ICPR: Why there needs to be more oversight of TIF funding

Sep 01, 2017


The allocation of revenue from Tax Increment Financing (TIF) districts emerged as a key issue in a debate regarding the reform of Illinois school funding. Though these types of special taxing districts are used in Illinois and across the country, disclosure and transparency standards vary, and TIFs lack an oversight process that can assess their true effectiveness.

TIF districts are funded by capping the amount that other taxing bodies, like schools and parks, receive from local property tax funds. The TIF district then receives funds from property taxes collected above the capped amounts.

TIF funds can be used for public projects, including school renovations, but are often used to support private economic development. Advocates note that these funds are essential for revitalizing blighted areas, but opponents are often skeptical of the process, and argue that these funds should be allocated directly to schools and parks.

Construction of Westinghouse High School's new campus was funded by the Chicago/Central Park TIF

Construction of Westinghouse High School’s new campus was funded by the Chicago/Central Park TIF







TIF Districts in Illinois
Despite the media attention focused on TIFs in Chicago and Cook County, TIFs are an economic development tool used all across Illinois. In our 10 largest counties, $1 billion (4%) of total local property taxes collected went to TIF districts. This includes $561 million (10% of revenue) for the City of Chicago, and $290 million (4% of revenue) for suburban Cook County. St. Clair County, located in downstate Illinois, sends the largest percentage of its property tax collections into TIFs of any county, at 14% of total property tax revenue.

Cook County Clerk David Orr has called for an increase in oversight in the TIF funding process, especially given their significance in Chicago and Cook County.

“The [Chicago] City Council has to vote to approve its $1.4 billion property tax levy each year in open meetings,” Orr stated in his July TIF report, “but once a TIF has been created, additional tax revenue from TIFs simply rolls in each year.”

To remedy this problem, Clerk Orr recommends increasing transparency throughout the TIF process, “including greater public debate … [and] full City Council review of TIF funds during the budget approval process.”These steps will help bring a needed level of transparency and oversight to the TIF funding process.


Hudson Yards, one of NYC’s newest subway stations, was built using bonds paid for through a TIF

Oversight and Transparency in Other Cities

Other cities in the U.S. have tackled transparency issues with special taxing bodies. In California, entities called Redevelopment Agencies (RDAs) were similar to TIF Districts, until they were eliminated by the state legislature in 2012. Legislators dissolved RDAs out of growing concerns that they were being abused by cities and siphoning property tax funds away from other taxing districts, like schools, libraries, and parks.

However, California is slowly allowing similar financing programs to return across the state, this time with stricter limitations on where the money comes from and where it can be spent. Now, California cities can utilize Infrastructure Financing Districts (IFDs) to raise money for projects similar to TIFs. Funds for IFDs cannot be diverted from school districts, and must obtain approval from other entities (like a park district) before they can be formed. 

New York City uses even stricter practices for ensuring the success of TIF projects. Individual project plans and budgets must be reviewed every two years in a public hearing, allowing taxpayers to weigh in on the use and effectiveness of individual TIF investments. These reviews also give lawmakers valuable information on whether TIF-funded projects are spurring economic development in the district.

How Illinois Can Improve TIF Transparency
While local governments across Illinois must hold meetings to approve TIFs when they are created, public oversight can decrease after the creation of these special districts. There can be a wide disparity in reporting details between districts in different parts of the state, and current state law does not require municipal governments to conduct an annual review of the success or effectiveness of TIF-funded projects.

Information on revenue and spending in individual TIF districts can be found at the Comptroller’s database, warehouse.illinoiscomptroller.com. To find a city’s TIF information, enter the city’s name in the large search bar, and click “TIF Reports” in the page’s Finance section. While some of these reports include detailed information, others list vague expenditures, with terms like “professional services” or “capital costs” as their descriptors. 

While Clerk Orr’s suggestions for transparency are geared toward Cook County, the reforms he outlined could be applied to TIFs across the entire state. Clerk Orr also explained that state law should be amended to require a review at least every 2-3 years of all TIFs to determine whether projects have “served intended purposes and goals,” and allow unsuccessful projects to be phased out or terminated.

Reports should also include detailed information so that residents can easily understand what their tax dollars are funding. Increasing transparency and accountability in the funding and assessment processes for TIF projects would be a significant step forward for these controversial districts.


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