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Striking Chicago Teachers Highlight TIF

September 14, 2012

This past week, the Chicago Teachers Union (CTU) strike has been making national headlines. But what major media outlets have overlooked is the role of tax increment financing (TIF) in worsening the fiscal situation for the Chicago Public School (CPS) system. The strikers, however, are making an issue of it. As Good Jobs First has documented time and again, TIF and other subsidies frequently divert property taxes away from school districts.

In Chicago, as well as Illinois generally which has about 1,000 active TIF Districts diverting over $1 billion each year, the problem is particularly severe: 10 percent of Chicago property tax revenues are diverted into TIF coffers. The CTU estimates that at the end of 2011, Chicago had $831 million in unallocated TIF funds sitting in bank accounts. Nearly half that money would have otherwise gone to schools. That number is also far bigger than the $700 million budget shortfall CPS had for the 2011-2012 school year which remains relatively unchanged for 2013. Instead, TIF monies are frequently utilized as subsidies for corporations.

Yesterday, thousands of teachers picketed a Hyatt hotel which had received $5.2 million in TIF subsidies chanting “give it back.” Speakers gave impassioned arguments against the use of TIF. The choice was not a coincidence: Penny Pritzker, a billionaire whose family owns the Hyatt chain, is also an appointee to the Chicago Board of Education.

Protestors contend that the TIF money used on the hotel would have been better spent on improving the education system. As one protestor commented, “I think it’s really important to bring awareness to the fact that, according to what I found out, $5.2 million has been given to developers [to build the Hyatt hotel]… That’s money that could have gone to classrooms, and computers, so many other things.”

Ultimately, all Illinoisans should also care about TIF in Chicago and elsewhere. The burden of school funding lost because of TIF property tax diversions is likely being made up for by all Illinois taxpayers.

Pritzker’s role on the board of education and Hyatt’s TIF funding are not the only reasons that labor is unhappy with Hyatt. A Unite Here campaign called Hyatt Hurts has been calling attention to what it alleges are unfair labor practices at the company and calling for a boycott.

We hope investigative journalists everywhere take notice: TIF has caused serious budgetary harm in Chicago and deserves more serious scrutiny in every school district.

Posted in Illinois, Property Taxes, Subsidies, Tax Increment Financing, Taxes, Unions | Leave a Comment »

PIRG Releases Report on TIF in Chicago as 3 Major Companies Return $34 million to Taxpayers

January 31, 2012

Chicago has long endured damage to its budget from Tax Increment Financing (TIF) chicanery. But with Mayor Rahm Emanuel pledging to take on TIF reform, change may be afoot. A new report released today by the Illinois Public Interest Research Group (PIRG) demands better transparency and accountability for TIF in Chicago. This includes incorporating TIF into the city’s budget process, linking spending to economic development plans instead of political patronage, requiring better outcomes, measuring outcomes, utilizing clawbacks for failure to meet benchmarks, and ending TIF districts once the economic development goal has been achieved. Much of what PIRG is asking echoes suggestions made by a panel appointed by Mayor Emanuel that studied the city’s TIF problems. Many of these recommendations have not yet been implemented.

In response to PIRG and other criticisms, Mayor Emanuel has pledged an improved transparency portal, better than the one we discussed last May, which was already a vast improvement.

And yesterday, to our surprise, recipients of major TIF subsidies have decided to return $34 million to the city. These recipients include the Chicago Mercantile Exchange (CME), CNA Group and Bank of America. CME’s subsidies were enabled by a controversial new state law. It’s not clear exactly why these recipients are choosing this particular moment in time to return subsidies, but reports indicate that shortfalls on job creation pledges and negative publicity may have played a role.

With 10 percent of Chicago’s revenues tripped up in TIF spending, it is clear that Chicago needs more transparency and accountability on TIF.

Posted in Clawbacks, Illinois, Jobs, Subsidies, Tax Increment Financing | 1 Comment »

Sears, Tax Breaks, and Job Loss: Like We Said

January 5, 2012
Image

Credit: Made available through a creative commons license from Flickr user gardener41

For the latest evidence that unaccountable tax breaks fail to promote investment for job creation, shop at Sears—while you still can.

Gov. Pat Quinn’s signature had barely dried on the Illinois legislature’s lavish new tax-break deal to retain Sears Holding Corp.’s headquarters when the company announced store closures and layoffs. The deal, valued at up to $275 million in property and income tax breaks, was signed into law on December 16. Yet on December 27, the company announced that it would close between 100 and 120 Kmart and Sears stores.

Cynically, we note that the initial list of 80 closures does not include any Illinois stores, nor have any headquarters layoffs been announced… yet. But with Sears still losing market share, and reporting another decline in same-store sales (down 5.2% late 2011 over late 2010), how safe can Illinois jobs be?

We hate to say we told Illinois so. But as we forecast in our blog of last August: when a company is ailing and it asks for a tax break, the wisdom of the plant-closings movement tells us: tax avoidance can be one form of disinvestment, another early warning sign of job loss.

Put another way: if a company doesn’t see a future in the community or the state, why should it keep investing in the schools or roads or universities?

Indeed, inadequate reinvestment in Sears has been a major theme since hedge fund manager Eddie Lampert took control of the company. As the New York Times’ Floyd Norris pointed out in a December 29 column, between February 2005 and October 2011, Sears Holdings spent only $3.2 billion on capital expenditures (i.e., physical improvements) while taking $6.6 billion in depreciation charges (i.e., physical wearing-out).

