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Learning to Say No

Mayor Daley's (mis)use of tax increment financing to pay for school construction inspires a minirevolt in City Council



There are many reasons for the City Council to turn against Mayor Daley's tax increment financing program.

The program is supposed to benefit poor, blighted communities but ends up funneling hundreds of millions of dollars a year into wealthier ones. It's a tax largely concealed from the taxpayers who pay it. And it's run with no meaningful oversight, leaving Mayor Daley free to distribute it as he wishes, often to well-connected developers and corporations.

But on May 12 the council launched a small insurrection over one of the relatively less egregious problems with the program: the use of TIF money to build or rehab schools.

Still, for those of us looking for any sign of reform, it's a start.

As faithful readers should know by now, TIF is an off-the-books property tax hike passed by the City Council at Mayor Daley's urging. When the aldermen create a TIF district, they freeze the amount of property tax dollars the schools, parks, county, and other taxing bodies can collect from that area for up to 24 years. To compensate for the revenues they're not collecting from these districts, the schools et al have to raise rates on everybody else. In the last three tax years the TIFs have collected about $1.5 billion in taxpayer money. So the schools and parks and county do the dirty work of raising tax rates, and the extra cash gets turned over to Mayor Daley, who then can claim—as he did again just last week in a speech to business leaders at the City Club of Chicago—that he's holding the line on property taxes.

As scams go, it's a beaut. Over the years the aldermen have gone along with it either because they haven't understood it or because the mayor's persuaded them that they'd have a hand in distributing the money in their wards.

Alderman Pat Dowell
  • Lyle A. Waisman / Getty Images
  • Alderman Pat Dowell

"We believed this was money that was going to be spent in our communities," says Third Ward alderman Pat Dowell, who led the recent rebellion.

State law governing TIF allows the city to spend the money in districts adjacent to the one where it's collected, via a process called porting. By keeping much of the program's workings secret, then threatening to withhold money from the wards of unhelpful aldermen, Mayor Daley's repeatedly made it clear that when push comes to shove, he, not the council, will determine when and how all those hundreds of millions of dollars get spent.

Dowell's rebellion had to do with Modern Schools Across Chicago, an ambitious plan Daley launched in 2006—on the eve of his last reelection run—in which he proposed to spend roughly $600 million in TIF dollars building or rehabilitating schools.

For the sake of transparent bookkeeping, it would make sense to fund each school construction project with money from the TIF district in which it's located. However, some of these districts aren't collecting enough property tax dollars to pay off the bonds the city has issued to build or rebuild schools. So Daley's set up a convoluted rob-Peter-to-pay-Paul financing scheme—but with property values falling, it's not certain that any of these accounts has enough money to pay for all this construction. So on top of everything else, the golden goose may be overextended.

While fixing or building schools doesn't sound like such a poor use of public money, TIF isn't really intended to pay for projects like schools. In fact, while legal, using TIF to build schools is antithetical to the program. TIF projects are supposed to pay for themselves by subsidizing new development that will fill the coffers with more property taxes. Public schools don't pay property taxes. (And while some schools may help lift surrounding property values, others have been shown to push them lower.)

Unfortunately, none of our esteemed leaders is worried about that. But several are in a stew over the mayor's use of porting, including Daley allies like aldermen Eugene Schulter of the 47th Ward and Walter Burnett of the 27th. As they see it, the money from TIF districts in their wards is "their" money.

Schulter and Burnett lit into Chicago Public Schools CEO Ron Huberman when the second phase of Modern School funding came up for consideration at the May 10 meeting of the City Council's finance committee. But after the meeting Mayor Daley privatelyoffered to add an amendment to the funding package that would port money back to the TIF funds in their wards if there were a surplus in the TIF districts where the new schools are going up. The two aldermen ended up voting to authorize the funding.

Dowell, however, was more persistent. The city plans to take $1.6 million from the 47th and Halsted TIF district in her ward to pay for Back of Yards High School, which is being built at 2011 W. 47th, in the 12th Ward. Dowell's upset because few, if any, Third Ward residents will attend the new high school and her ward has many of its own pressing school construction needs. "There's about $12 million in unfunded capital improvements for schools in my ward," says Dowell. "Yet we're being asked to build a new school that residents in my district won't attend. That bothered me."

In April Dowell decided to use a little aldermanic leverage. Knowing Daley needed the council to approve the second phase of Modern School funding, she sent a letter to Huberman informing him of her ward's school construction needs. "I wanted them to understand my concerns," she says.

Huberman didn't respond, Dowell says. So at the May 10 finance committee meeting she proposed an amendment that would block 47th and Halsted TIF funding for Back of the Yards High School.

That got everyone's attention. James Balcer, alderman for the 11th Ward, moved to table the amendment—or rather finance chair Ed Burke recognized Balcer's motion to table the amendment even though Balcer had made no such motion. Balcer didn't even appear to know what was going on—he looked startled when Burke made the announcement. If nothing else—and sometimes there is nothing else—our City Council is entertaining.


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