The results of a study released in 2000 by the Institute and Public Affairs at the University of Illinois, based on an analysis of 235 municipalities in the metropolitan Chicago region, found that cities, towns and villages that had TIF districts actually grew slower than those municipalities that did not have TIF districts.
The report also cited that some critics of TIFs simply say the municipalities use TIF to gain a greater portion of the property tax revenue at the expense of the other taxing bodies in the municipality.
Typically in Illinois, a municipality gets about 15% of the local property tax, the school district receives about 60% and the other taxing bodies receive the remaining 25%. In Rockford, the breakdown of the taxes are 52% for the school district, 21% for the city and 27% to the other taxing districts, an 8% shift from the average, almost exactly what was calculated for Rockford’s 30 TIF districts in a previous post.
Another interesting observation of the study was, “If a TIF district simply redistributes growth from one part of the municipality to another, perhaps less suitable, area, a municipality should grow at about the same rate or even more slowly overall than it would have otherwise.”
Economic development dollars applied to more productive areas in the municipality, such as the Miracle Mile, and the Global trade sites, or East-side and South-side areas located by major transportation routes, might have increased the tax increment, raised more taxes for future growth. There are reasons why certain areas of a municipality become “blighted” and TIF districts may not alter those reasons!
The study found, that after accounting for many variables which might have affected growth, the 81 TIF municipalities’ growth stayed about the same before and after TIF was adopted, and the 154 municipalities without TIF grew faster than those who used it.
An additional finding was that within a TIF municipality, even non-TIF areas had less growth than a municipality that did not have a TIF district. TIF subsidies might help the growth within the TIF district, but hurts growth outside the TIF district by an even larger amount.
This is most likely because the taxing bodies still need revenue to cover their operating expenses over a 23 year period, which are increasing due to inflation and union contracts, but are losing revenues to the TIF districts. When these taxing districts extend their tax levies to provide service to the entire area, it results in higher property taxes outside the TIF districts, than would have been otherwise extended.
The study concluded that many business, even though being lured by the promise of cash incentives to move to a less desireable, “blighted” location, ultimately relocate to a better site in a different municipality, where it is more desireable to do business, and hence a more profitable location in the long run, even without the TIF incentives.
Related posts:
This should have been a front page story.
Ted:
There are problems with TIFs but the study you refer to is not conclusive evidence that TIFs do not work. Municipalities without TIFs may not need them and therefore did not establish TIF districts while communities with blighted areas may have established TIF Districts but still cannot inspire growth because the TIF is not enough to make up the difference in locations or the marketing efforts of the TIF are not focused on attracting high value projects. In some cases, TIFs do not provide enough horse power to create a rush of development but without them, certain communities may have had less development than otherwise. Also, TIFs that promote retail development ultimately draw retail away from neighboring areas where those retailers may have otherwise located resulting in the studies findings that TIFs negatively impact nieghboring areas. Some Chicago suburbs have abused their use of TIFs to build golf courses, etc. and this study my be biased from that abuse. Every community has its unique issues to overcome and its only fair to say that Rockford’s disfunctional TIFs might work if used to attract high value-added projects that create well paid jobs.
Ted, I finally finished reading the working paper. My conclusion is that if 3 economists can determine that:
1. TIF growth comes at the expense of surrounding properties.
2. TIF’s depress property tax valuation, which in tun depresses property tax revenues for the TIF adopters – i.e. like the City of Rockford.
3. “Municipalities that elect to adopt TIF stimulate the growth of blighted areas at the expense of the larger town.”
- Then there must be a disconnect in “valuing” such a negative endeavor so positively that instead of 9 or so TIF’s we must have 30 negative impacts of our own choosing and design.
So by design, we have chosen flat growth or no growth by the models these economist developed based on now years of TIF property tax basis results in Northern Illinois.
