Since Chicago established its first TIF district in 1984, the City has used TIF to target blighted areas or areas in need of rehabilitation.  Although TIF is often thought of as a catalyst for attracting large amounts of private investment for new commercial, industrial or mixed use development projects, it can also be used to help retain and expand existing businesses in a community, thereby strengthening the community tax base, promoting job creation and making the community more vibrant.

The Small Business Improvement Fund (SBIF) program is one of many initiatives implemented by the City of Chicago to help repair or remodel vacant or occupied commercial and industrial properties within specific TIF districts through the use of TIF revenue.  With an objective of facilitating local business expansion and creating employment opportunities for Chicago residents, the SBIF program allows business owners, tenants and landlords to be repaid in amounts between 25% and 75% of the cost of the remodeling work up to a maximum amount of $150,000, depending on a number of factors, including annual business sales, owner net worth and type of project.  The average grant size per project is $35,000 and participants may reapply to the SBIF program one year after receiving a grant.

The Chicago City Council once again delayed a vote on the proposed Sweet Home Chicago Ordinance and sent it back to the Joint Committee on Finance and Housing for further debate.  The original Ordinance, introduced by Alderman Walter Burnett (27^th Ward) earlier this year, would require the City to annually obligate an amount equal to 20% of the aggregate tax increment revenue generated in all TIF Districts throughout the City for use in affordable housing projects.  The earliest the Ordinance will be voted on is now January 2011.

Adding to the challenge for Sweet Home Chicago supporters, Alderman Patrick O’Connor (40^th Ward) introduced a substitute Ordinance in November.  The substitute Ordinance would establish a City-wide goal of a 20% set aside for affordable housing, however the Ordinance does not require the City to set aside funds for affordable housing.

The substitute Ordinance also includes language that requires the TIF revenues generated in a TIF District to be spent in that TIF District, except as otherwise permitted by law.  Several Aldermen in areas with high affordable housing demands have voiced their opposition to this requirement, claiming that developers should construct the affordable units anywhere in the City where there is demand for them.

The substitute Ordinance has also been referred to the Joint Committee on Finance and Housing for debate.

One of the many misconceptions about TIF in Chicago is that only private developers, and therefore private projects, can benefit from the program.  Based on our recent research, however, it seems that public projects experience significant benefits from TIF assistance.

We completed our Chicago TIF Study earlier this year.  As part of the Study, we examined all of the TIF Agreements approved by the City of Chicago between 2000 and 2008.  Of the 154 projects, 24 were public/education projects in which the City pledged a total of approximately $550,000,000 in tax increment, or approximately 1/3 of the total amount of TIF Assistance pledged during this period.  On average, public/education projects received a pledge of TIF assistance in an amount equal to approximately 60% of their project budgets, significantly higher than other categories of projects.  These projects included, for example, the construction or redevelopment of educational facilities and museums and the creation of parks and open space.  For more information on our findings, visit http://www.polskylaw.com/chicagotifstudy/cover.html.

How can tax increment be pledged to these public projects even when they don’t generate any real estate taxes?  Typically, a pledge of all or a portion of tax increment generated by the entire TIF District rather than the individual project is made, or in certain cases, a pledge is made from adjacent TIF Districts.  This is often the case in the construction or rehabilitation of a school, where multiple TIF districts benefit.  Because multiple TIF Districts benefit, Illinois TIF law provides that tax increment generated in adjacent TIF Districts can be used to pay for such projects.

TIF Funds are often used to pay for public improvements throughout a TIF District, even if those improvements are not related to a specific project, such as street lighting, public transportation shelters and sidewalk repairs, which can benefit all properties within a TIF District.