions?
Wal-Mart
90% of Wal-Mart stores are subsidized Equals more than $1 billion in tax payer monies
Often from TIF Most Texas (30 deals worth $108 million) Then Illinois (29 deals worth $102 million) In 2002, Wal-Mart sought an $18 million subsidy for a
project to be located on the Near South Side of Chicago.
Project was abandoned due to controversy In Niles, adjacent to Chicago’s south-side, a TIF was
granted to a Wal-Mart developer for redeveloping an old manufacturing
Wisconsin designated a cornfield and apple orchard as blighted so Wal-Mart could qualify for TIF to build a superstore