Three Million Lawsuits Oughta Do It | Politics | Chicago Reader

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Three Million Lawsuits Oughta Do It

A downstate court ruling empowers Chicago taxpayers to sue the city for TIF abuse.

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Mayor Daley's $500-million-a-year tax increment financing program is like the Creature From the Black Lagoon. From time to time one adversary or another—Cook County commissioner Mike Quigley or Cook County clerk David Orr—emerges to try to shoot it down. But bullets bounce off its hardened skin and it lumbers on, chewing up billions in property taxes.

Well, there may be a new obstacle in the monster's path, thanks to a recent court ruling in a case involving a TIF-financed shopping center in downstate Belleville, just this side of the Mississippi River from Saint Louis. On July 16 an Illinois appellate court ruled that individual taxpayers have legal standing to sue municipalities they think are breaking or bending the laws governing TIFs. Previously the lower courts had held that they don't have standing.

John Myers, the Springfield-based lawyer who filed the suit, suggests the Belleville ruling may encourage Chicagoans to file a few of their own. "How many people live in Chicago—what's it, three million?" says Myers. "Now there are three million potential plaintiffs to challenge every TIF—and I understand you have a lot of them."

As we all should know by now, Chicago's TIFs are supposed to encourage commercial development within certain districts by freezing the property tax yield for up to 24 years. Any new property tax revenues generated in these districts thanks to rising property values go into the TIFs, which are basically bank accounts controlled by the mayor.

To compensate for the taxes they don't get from the city's 161 TIF districts, local taxing bodies—the schools, parks, county, etc—raise their tax rates. Don't be fooled into thinking that TIFs only affect people who live in the districts. They result in citywide tax hikes.

Originally TIFs were intended to eradicate blight in low-income communities that would find it hard to attract investment otherwise. But the rules governing TIFs are so riddled with loopholes—and the oversight of the Community Development Commission and the City Council is so weak—that City Hall has been able to establish TIF districts pretty much anywhere it wants. That's why such affluent communities as the Loop, the near south side, the near west side, Lincoln Park, and North Center have them. The TIFs have in effect created a second budget for Mayor Daley to control—one that except for extensive coverage in the Reader has been largely ignored by the press or the public. As scams go, it's a beaut.

A few years ago Myers was part of a successful effort to keep Springfield from spending TIF dollars on a new Wal-Mart. His work on that case drew the interest of the United Food and Commercial Workers International Union. The Belleville local was upset that a TIF established in 2005 had been used to subsidize development including a Wal-Mart to the tune of $26.5 million.

The Wal-Mart, along with other retail and housing, went up in 2006. But Stephen Malec, a Belleville resident and union organizer, hired Myers and Penni Livingston, a lawyer in nearby Fairview Heights, to sue nevertheless. Neither Myers nor Livingston will say who pays their bills, but it's safe to assume that the UFCWIU is involved—and that this is another union/Wal-Mart rumble.

In April 2006 Myers and Livingston filed a petition arguing that the deal violated state law: among other things, the farmland where the Wal-Mart was built had not been blighted and the city had not proved that the area couldn't attract development but for the TIF funds—the so-called "but-for test." They asked Saint Clair County circuit court judge Andrew Gleeson to invalidate the deal and force the developer—Green Mount Development, LLC—to repay the money.

Bradley Winters, representing the developer, and Robert Sprague, representing the city, countered by asking Gleeson to dismiss the case on the grounds that Malec had no standing to sue: he didn't reside in the TIF district so he wasn't affected by it, and the TIF didn't draw on general revenues including his own tax dollars but instead generated its own.

It's a variation of the magic-beans argument you hear all the time from planners at Chicago's City Hall. It goes like this: TIFs don't really take money from schools, parks, and general revenues (even though they do), they pay for themselves: without the TIF, there'd be no increase in property values in a TIF district and therefore no increased tax revenues. If the money wouldn't exist if not for the TIF, you can't say the city's diverting it from general revenues. Get it?

Gleeson bought the magic-beans argument and dismissed the case. But Malec appealed, and last month a three-judge panel of the Illinois Fifth District Appellate Court overturned Gleeson and reinstated the case, sending it back to circuit court.

The appellate court's opinion, written by Judge Stephen Spomer, couldn't have been clearer. On the issue of Malec's—or any taxpayer's—standing, Spomer wrote, "The plaintiff is a taxpayer of the City, and the TIF and the business district were created by, and are located within, the City. Accordingly, if the actions of the City have an impact on the general revenue of that City, then the plaintiff has standing to challenge those actions."

As for the magic-beans argument, Spomer pretty much said it's a bunch of beans, writing, "This argument begs the question raised by the plaintiff's challenge. One of the reasons the plaintiff alleges that the TIF and the business district are not 'blighted'... is that there is reason to believe that the area... would develop in the absence of tax increment financing." If, as Malec contends, the area was not blighted and development would have proceeded without TIF assistance, "then all the property tax revenue... from that area would be available as general revenue of the City rather than to reimburse the developers."

Hallelujah! Finally, a judge who gets it.

So what does this mean for Chicago? Over the years I've sat through dozens of Community Development Commission and City Council meetings and heard city planner after city planner swear up and down that the TIF subsidy they want to fork over has to be offered or this multibillion-dollar corporation won't move its headquarters here or that hugely successful developer won't erect a skyscraper or build some more condominiums. Never, not once, have I heard an alderman or CDC member challenge one of these but-for assertions. The deal so far with TIF handouts is this: if the mayor wants to confer a subsidy on a developer, it's going to happen, no questions asked. It's gotten so absurd that the mayor offered the Merc and the Chicago Board of Trade $40 million in TIF assistance last year to help with their merger: was that a but-for deal that wouldn't happen with a taxpayer handout?

"With any TIF you have to ask, did it pass the but-for test, did it meet the blighted qualification?" says Myers.

I'd particularly enjoy watching the city defend the LaSalle Central TIF district, created in 2006 in the heart of the supposedly blighted business district. Call in city planners and have them testify under oath about which developers, lobbyists, and property holders advocated for that TIF. And while we're at it, let's see the books and make developers prove they couldn't make money on a real estate deal but for the TIF. Let's have some oversight to justify taking all these tax dollars away from our cash-starved schools, parks, and county.

I know, I know—it's going to be expensive, inefficient, and risky to depend on lawyers and lawsuits for oversight that the City Council and the CDC are supposed to provide. And the irony that we'll end up footing the city's legal defense bills, drawing on tax money to fight the abuse of tax money, is almost painful. But if the supervisory agencies are too cowed to do their job, what's the alternative? Somebody sue now, before Mayor Daley and his aldermen make the entire city a TIF and drive us all to the brink.v

Care to comment? Find this column at chicagoreader.com. And for more on politics, see our blog Clout City.

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