Chicago Reader | The Works: Only in Chicago could an $8 million affordable-housing subsidy in Edgewater, part of the Hollywood/Sheridan TIF district, cost taxpayers $75 million. By Ben Joravsky

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Godfrey Carmona

A Sucker's System

Only in Chicago could an $8 million affordable-housing subsidy in Edgewater cost taxpayers $75 million.

August 17, 2007

By Ben Joravsky

You might say that the residents and activists of Edgewater have their backs against the wall.

In recent months the city’s given them an ultimatum: if you want $8 million to save affordable housing for senior citizens, you’d better endorse the proposed Hollywood/Sheridan tax increment financing district, which will wind up costing taxpayers about $75 million in property tax dollars. In effect, the city is proposing to divert roughly $67 million in property taxes from the chronically broke schools, parks, and county on the shoulders of an $8 million project. Only in Chicago would this kind of deal stand a chance.

For more than 40 years the not-for-profit Hellenic Foundation has run Hollywood House, a 198-unit senior citizens’ apartment building on the southwest corner of Hollywood and Sheridan. But last year, with the building in disrepair and vacancies on the rise, the foundation decided to sell it. According to a spokesman for 48th Ward alderman Mary Ann Smith, the foundation was offered $15 million by a private developer. But rather than sell to a conventional buyer, who would most likely convert the units into upscale condos, the foundation looked for one who would keep the property affordable and not displace the seniors living there.

Enter the well-regarded not-for-profit Heartland Housing, which entered a bid for $11 million. Heartland, however, couldn’t finance the project on its own. It would need at least $29 million to buy and rehab the building, and it only had about $21 million to spend.

So Heartland went to officials from the city’s Department of Housing, who directed them to officials with the city’s planning department, who told them what they pretty much tell anybody looking for city assistance these days: if you want city money, you have to get it from a TIF district. And since Hollywood House wasn’t in a TIF district, Heartland would have to help the city create a new one.

TIFs, as everyone should know by now, put a cap on property tax revenues going to the schools, parks, county, and other taxing bodies and divert additional revenues into a virtual slush fund controlled by the mayor. Under state law, TIFs are intended to revitalize blighted communities by attracting development. Accordingly, the city is required to prepare an eligibility report for each proposed TIF, establishing that the area in question truly is blighted and that, if not for the incentives provided by TIF funds, it would be unable to attract outside investment. Trouble is, the guidelines overseeing the process are so rife with loopholes that virtually any community qualifies—which is why TIFs exist in flourishing communities like the Loop, the near south side, and the near west side. Parts of Edgewater are likewise booming, and of course in the case of Hollywood House there were investors willing to buy without TIF assistance.

The TIF program has spurred a small cottage industry in Chicago: private consultants specializing in TIFs. In this case, city officials told Heartland that it should hire someone to document the area’s eligibility. “The department of planning told us we had to fund the TIF report,” says Andy Geer, executive director of Heartland Housing. “We expect to eventually get costs reimbursed from the TIF fund.”

Heartland hired consultant Stephen Friedman at a cost of $150,000. His subsequent report concluded—big surprise—that the area was blighted enough to qualify.

In theory, Friedman could have elected to draw a compact district including little more than the intersection of Hollywood and Sheridan to raise the $8 million need to rebuild Hollywood House. Instead he devised a 14-block-long skeleton-key-shaped district that runs down Broadway from Rosemont to Hollywood, juts east to Sheridan, then extends down to Ainslie. If approved, it’s expected to accumulate about $75 million in property taxes before expiring in 23 years.

Why draw the larger TIF district? Alderman Smith says that to win residents’ support for the TIF she had to make sure that it offered a little something for everyone in the 48th Ward. “We had over 20 community meetings on this TIF,” says Smith. “We listened to people throughout the ward.”

And so to secure funding for Hollywood House, Smith signed on to streetscaping for portions of Argyle and Granville, a new library for the ward, and repairs at McCutcheon Elementary School, among other projects. I’m not saying these aren’t worthy causes—McCutcheon, located at 4865 N. Sheridan, desperately needs repairs. But even those involved concede there are less costly, more efficient ways to go about improving the ward. “The system’s flawed,” says an aldermanic aide. “But it’s the only system we got, and we’re trying to make the best of it.”

The more you look at the Hollywood/Sheridan TIF, the more flawed the system seems. As it turns out, McCutcheon’s not even within its boundaries. It’s in the adjoining Broadway/Lawrence TIF district, where money has already been committed to projects like the restoration of the Uptown Theatre. To get TIF money to McCutcheon the city will have to move—or “port,” as city officials put it—money from one TIF district to another. “I know it’s crazy,” says the aldermanic aide. “What are you going to do?”

In June, Smith’s zoning advisory committee, which includes community organizations, merchants, and block clubs throughout the ward, overwhelmingly recommended the TIF. With the alderman’s support, it will almost certainly be approved by the City Council this fall.

I suppose you could argue that this is TIF planning at its best—a triumph of local democracy in which everybody gets a crack at the piggybank. Except of course, there are no guarantees that TIF money will be there when McCutcheon’s parents or Granville Street residents come for their share. Edgewater residents should realize that they’re not the only folks eyeing the Hollywood/Sheridan TIF. As aldermanic aides have been telling me for years, developers are like flies buzzing around TIF funds, pestering aldermen with proposals to spend the cash.

Smith says she will create a TIF oversight group to make sure the money is spent the way the community wants. Good luck. For all she knows, Daley and the planning department have already decided how to spend it— as aldermen like Gene Schulter (47th) and Anthony Beale (9th) found when they tried to use TIF money in their wards.

Then there’s the larger problem of rising property taxes. TIFs drive them up by forcing the schools and parks and all the other taxing bodies to compensate for revenue diverted into the funds. The more TIFs the city creates—and there are now 153 of them—the more residents and merchants have to pay, making housing less affordable. So in the name of saving 198 units of affordable housing, the folks up in Edgewater are contributing to the citywide affordable-housing problem.

I have to give Mayor Daley credit. By making TIFs the only game in town, he’s forced everyone from activists to aldermen to play according to his rules. It’s no surprise people look the other way when he plunders TIF funds for outrageous expenditures, like his recent offer to give $40 million to help the Chicago Mercantile Exchange with its acquisition of the Chicago Board of Trade. They’re relying on them too.

Lenin said that a capitalist will sell you the rope you plan to hang him with. When it comes to TIFs, Chicago’s activists buy the rope, make the noose, and take time to thank the mayor before wrapping it around their own necks.