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A TIF Under the Microscope

How to interpret the inspector general's sample audit of the Central Loop honeypot



As summer reading goes, nobody's going to mistake the inspector general's recent audit of TIF spending in the Loop for The Girl With the Dragon Tattoo.

The June 29 report is rather dry and tedious, and—to no one's surprise—has no scintillating sex scenes or snappy dialogue. But to a tax increment financing geek like myself it's revealing in its own way, since it's one of the few times any city entity has taken a close look at Mayor Daley's favorite economic development program.

What the IG found is that the program's record keeping is sloppy, but not as sloppy as I'd thought.

Before we dig into the details, you need to know a thing or two about how tax increment financing works. In a nutshell, the TIF program is a hidden property tax hike, where all the local taxing bodies—the schools, parks, county, etc—agree to raise their tax rates and shuffle the additional revenues in designated TIF districts into bank accounts that are, for all practical purposes, controlled by Mayor Daley. The program has collected more than $1.5 billion over the last three years.

The money's supposed to go toward eradicating blight in low-income, investment-starved communities. But the law concerning oversight is so loosely written that Daley's basically free to create TIF districts wherever he wants. Hence, some of the city's wealthiest communities are the program's biggest beneficiaries while truly poor and blighted communities like Englewood and Roseland get the shaft.

Inspector General Joe Ferguson didn't launch an investigation because of inequities in the TIF program, though. He wanted to see how the money was spent.

The IG zeroed in on the Central Loop TIF district, created in 1984 by the City Council at the urging of Mayor Harold Washington to seed development of Block 37, which is bounded by Randolph, Washington, Dearborn, and State. As it turned out, a good chunk of Central Loop TIF money was spent building Millennium Park three blocks away.

How'd that happen?

Well, as I've told you before—and probably will tell you again—once a TIF is created, Mayor Daley is pretty much free to spend the money however he wants. And in the late 1990s Daley started spending Central Loop TIF money to complement private-sector donations paying for construction of the park. As the construction costs soared he used the Central Loop TIF as a honeypot he could dip into when he needed some more money to help make his park dream come true.

Ferguson doesn't even pretend to have prepared a comprehensive report on all Central Loop or even Millennium Park expenses. His report is what auditors call a sample—a snapshot thought to represent the bigger picture. He assigned two auditors—Larry Dakof and Wendy Funk—to scrutinize expenditures from 2003 to 2007 in several projects funded by the Central Loop TIF, including the construction of Millennium Park and the rehabilitation of Harold Washington College.

Both projects were overseen by the Public Building Commission, which is responsible for major public works projects like the construction of new schools and parks. In case you were wondering, the PBC is controlled by Mayor Daley, who's the chairman. The other nine board members are either mayoral appointees or public officials who get an automatic seat, like Cook County Board president Todd Stroger.

Dakof and Funk asked PBC officials to turn over every invoice or bill for these two projects during those four years. Then they spent the better part of a year going over more than half of those bills—roughly 60 percent—to see how the money was spent and whether it was all accounted for. "This was real green-eyeshade stuff," says Ferguson.

They weren't investigating whether the city was getting a good deal for the services and items it was buying. They weren't checking to see if the city was paying twice the rate it should have been for a shrub in Millennium Park. They weren't even looking to see if the city really needed all the shrubs it purchased. They were merely trying to determine if everything paid for with TIF money was eligible under the convoluted rules and regulations governing how TIF dollars can be spent. Then they added up the invoices they'd reviewed to make sure that the city actually spent what it claimed it had.

And what did they find? Among other things:

The city had spent $329,000 in TIF funds to buy artworks for the college. That's a no-no: even TIF rules, loose as they are, list allowable uses for the money, and art isn't one of them. And the auditors discovered that a little more than $1.2 million in TIF funds appropriated for the projects ($9,092 for Millennium Park and $1,193,404 for the college) had been left sitting in a bank account for three years—where it might have sat for all eternity if Dakof and Funk hadn't stumbled upon it.

"We regard the audit report as an important initial story in peeling back the cover of expenditures of hundreds of millions of dollars in tax revenue through the TIF program," says Ferguson. "The audit draws no judgment on any of these projects. That was not one of our objectives. Our objective is transparency."

After Ferguson released the report, a few aldermen, most notably Leslie Hairston of the Fifth Ward, grumbled that he'd overstepped his mandate, meaning that TIF oversight should be left in the hands of the City Council. As if that's ever going to happen.

I called and e-mailed Peter Scales, spokesman for the city's budget department, to ask how the city had managed to overlook the $1.2 million and why it had spent TIF money on artwork as opposed to, you know, eradicating blight in poor communities. Scales responded by e-mailing me a two-week-old press release dismissing the significance of the IG's findings. However, the release didn't address my questions. Thanks, Pete—always a pleasure working with you.

But to its credit, the Daley administration reacted quickly to Ferguson's report. On the day Ferguson released his report, the PBC sent the leftover $1.2 million back to the county, which will redirect it to the schools, parks, and other taxing bodies. That means the schools should get a windfall of about $600,000. Quick—somebody tell Ron Huberman I just found the money to bring back sophomore sports.

I'd love to tell you what the city is going to do about the money spent on art, but the press release Pete Scales sent me didn't mention it.

Now, there are several schools of thought about how to interpret Ferguson's findings. Some might praise Mayor Daley for overseeing two big projects—Millennium Park and Harold Washington College—so efficiently that he came out of them with a surplus. That would be your classic glass-half-full reading of the situation.

But others might say he set aside so much TIF money for these two projects—especially Millennium Park—that not even the city could waste it all. If you remember, Millennium Park, which used about $280 million in TIF funds, cost roughly $500 million altogether, about four times its original projected price.

And one could certainly say the investigation proves that Mayor Daley's TIF program is more efficiently run than any of his critics—myself included—gave him credit for. I mean, after poring over hundreds of invoices, Ferguson's auditors found discrepancies of only about $1.5 million, or about 4.5 percent of the $33 million in expenditures that they studied. I guess that's not so bad. Hey, Mayor Daley, take a bow.

But then Ferguson's investigators only looked at a teeny tiny sample—less than 1 percent of the billion or so Central Loop TIF dollars the city's spent between 1984 and 2008. They dipped a spoon into a vast ocean of TIF money and examined those few droplets under a microscope. Maybe they happened to uncover the only mismanagement in the whole program (stop laughing). Maybe they examined a portion of the program where there was relatively little waste. Or maybe the sample was actually representative of the whole.

If so, we're talking real money. Over the course of 24 years roughly $1 billion went through the Central Loop TIF, so if 4.5 percent of all Central Loop money has been misused or misplaced, it adds up to $45 million. There you go, Mr. Huberman—money to hire back all those teachers you fired last month.

Anyway, this brings us to what I call the "Why should we care?" part of the discussion. We the taxpayers actually got something of benefit from these TIF projects, you say, so who cares if the city went a little over budget or misspent a few bucks, right? In a hundred years absolutely no one—not even TIF geeks—will care about how much was wasted on Millennium Park or Harold Washington College.

Fair enough. But we're not living in 2110. We're living in a time when everybody from the schools to the city to the county is broke. Lord knows what budgetary ruse Mayor Daley will concoct in the coming months to put off raising taxes or cutting services, at least until after his 2011 reelection campaign.

So by all means, go out and enjoy Millennium Park and while you're at it, go admire the art at Harold Washington College. As Ferguson's report reminds us, we sure paid enough for them.

Ben Joravsky discusses his reporting weekly with journalist Dave Glowacz at

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