Unbelievable that this working paper has been available to municipalities as a project of the UI Institute of Government and Public Affairs since 1999 and no one has “groked” the idea that if you suck the life out of your property tax base it is a bad thing in the long run.
Again, I would like to thank the Libertarians of Rockford for hosting this discussion. I would also like to thank Ted Biondo, Paul Gorski for their input and Alderman Wasco for his illumination of the benefits of TIF’s for Rockford.
Correction: That should read 2 economists…
Steve, Welcome to the blog!
What the study does prove is that TIF didn’t work in the 81 TIF municipalities and Rockford has a negative balance of $1.9M in and they don’t turn positive until 2031, 21 years from now and even if that’s true without further TIFs, they have only added less than $50M to the Equalized Average Value in all the TIFs to get $4.1M in revenue.
Its not enough to pay the debt that has been incurred and if more TIFs fail, the general Fund, the taxpayers have to make good. It’s even less money to pay for the services the city provides to all, not just TIF areas.
Welcome Gloria to the Blog! The story is worth a further look, your right. I know Jim Phelps, a leader in the 7th Street TIF, was really interested at the Libertarian meeting last night as we discussed TIFs and even had a copy of the report with him.
Having found your blog after it was linked in a Stephenson County blog I felt compelled to comment.
TIFs don’t work as the study above would seem to indicate. However, while not working for the public they work just fine for the lawyers and bankers which profit from them. And because lawyers and bankers have plenty of lobbyists in Illinois, don’t expect much change real soon.
Not cynical, just a realist.
JSC
Thanks for your response. I fully understand and agree with your assessment of the majority of Rockford\’s TIFs and I am definately not in favour of the prospect of my tax dollars bailing out failed TIFs. But my original point was not a show of support of Rockford\’s failed TIFs. There are reasons why some TIFs succeed and some fail and Rockford has both. The one\’s that are successful are in areas that have great unleashed potential for reinvestment. TIFs in really blighted neighborhoods can\’t make up the difference no matter what incentives are provided and TIFs established for one specific development are subject to the failure of that development and taken down with it. Rockford\’s TIF problems are not from the failurs of TIF but are the result of location and/or failed projects.
Steve, you are absolutely right. Location, Location , Location as the real estate people say. That’s an inferred conclusion of the report also, in that money regardless of whether it comes from a TIF or private sources has to be invested where the unleashed potential is for reinvestment, and that is not truly blighted areas.
Unfortunately, TIF districts seem to be the only game in town for many municipalities as state and federal sources tried up. So they must follow the rules, even if those rules are very flexible – see the Chicago TIF blog – they have hundreds of millions in TIF funds because they place TIFs in some lucrative areas, as they make up their rules as they go.
But you are absolutely correct as to why some TIFs work and some don’t. I was just saying that it’s too bad we have to rely on the government at all. Investment money should be put into projects at a location that will do the most good!
Welcome to the blog John. I don’t have much hope either that TIF will change. Since most of the TIFs in Rockford will not end for 21 to 23 years, I will be either 88 or 90. Won’t get to see all this growth.
I remember, from the time they tried to enact a TIF in Durand, the biggest cheerleaders for it were the lawyers, probably because they get paid FIRST.
P.S. And they get paid, even if the TIF is a failure.
Ted. Since you mentioned Chicago I would like to point out that Chicago’s TIF have been instrumental in attracting and retaining many large employers and revitalizing areas that had environmental and/or other barriers to redevelopment. Goose Island TIF is a good example. Chicago’s TIFs by law must set aside a % of the increament collected to be spent on job training. Chicago’s TIFs job training dollars dwarf the States entire job training program. Would’nt it be nice if Rockford could spend TIF dollars on job training at a new Embry Riddle Campus? Well it can’t because Rockford TIFs do not have a job training earmark. TIFs can provide horespower to communities that compete for Embry Riddle type projects. It’s just unfortunate that Rockford TIFs seem to lack this mission and instead have been very unfocused in their design and their purpose.