Tuesday, November 30, 2010

More TIF Magic!

Posted By on 11.30.10 at 03:42 PM

Jim Warren laments how dumb you are:

Any rational soul would assume it’s metaphysically certain that the Cubs will win a World Series or [redacted pop culture reference] before an American election campaign deals with tax increment financing.

After all, our financial literacy is awful, and it’s difficult to understand tax increment financing — which provides a way to use the rise in tax revenues from property value growth within a designated area suffering from “blight,” a so-called TIF district, to finance development within that area.

And schools you!

While Mr. Orr contends it’s a “travesty” that most Chicagoans are clueless about all that money, one can’t dispute that TIFs are central to development, especially downtown. And it’s hard to dispute how they allow municipalities to support development without raising property taxes.

It's hard to dispute if you take the Daley administration's line on TIFs and property taxes. If you don't, it's less hard, though it does require a little bit of math. Here's Ben Joravsky, writing in 2007 (emphasis mine):

As many readers know, when a TIF district is created it freezes the amount of property taxes the schools, parks, county, and other agencies can take from that area for 23 years, diverting any revenue from increased property values or new development into a fund overseen by the city. As costs rise while revenue remains fixed, the schools, parks, county, etc, have to raise their tax rates to compensate for the money going into the TIFs. From Daley's standpoint, the beauty of the program is that other taxing bodies do the heavy lifting while he controls the cash. And because TIF funds aren't included in the city's annual budget or broken down on tax bills, he can act like they don't exist. Last year Daley stated in his annual budget address that he was levying about $720 million in property taxes. In fact, as the new figures show, the city extracted more than $1.2 billion.

More from 2007:

OK, one more time—let's review how this sucker works. When the City Council approves a TIF—always with Mayor Daley's blessing—it freezes the amount of property tax dollars the schools, the parks, the county, and other taxing bodies get from that district for 23 years. If the schools were getting $100 from a TIF district when it was created, that's roughly all they'll get until the TIF expires. Any extra tax money, generated by rising assessments or new development, goes into the TIF fund, which Mayor Daley is free to use largely as he wants.

Think about this. If the schools, parks, and county can only get $100 from a TIF district, what do they do when their expenses go up to $200? They have to raise their levies—the amounts they each get from the property tax pie—to compensate for the money diverted to the TIFs. When they do that, property taxes go up. No matter what the city tells you, TIFs are tax hikes, plain and simple—the more you create, the higher taxes go.

And in 2009:

Between this second installment of my 2008 tax bill and the one I received in March I'm on the hook for almost $7,000 in property taxes this year, about $850 more than I paid for 2007. Over the last five years the annual tax bill on my north side home has gone up 101 percent.


For the last two years, Mayor Daley has been telling them that the city isn't raising property taxes. Or as he put it in this year's budget speech: "With so many people struggling, this isn't the time to ask them to pay more."

So why do our tax bills keep going up?

Ah, great question. And the answer, my fellow Chicagoans, is that the mayor you keep reelecting is not telling you the whole truth about property taxes.


So how can reassessments cause our taxes to go up if property values all over the city are falling? Because the key factor in all of this is how much government spends. The more it spends, the more taxes it consumes. Assessments may fall because the housing market is in the tank, but that doesn't mean our local government entities will cut the amount of money they're asking for. So the tax rates end up climbing. Your contribution to the total may rise or fall in relation to everyone else's, but the bottom line is that somebody's still got to pay for the government.

So what happened to Joravsky's property taxes this year? Naturally, they went up. But his analysis of his own bill—which does require some financial literacy, or at least some patience—shows how mercurial property taxes are, at least at the micro-level. At the macro-level, of course, the song remains the same (emphasis mine):

I'm not complaining. A 19 percent hike is nothing compared with the shellacking I took back in 2004, when my bill jumped 67 percent. That angered me so much that I began looking into who pays what and how that money's distributed—which led to six years, and counting, of near weekly tax increment financing stories. So you see, Mayor Daley, you could have saved yourself a whole lot of trouble by telling the boys at the county to go easy on me.

What I really want to talk about is not that my taxes went up 19 percent, but why my taxes went up 19 percent, even though home sales in my neighborhood don't indicate the real market value of my home has been rising.

The hike can't be blamed on a rise in county or city spending, which stayed relatively flat this year.

No, the answer is mainly that other people are paying less of the tax burden—so I wind up paying more.


Last year the county said my property was worth $327,481. So the county seems to think my property rose in value by roughly $235,000—or 72 percent. That kind of increase in value isn't happening in my neighborhood or elsewhere in Chicago. (Median sales prices in North Center started and ended 2009 at about $400,000, according to Trulia.com. Home prices in Chicago are down 2.9 percent from a year ago, according to Forbes, and in the Tribune this week an analyst said the local market was "flatlining" and "stuck in the mud.") What gives with the big rise in my market value?


"I'd say don't look at the property value that's on the bill," says Marberry. "Concentrate on the assessed value."

OK, let's try that: My assessed value is $56,262—or 10 percent of $562,620. But now the "equalizer," also known as the multiplier, comes into play.

The state equalization factor is yet another key component of property tax math. The equalizer for Cook County this year is 3.3701—a record high. My assessed value, $56,262, gets multiplied by that.

The equalizer ensures that the aggregate total of assessments in all Illinois counties is a third of fair market value. This is designed to spread the tax burden equally among taxpayers throughout the state, and so that state grants to local jurisdictions for education, transportation, and public assistance can be fairly distributed.

In other words, the details of the bill are complicated—a feature, not a bug, as Joravsky explains. But taxes have to keep pace with government expenditures, no matter how many TIFs are created. So while the percentage of property value at which property is taxed has dropped, that can be made up for with the equalizer and value assessments. Which is a far cry from allowing "municipalities to support development without raising property taxes."

I did enjoy this part of Warren's column:

Theoretically, TIF revenue is not intended for ongoing operations. So it’s O.K. to use the money to build a school, but not to pay teachers. While Mr. Emanuel notes that making an area secure via better law enforcement is a precursor to development, why not say the same about picking up garbage and fixing decaying sewers?

I keep telling people that the inevitable end of this is the Borges TIF. In our beginning is our end, etc.

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