TIF is an acronym for Tax Increment Financing. It is a tool for municipal public finance. It may be possible that TIF's, under the right context, may serve a useful urban development function. But as practiced in Chicago, more often than not, they do more harm to neighborhood residents than help them. In particular, they are being used in the Maxwell Street area to displace residents and businesses, thwart the rehabilitation of historic buildings, and destroy a world cultural landmark. - SB
TIFs:
Below are two essays about TIFs.
Tax Increment Financing: A Few Thoughts by Joe Persky
UIC Study Shows Proposed Roosevelt-Union TIF Unnecessary and May Hurt Pilsen by Steve Balkin
by Joseph Persky, Professor of Economics, University of Illinois at Chicago <jpersky@tigger.cc.uic.edu>
Professor Persky's specialty is urban economics and is affiliated with UIC's Dept. of Economics and the Center for Urban Economic Development.
In this essay, Professor Persky outlines when a TIF is and is not appropriate. Using his criteria, the Roosevelt-Union TIF, for the Maxwell St. area, is not appropriate. Based on development in adjacent neighborhoods, new housing construction would come to that area without a TIF. A recent study by the Chicago Sun Times lists the 15 neighborhoods in Chicago with the highest rates of growth in housing sales. Four of those neighborhoods are nearby the Maxwell St. area.
The focus of the Roosevelt-Union TIF is prepare for new upscale housing and retail development; not industrial development. Enhanced long term employment for city residents is not expected from the project. This TIF (for 103 million dollars) is not the least cost way to encourage development in this neighborhood. By displacing low income residents and merchants, this TIF will exacerbate the widening in income inequality; not decrease it. -- SB
Tax increment financing (TIF) allows a designated area to dedicate all of its increases in property taxes to infrastructure and related projects in the immediate vicinity. It is a form of privatization of public revenues for the benefit of a specified portion of the city. The use of TIFs is usually justified on the grounds that a given development will yield net economic benefits to the city even after allowing for the TIF or that a development is particularly worthy in terms of the population served, the historical character of the area, or for environmental reasons.
As with other public subsidies of private activities serious evaluation of costs and benefits has been relatively rare and often piecemeal when undertaken at all. Of course no evaluation system will be perfect. But trying to implement a few basic criteria derived from our knowledge of urban development would help to prevent the most egregious cases. Three propositions stand out:
1. Subsidies should be targeted to those activities which have real opportunities to locate outside the city proper.
2. Subsidies should be targeted to those activities that promise long term employment for city residents.
3. Subsidies should be targeted to those activities which impose the least cost on the city and related governments.
These criteria could be explored in several directions. But one implication stands out clearly. Only in exceptional circumstances will subsidies for residential housing developments be defensible. Consider each point above:
1. For the most part residential developments are driven by the general attractiveness of the city. A subsidy may give a real advantage to one developer over his or her competitors, but it does little to raise demand in the city as a whole. Especially in a period of aggressive residential investment there can be little logic to subsidizing the construction of homes.
2.Residential construction subsidies provide little in the way of long run employment opportunities. With the end of the construction project the direct effects of such subsidies are dissipated. And even these direct effects are suspect if the construction would have occurred somewhere in the city in the absence of subsidy.
3. All development imposes costs on the local public sector. But relative to taxes generated, residential development places the heaviest burden on local governments. Industrial development tends to produce more in taxes than it uses in local services. New residential activity, however, is linked to new demands on city government and city schools.
For each of these points exceptions do exist. And for some projects a wider set of considerations may become relevant. In particular, the city may wish to subsidize housing developments that directly aid the poor and homeless as part of a general concern with income redistribution. But common sense suggests that when the ability to subsidize is limited, local governments would do well to avoid residential TIFs targeted at the general population.
by Steve Balkin, Professor of Economics, Roosevelt University <mar@interaccess.com>
A recent UIC Study on the impact of the Industrial TIF (Tax Increment Financing District) in Pilsen concludes that residential property values in Pilsen will go up with or without a TIF. Says Tim Lohrentz, one of the authors, "A neighborhood's location within a city has a lot to do in terms of what happens there." The study concludes, "property value increases are expected, with or without the industrial TIF, because of the neighborhood's 2-mile proximity to the Loop and to Lake Michigan." This conclusion may or may not be correct but its logic has implications for Maxwell Street.
The Maxwell Street Historic Preservation Coalition is trying to stop the proposed TIF in the adjacent Maxwell Street area. That TIF is called the Roosevelt-Union TIF and is being put forward by Mesirow-Stein Real Estate Incorporated, UIC's partner is doing private real estate development for the area. The Coalition thinks that the TIF will economically hurt the city overall because Mesirow-Stein and UIC plan to demolish the historic buildings in the area, destroying important Jewish, African-American, and Mexican landmarks, especially celebrated for its musical heritage, the birthplace of electrified Blues.
Says, Roosevelt Economics Professor Steve Balkin, "The proposed Roosevelt-Union TIF is unnecessary as the UIC study implies. According to the UIC study, location is what counts. The Maxwell Street area is closer to downtown and Lake Michigan than Pilsen. This TIF is proposed so Mesirow -Stein can get a windfall subsidy for their condo developments. And with the location of the luxury condos at 16th Street right next door to Pilsen at, it will surely cause home prices there to jump there higher than they would otherwise. I talked to one of the UIC Pilsen researchers and they confirmed this."
Brian Mier, a Loyola graduate comments, "If the TIF were to bring university research labs to the area, as promised in 1994, we could accept that as a legitimate public purpose, but they are using the TIF to do private development just to squeeze out merchants, shoppers, and destroy historic buildings. The net effect of building those high priced condos, so close to Pilsen, will push the existing Pilsen residents out.
Also see:
web page provided by OPENAIR-MARKET NET
return to Preserve Maxwell Street