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TIFs for Dummies

The city finally posts some (mis)information about its tax increment financing program online.



If you want to know why taxes are going through the roof, check out the city's latest propaganda about tax increment financing.

This two-page primer, recently posted on the city's Web page, is billed as "The ABC's of TIF: Benefitting all of Chicago." Filled with mistakes, half-truths, and erroneous assertions, it would probably earn an F for its writer if it were submitted in a college course on municipal financing. Either planning officials don't understand the most important program they oversee or they're purposely misleading the public. I'm not sure which would be worse.

I have to give them credit for one thing: along with the primer they've posted brief profiles of each TIF district. TIF critics have been pestering the city to put this info on line for years. They include lots of useful information, such as when the district was created, when it expires, its boundaries, some (though not all) recent projects, and how much money sits in its reserves. If you're truly obsessed—like yours truly—you can go through all the reports and tally up how much of your tax dollars is squirreled away in bank accounts. As of December 2006, it was over $895 million.

As for the primer itself, I'll read it so you don't have to. It's set up as a Q and A, starting with the basics: "What is TIF?" The answer: "TIF stands for Tax Increment Financing." Well, at least they got that right. But it's got the wrong date for the first TIF district (created in 1984, not 1983), it screws up the basic explanation of how a TIF works (mixing up tax rate and assessed value), and it inflates the amount of TIF money going into Mayor Daley's "Modern Schools Across Chicago" program ($600 million, not $800 million, according to the mayor's own PR, not to mention that the schools overall are actually losing money thanks to TIFs). It even gets the name of the program wrong ("Modern Schools Throughout Chicago").

And those are the minor mistakes. The document also says that TIFs are created and run in an open process, when in fact the program is well hidden from the public—even if you live in a TIF district, how much you're paying into the TIF fund isn't even itemized on your tax bill. It says TIFs are "used to encourage development and investment where it would not otherwise occur," but in fact the money largely goes to wealthy neighborhoods—like the Loop. It says the approval of TIFs is closely monitored, but in reality oversight is limited to a rubber-stamp board filled with mayoral appointees who know better than to ask hard questions.

But the biggest howler has to do with taxes. "Does TIF increase the taxes in other parts of the city?" the primer asks.

The answer? "No. The main benefit and appeal of TIF districts is that they are self-sustaining and allow the City to pay for major improvements projects without raising taxes or having other parts of the city pay for those improvements."

Then it asks: "If I live in a TIF district, does the TIF increase my taxes?"

The answer again is no: "TIF is not a new tax, but it works by putting the natural increase in property taxes to work in that specific neighborhood. Home owners may see increases in property taxes, but only in proportion to increases in the value of their homes—exactly the same as if they were not in a TIF."


OK, one more time—let's review how this sucker works. When the City Council approves a TIF—always with Mayor Daley's blessing—it freezes the amount of property tax dollars the schools, the parks, the county, and other taxing bodies get from that district for 23 years. If the schools were getting $100 from a TIF district when it was created, that's roughly all they'll get until the TIF expires. Any extra tax money, generated by rising assessments or new development, goes into the TIF fund, which Mayor Daley is free to use largely as he wants.

Think about this. If the schools, parks, and county can only get $100 from a TIF district, what do they do when their expenses go up to $200? They have to raise their levies—the amounts they each get from the property tax pie—to compensate for the money diverted to the TIFs. When they do that, property taxes go up. No matter what the city tells you, TIFs are tax hikes, plain and simple—the more you create, the higher taxes go.

It might not be so bad if we only had three or four TIFs. But there are 156—and the city is proposing new ones every month. The existing TIFs divert at least $400 million a year in property taxes. At their current rate of growth, in a few years they'll be diverting more than $500 million a year.

So why does the city issue misleading documents like "The ABC's of TIF"? For the same reason they keep the TIFs off the tax bills and out of the budget. They don't want taxpayers to know about them because if taxpayers—already upset about rising taxes—knew about TIFs, they might do something about them.

I'm not surprised by this latest move, but I am insulted by it. The city is basically saying, We can get away with telling you anything about TIFs—that up is down, that black is white—because you're too apathetic to care or too stupid to figure out that we're putting you on. And so far the city has been right.

Here Comes the Bill

On October 22, Cook County clerk David Orr released the annual tax rates, which lets us make some preliminary calculations on the big losers and winners in the property tax game.

To understand how this works, you have to realize a few things about taxes. They're essentially calculated by multiplying our property's value by the tax rate. Every three years, the county reassesses what your property's worth. The higher its value the more you're going to pay, unless, of course, the city and county decide they want to cut taxes by drastically cutting the tax rate (stop laughing).

In 2006, the county finished reassessing property in Chicago. In the next few weeks, the county will send out the first installment of tax bills that reflect the newer, higher assessments.

Here things get tricky. In order to reduce the burden on home owners, the county offers a home owner's exemption, which reduces taxes for people who live on their property. The default amount that's knocked off is $5,000, but since 2004 it's been inflated to $20,000. That was set to expire this year, and after three years of wrangling, legislators agreed to hike the exemption to as much as $40,000. When the bill was signed, house speaker Michael Madigan, senate president Emil Jones, and Mayor Daley announced that at last the poor beleaguered home owner was getting some break.

Don't be fooled. Not everyone gets the full $40,000. Many people get $33,000. Next year the exemption drops to $26,000; in 2009 it falls to $20,000, and after that it falls to $6,000.

Plus, some people live in neighborhoods where property values are rising so fast that the increased exemption won't protect them from a wicked tax hike. It's painful to read in the paper how everyone's getting a tax break and to open up your tax bill and see that your expenses are shooting up. I know, because it happened to me after the last reassessment, in 2004. Just days after I got a letter from Cook County assessor James Houlihan basically telling me, good news, your taxes are going down, I got a bill from the county telling my taxes were going up 129 percent.

The home owner's exemption doesn't cut the overall amount of dollars the city and county take from taxpayers. It only shifts the burden from one subset of taxpayers to another—including commercial property owners and residential landlords, who pass it on to their tenants. So if you're a renter, this affects you too.

According to Houlihan's calculations, roughly 75 percent of taxpayers will receive substantial protection from the expanded exemption, while 25 percent will not. In reality, the home owner's exemption protects incumbents—like Mayor Daley and County Board president Todd Stroger—by minimizing the number of voters who are outraged by their rising bills. As one of my less sympathetic buddies put it to me three years ago: "Thanks for picking up the slack, loser."

So who are this year's big losers? Poor residents of neighborhoods like Garfield Park, Lawndale, Englewood, and the near west side. My initial analysis shows that when the tax bills come out, any day now, those folks will be looking at tax hikes as high as 100 percent.

As gentrification creeps into their neighborhoods their property values go up. But rising property values don't always correlate with rising income. As taxes rise, a lot of people will have to choose between borrowing to pay their taxes, selling their property, or going into foreclosure.

Who's being spared while the west and south sides get scalped? Huge swaths of the northwest and southwest sides and some neighborhoods on the north side, including mine. Yes, that's right, lucky me—I'm only facing a one percent hike on my next bill. I love you, Mayor Daley!

It's a dangerous game we're playing with property taxes. Today's winners are tomorrow's losers. And with Daley and Stroger raising the rates we'll probably all get pounded next year. It's easy to look the other way when someone else is picking up the slack. But sooner or later your turn will come.v

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