Rauner memo: Use TIF funds to save Chicago Public Schools

Gov. Bruce Rauner has suggested funding CPS with tax increment financing, or TIF, funds; this would temporarily bail out the district, but more needs to be done to address serious concerns about Chicago’s TIF program.

In 2016, Chicago Public Schools, or CPS, passed its 2017 budget contingent on receiving $215 million in pension funding from the state. Gov. Bruce Rauner indicated he would approve the funding for CPS as part of a larger pension reform package.

When state lawmakers failed to agree on the pension reform Rauner had sought, the governor vetoed the proposed $215 million in state funding for CPS. This prompted CPS’ CEO to take his case to the media and the courts to force the state to give CPS funding to cover the district’s budget shortfall.

An internal memo from Rauner’s administration presented solutions to address CPS’ funding problems, according to a March 6 article in the Chicago Sun-Times. One of the options outlined is state legislation that would allow the city to make a one-time transfer of tax increment financing, or TIF, funds to close the budget gap. This change in state law is a short-term solution that would require additional TIF reforms moving forward. At the close of 2015, the city had $1.35 billion sitting in TIF funds, according to data obtained pursuant to Freedom of Information Act requests filed by CivicLab.

TIFs have long been a controversial mechanism, especially in Chicago. Local governments create TIF districts to encourage development in “blighted” areas; but TIFs often don’t deliver on promised economic benefits. Moreover, TIF districts divert tax dollars from other uses and create opaque slush funds for the mayor to reward insider developers. Residents across Chicago ultimately have to shoulder the burden of mismanagement and backroom deals to make up for the shortfalls that are created when TIF recipients get their cut. Taxpayers in Chicago’s struggling neighborhoods should not have to absorb losses caused by the diversion of tax dollars for TIF developments.

In this case, the governor is right about CPS and TIF funds and has proposed a good first step for the district and the city. If the city does end up transferring $215 million in TIF funds to cover CPS’ budget shortfall, the city should pass an ordinance eliminating the use of TIFs. This would allow for the honest and transparent disbursement of tax dollars as contemplated by state and local tax formulas.

While the state explores the TIF funding option for CPS’ shortfall, a good first step would be for the city to allow existing TIFs to expire or close districts until none are left. This would certainly take many years to achieve, so rather than wait, the mayor and Chicago City Council should evaluate all current TIFs and their earmarked projects. Only essential projects should be allowed to proceed. All others should be canceled. Until that happens, taxpayers can expect to shoulder more and more of the responsibility for the city’s budget shortfalls while officials spout the same rhetoric.