Chicago TIF districts benefit politically connected at taxpayers’ expense
City officials are moving to develop the largest remaining plot of vacant land to ensure huge windfalls for a city-run slush fund.
A half-mile long vacant property in Chicago’s South Loop is slated to become a vibrant new neighborhood in coming years. The land – the largest undeveloped swath in the city – has sat vacant since developer Tony Rezko sold it in 2005 and the Great Recession took hold – should be a big tax boon for the city. But in reality, a large chunk of the funds that come in from this new development won’t go directly to the debt-saddled city, but instead will go straight to a slush fund Mayor Rahm Emanuel controls.
That’s because the land sits in an existing tax increment financing district, or TIF. The South Loop site is in the River South TIF, a district with a 2014 closing balance of $50,371,935.
In theory, TIFs are a mechanism allowing blighted neighborhoods to return to vitality by providing economic incentives to developers. Individual taxing bodies (the city of Chicago, Chicago Public Schools, Metropolitan Water Reclamation District, etc.) get their usual share of the money at the existing tax rate, which is then frozen for 23 years. But all newly generated property taxes in the TIF district – such as those levied on buildings constructed on previously vacant or blighted sites – are diverted into the TIF for the designated area and are used at the mayor’s whim, rather than deposited with the city’s general revenues and subject to a transparent appropriation process.
Under this arrangement, the developer accepts subsidization to ensure the project – in an area presumed to be undesirable to the market – earns a profit. The city operates under the guise that the development wouldn’t occur without the enticement of public dollars. In reality, however, the TIF system makes many already-profitable projects even more profitable. In the end, taxpayers from across the city pay for localized developments robbing taxing bodies of tax dollars they otherwise would receive from the TIF district’s property owners.
The developers managing the latest project, the development of the largest remaining plot of vacant land in the city, are the same developers who won the opportunity to redevelop the Lathrop Homes public-housing site on the north side of the city.
In the case of Lathrop Homes, the city is using its TIF system to divert property taxes in a well-established neighborhood toward a brand-new TIF fund. How? By creating a new TIF district in conjunction with a redevelopment of Lathrop Homes, the dilapidated public housing that sits on prime riverfront real estate.
Like the Lathrop Homes site, the 62-acre plot of land being developed in the South Loop has a long, corrupt history. During the economic boom in the early 2000s, Antoin “Tony” Rezko, a key fundraiser for imprisoned former Gov. Rod Blagojevich, purchased property located along the Chicago River, just south of Roosevelt Road, with the intent of developing the property with a shopping center and over 4,000 homes. Since then, the property has changed hands several times.
The lead developer for the Lathrop Homes project, Related Midwest, also won the bid to develop the South Loop project. Related Midwest employees gave over $13,000 to Emanuel’s campaign fund in 2014, according to the Illinois State Board of Elections.
Just as with the Lathrop Homes site, this isn’t a little-known swath of property in an impoverished area. The 62-acre site is prime real estate likely to bring in tens of millions of dollars annually to the TIF. Unlike the example with the Lathrop Homes site, the South Loop site already sits in an existing TIF.
Tax year 2014 brought in nearly $1.1 million in property taxes from the South Loop site. This may seem like a large amount, but this property is nearly 62 acres of undeveloped, vacant land. Once it is developed, the value of the property will increase dramatically, property taxes deposited into the TIF will skyrocket and those newly generated taxes will be spent as the mayor sees fit.
The Chicago Reader summed up the harm of TIFs expertly when it wrote:
“When the City Council approves a TIF—always with [the mayor’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 [the mayor] is free to use largely as he wants.”
The South Loop development is a prime example of government mismanagement and the pressing need for TIF reforms. Just as this previously undeveloped piece of land finally becomes inhabited and profitable, the benefits and increase in tax revenue will get tucked into the mayor’s TIF slush fund. The ones truly benefiting from deals like this one are the mayor and insider developers.
Residents across the city ultimately have to shoulder the burden of mismanagement and backroom deals. Taxpayers in struggling neighborhoods throughout Chicago should not be asked to absorb losses caused by the diversion of tax dollars for TIF developments on prime real estate downtown.
As long as the mayor has total discretion over TIF tax dollars, Chicagoans will continue to lose. The clear solution is to eliminate all TIFs and begin to spend taxpayer money in a responsible and transparent manner. Until then, the mayor and his connected friends will benefit while Chicago taxpayers suffer.
image credit: Aerial Chicago