TIF and the Chicago Public Schools: Four Things to Think About

Would the Chicago Public School System (CPS) get more tax dollars if there were no TIFs in the City?  Aren’t new taxes generated in TIF districts funneled to the City of Chicago diverting funds from the schools, which would otherwise receive those funds? Aren’t TIF districts robbing our schools of much needed tax revenue. Well, not really.

For any of those questions to be answered affirmatively you would first have to conclude that most of the newly assessed value in TIF districts would have been generated anyway, that is, new development in TIF districts would have occurred without any TIF incentive. The way TIFs work is by capturing future tax dollars that are generated by new development in a TIF area, to help fund that new development. Without that new development there are no new tax dollars. While some TIF critics argue that development would occur anyway without TIF assistance, it is simply implausible to broadly assert that TIF incentives do not spur significant development in the area.  And while there may be no measurable means to test this hypothesis, respected independent analysts have found that “it is unreasonable to assume that …TIF ha[s], no impact on new construction.” Tax Increment Financing a Civic Federation Issue Brief, Chicago: Civic Federation, 2007, at p.16.

Second, the General State Aid formula in Illinois compensates school districts for a substantial portion of any potential “lost” TIF revenue even if one assumes that some new taxes would have materialized without the TIF. Some studies have shown that as much as 72% of the theoretical “loss” would be made up by the General State Aid formula. Ibid. p.20.

Third, you would have to discount the effect of the City’s contributing hundreds of millions of TIF dollars to school construction. Those dollars are raised in TIF districts and pledged to the CPS through intergovernmental agreements with the City and are therefore independent of bond debt limits to which the CPS would otherwise be subject. Without the benefit of those TIF dollars contributed by the City one would also have to take into account the additional capital borrowing costs to the CPS.

Fourth, and most central to the concept of TIF, after expiration of TIF districts (usually 23 years) all of the new incremental equalized assessed valuation becomes available for future tax levy by the CPS and other taxing districts. (And, that EAV is outside of the limits under the Property Tax Extension Limitation Law  — see the excellent analysis by the Civic Federation, ibid. p 32.)

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