Through the course of the municipal campaign and over the last several years, many people have asked me about TIFs. What are they? How do they work?
I hope that this will serve as a condensed (as brief as possible for such a complicated financial instrument) explanation of how TIFs inevitably lead to rising residential property taxes and lowering revenue for our valued public services.
It is urgently important that the community understands TIFs because the village is set to approve The Harwood Avenue TIF, which will allow public village parking to be developed into a 5-story residential building, at a May 27 hearing.
Ostensibly, TIFs create a district in a blighted area that allows financing improvements in the district based on the future potential property tax revenue of the district. The proponents, like the economic development team in Homewood, say that without TIF funding needed developments won’t happen on properties that are already low tax generators. Following this point, the only sensible thing would be to develop the properties using the additional tax revenue the development generates. Sounds reasonable, right? No one wants blighted districts in their communities.
A TIF, which is an acronym for tax increment financing, is a very complicated way to do a very simple thing: take money away from the public and give it to private interests.
Here is how the TIF creation process works:
Step 1: The municipality identifies an area in the community in need of development or is approached directly by a developer asking for a TIF for a specific project. (Think the attempted Calumet Country Club TIF, or the TIF cut out of the downtown TIF for developing the Village Hall parking lot.)
Step 2: The municipality hires a TIF consultant. (The cost of the last TIF consultant hired in Homewood was $23,500.) The consulting firm creates an outline of how much tax revenue the TIF will generate for its life and what the TIF funding could be used for in the district to improve the blight.
Step 3: The TIF consulting firm documents why the district meets the Illinois TIF criteria. There are two criteria:
- The district must be blighted based on the state’s of blight. (Empty buildings, “undeveloped parcels” like greenspace, loose fascia, etc.)
- The TIF must also meet the “but for” rule criteria, which stipulates that the district will not be developed without the creation of the TIF.
- This implies that development or redevelopment is always the highest use of land. In the case of redeveloping a golf course into a trucking center; redeveloping public parking into residential; placing a non-taxable property like a church into a TIF; or developing greenspace into some other use, the “but for” rule seems absurd.
- In Homewood, we know that there are properties within a TIF that are redeveloped and supported by small, local business owners who don’t receive TIF funds, meaning the “but for” rule did not apply to those properties though they are in a TIF district.
Step 4: The municipality convenes a Joint Review Board (JRB). This board is made of non-elected “representatives” of taxing bodies (public schools, public libraries, public parks and the municipality itself) that will have their property tax revenues reduced for the life of the TIF. This JRB meeting is open to the public and is generally held at inconvenient times (2 p.m. on a Thursday) for working people and students.
Step 5: The JRB votes to approve the TIF. (The JRB always votes to approve the TIF.)
Step 6: The municipality’s board of trustees votes to approve the TIF once it has the proper documentation from the consultant and the nod of approval from the taxing bodies that will lose revenue for the next 23 years through the JRB.
Step 7: The municipality can now get financing based on the projected revenue of the TIF. This financing based on hypothetical revenue can only be spent within the TIF district and for expenses allowed by the TIF. Which businesses receive the funds and how much they receive are determined at the discretion of the municipality. (In the case of Homewood, this is determined by the Economic Development Department and the president of the board and approved by the village board.)
The Village of Homewood claims that it does not receive any financing based on TIFs, however if businesses in the TIF are receiving upfront costs before the TIF generates any revenue, then the money must come from some source. If it is true that TIF funding isn’t getting any financing then the funding must be borrowed from the village general fund reserves.
Step 8: The TIF is “successful” if this plan brings about a thriving area that is a benefit to the community — in some way or another (for example through increased sales tax, or bringing an amenity, like a grocery store, to the community.) The TIF is a failure if the development plans didn’t increase tax revenue in the district, meaning the municipality incurred debt that now needs to be paid back by the municipality or spent general fund reserves that will not be paid back.
(An example of a failed TIF, is the East Central Business District TIF, which is $70,197 in debt, and the village is considering closing it this year. Is that debt now owed to general fund reserves? If so, this is a business loss that the village taxpayers took.) This makes the municipality a player in the real estate development game, gambling with public money and guessing winners and losers.
All this would be well and good if the municipality were just playing with its own future property tax revenues; but that’s not how the money works. The TIF takes future property tax revenue from all local taxing bodies, including the underfunded public schools, the public libraries, and the public parks; hence the need to convene the JRB described above.
Here is how the TIF money flows:
Let’s say that the property taxes for a TIF district are $1 million when the district is created, which means that public schools receive about $600,000 from that TIF district. That $600K is all that the schools will get from this district for the next 23 years, or longer if the life of the TIF is extended. The library, parks, and municipal funding are also frozen at the amount that was allocated at the time of the TIF creation. We all know that, although funding for schools and public services will remain stagnant, the costs will inevitably increase.
As the property taxes increase in the TIF, all additional money generated will be sequestered in the TIF fund, starving our public safety, parks, libraries, and schools. As costs increase through inflation and expansion, so will the budgets of the public services that have now had a portion of their funding frozen. This means that they must get revenue from other sources, like increasing the tax levy or through passing referendums to increase taxes to fund schools.
A TIF short-changes our public services and adds an additional tax burden to property owners.
TIF money could be used responsibly. Businesses the community needs and wants could be induced with a TIF, and they can be used to support our small, local businesses. But to know what the community needs and wants the village must listen to the community.
Here is a helpful video on how TIFs work from WBEZ: https://www.youtube.com/watch?v=Kmx4ryRc2Gc
Elizabeth Varmecky
Homewood
Founder of South Suburbs for Greenspace
