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November 20, 2019

7/18/2012 4:30:00 PM
Guest Essay: It Takes a TIF - Or Does It?
By Jeff Smith


OK, pop quiz: How many tax increment financing ("TIF") districts does Evanston have, what’s their combined annual revenue, and how is it spent? Drawing blanks? Don’t feel bad, you’re hardly alone. Probably only a handful of Evanston’s 60,000 adults have a handle on these areas. If citizens did, they’d demand more rigorous scrutiny both of existing districts and proposed ones.

What’s a TIF? A city maps a specific area, usually "blighted," to redevelop. That freezes local taxes paid by properties in the district, for up to 23 years. "New" taxes, whether from growth or inflation, go to a TIF fund. In theory a city spends those funds in the district, such as on infrastructure, to stimulate growth that generates the "increment." Since, long-term, property values generally rise, there’s a pool of future "increment" income. This can be borrowed against to float bonds today. Think of it as buying an area fiscal bootstraps.

Spoiler answers: Number of Evanston districts? six live ones (including Dempster Plaza), one terminated, and one in discussion (Chicago Avenue). Revenue? Over $8 million now budgeted annually. What it’s spent on? Not easy to say.

Since 1985, Evanston’s six districts raked in at least $270 million in absolute dollars (in 2012 dollars, $500 million +). Peak revenue was almost $18 million, in fiscal year 2008.

Asking where a quarter-billion or more went is fair game when we’ve seen cutbacks, slashed services and tough layoffs locally. Just a sliver of TIF revenues could have avoided some painful debates. While Evanston mulls selling off irreplaceable assets, our TIF districts at last report were sitting on cash of nearly $17 million.

Backers say that the districts "worked" because property values grew faster inside the districts than out. An accurate stat, but a post hoc logical fallacy. Disproportionate growth of the equalized assessed value in areas that had the most to gain anyway doesn’t show how much was due to TIF funding. Remember, real estate boomed for more than two decades. While transforming a brownfield like the old Bell & Howell facility into a retail mall is classic stimulus, crediting some other TIF districts for growth is like claiming that a bet on a horse somehow helped the horse win.

Assessing cause-effect and cost-benefit are key, because TIF tax siphoning has undeniable bigtime impacts, especially to schools. Yet trying to calculate TIF bang-for-buck leads down the rabbit hole. The "current" reports online – from February 2011 almost 18 months ago – are largely opaque boilerplate. One still speaks of Sherman Plaza as "proposed" and a garage yet to be built, indicating annual automatic cut-and-paste. For other years, you must reference City budgets – only online since 2004.

Parsing those tomes yields few answers. For example, Washington National allocates $1.9 million to "capital improvement" – hunt yet another document – and reserves $500,000 for "Economic Development Projects (unspecified)." Naturally, staffs want maximum discretion to deal with unforeseens, whether opportunity or calamity. But if you’ve watched nonprofits get keelhauled in the Council over trifles, it’s hard to give "unspecified" a half-million-dollar pass.

The WashNat TIF for fiscal year 2011 allocated $325,000 to reimburse General Fund for "administrative services"; Howard-Hartrey, $141,000. Yet in 2012 this budget item is zero. Does it take $475,000 a year to run two mature TIF districts, or is there really no overhead cost? Whichever is reality – maybe neither – year-to-year comparisons are frustrated.

Was TIF the only tool available for Dempster Plaza? For a largely-vacant mall, why not say to entrepreneurs, "Evanston will pay half your first year’s rent, up to $2500 a month, if you guarantee a three-year lease – to the first 10 qualified applicants"? The Economic Development Fund started fiscal year 2011 with a $2.4 million balance and could afford such a $300,000 investment. Precedent aside, direct incentive might be easier than the City TIF’ing, becoming a developer/lender and relying on trickle-down to attract tenants.

In the City’s defense, Cook County tax structure is tough for small business. Economic development demands creativity and promotion. Selectively deployed, where property values won’t increase unless government intervenes, TIF districts can stimulate localized revenue growth, benefiting other taxing bodies once the district terminates. But because of the large hit to taxpayers and schools, and inequities created, the City must prove, factually, that "but for" the TIF, an area will stagnate, and that alternatives are unavailable. Without that showing, fund diversion is a market mischief-maker and a thief to schools and local governments.

So unaccountability is troubling. State law requires districts to certify audited compliance with TIF law. Evanston auditors analyze only one small subsection, saying that they haven’t audited "overall compliance." Certainly the Joint Review Board doesn’t independently do that; the meetings are passive slideshow screenings. So do TIFs work? The squishy, slushy data keeps the answer unknown.

We can’t afford to let our eyes glaze over while TIF districts, meant for exigencies, become routine giveaways with little debate. We need more rigorous application of the but-for test to any proposed district. We need more transparent, consistent budget and expenditure details and historical access to enable meaningful metrics of performance. Bonding costs need scrutiny. Finally, the City should retire TIF funds early once their mission is accomplished, rather than let them linger as convenient piggybanks. Assuring that the incremental dollars serve intended purposes would not only reflect our values, but help build public trust.

Jeff Smith is an Evanston attorney and longtime observer of government.





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