A consumer behavior consultant with America’s Research Group told the Los Angeles Times: “They are not fixing their problems. The Sears apparel strategy is still not what the Sears customer wants. They have not spent the money to refurbish their stores to make the modern and contemporary for the under-35 shopper.”

Instead of reinvesting, Sears Holdings is reportedly soon to allow some its prize jewels, such as Kenmore appliances and Craftsman tools, to be sold by other chains such as Costco and Ace Hardware. Won’t that just further reduce traffic into Sears and Kmarts?

In lowering Sears Holdings’ credit rating, Fitch warned of “a heightened risk of restructuring over the next 24 months.”

Meanwhile, Illinois taxpayers, after giving Sears a retention package worth about $178 million in 1989 when it threatened to run away, have pledged up to $275 million more after a second runaway threat.

Fool me once, shame on you…

Posted in Big Box Retail, Illinois, Job Blackmail, Subsidies, Taxes | 4 Comments »

Chicago’s Mayor Emanuel Promises a Shake-Up of the City’s $1.2 Billion TIF Program

May 20, 2011

Yesterday, Chicago’s new mayor, Rahm Emanuel, took an important first step in improving city government by announcing reforms for Tax Increment Financing (TIF). Many have dubbed TIF Chicago’s “Shadow Budget” not just because its spending is out of control, but also because it’s been used as a political patronage piggybank. TIF has cost taxpayers $1.2 billion dollars across 159 TIF districts. Emanuel deserves high accolades for addressing this issue so quickly after taking office.

After taking the reins, the new mayor says he was shocked to learn that such a large program, about one-sixth of the official city budget, lacked basic standards like job creation and quality benchmarks. Emanuel was clear about what’s wrong with TIF and what needs to be done: “Over the years, it’s mutated,” he said, into subsidies for “downtown and high-rent areas.” Fixing TIF will require the program to “return to its roots” by targeting spending “for blighted economic communities” and ending the use of TIF “as a political instrument.”

Mayor Emanuel is taking various steps that Chicagoans should be enthusiastic about.

  • First, he vowed that TIF will no longer be used as a political bargaining chip.
  • Second, he promised that subsidies will not reward wealthy developers in Chicago’s Loop or other wealthy neighborhoods. (It’s unclear whether that proclamation also means that TIF subsidies will no longer be used to shift jobs from other parts of Illinois, as was the case in the controversial $35 million United Airlines deal.)
  • Third, he promised to focus use of TIF subsidies on creating high-quality jobs in blighted neighborhoods, which was the original intention of program.
  • Fourth, he appointed a task force to come up with ideas for improving the transparency and accountability of the program.

His announcement also came with an improved transparency website: www.cityofchicago.org/TIF. The effort is a good start. The website allows users to view and download subsidy information in a variety of ways. Users can search for and download digital spreadsheets of the data for their own analysis. It even allows users to peruse development documents signed with companies and disclosures about conflicts of interest and lobbying.

Unfortunately, the website isn’t perfect yet. For example, TIF districts and projects could be projected onto a single interactive map that allows users to delve deeper. The website lacks a section devoted to annual follow-up reporting on outcomes relating to jobs, wages, and clawbacks.

Again, congratulations Mr. Mayor. Reforming TIF will be no easy task, but Chicagoans deserve a transparent and accountable TIF program.

Posted in Illinois, Tax Increment Financing | 1 Comment »

Shining A Light On $1.2 Billion In Chicago TIFs

March 3, 2011

A new analysis of the $1.2 billion Chicago has awarded in Tax Increment Financing (TIF) over the past 10 years has found that much of the money has been gone to large corporations and other institutions operating in thriving neighborhoods, not struggling businesses in blighted areas. These findings are not shocking: we’ve noticed the abuse of TIF around Chicago and other metro areas for years. So too have local observers like the now defunct Neighborhood Capital Budget Group and Ben Joravsky at The Chicago Reader.

The new study, conducted by journalism students at Columbia College in Chicago, analyzed hundreds of documents obtained through Freedom of Information Act requests. The students have also mapped the TIF deals—something the city has long declined to do—and posted the TIF agreements. See the map and the documents: here.

Of the 171 TIF deals provided to companies over the decade, the study found that more than half were clustered in or around Chicago’s vibrant central business district, the Loop. Chicago has 77 community areas, but few as prosperous as the Loop, whose residents (62 percent white) have a median income of $75,000. More depressed neighborhoods like Englewood (median income of $19,000, 98 percent Black), West Garfield Park ($23,000, 96 percent Black), and North Lawndale ($18,000, 94 percent Black) got only a handful of projects.

About $600 million went to private sector entities, accounting for the largest share of the $1.2 billion. These included subsidies to companies like United Airlines [Struggling Chicago finds $25 million for United Airlines] ($31 million), USG Corp. ($7 million), and NAVTEQ ($5 million). Some $100 million was used to lure companies to the city or to discourage them from leaving. In many cases, subsidies went to big box retail stores that supplanted small businesses. Target received at least $18.5 million at five locations throughout the city.

Housing developments received $340 million in subsidies, while $200 million went to non-profits, hospitals, and cultural institutions like the Chicago Symphony Orchestra. Many of these non-profits have enormous philanthropic bases. Numerous hospitals in Illinois are under scrutiny as to whether they ought to remain tax-exempt. Some housing developers used TIF money to create luxury condos. Other TIF deals have actually been documented to create blight.

Chicago has yet to implement its 2009 sunshine law and shed light on how taxpayer money is spent. The 2009 law required the city to put online searchable copies of every redevelopment agreement since 2004. Many were not posted and journalists at Columbia College had to undergo arduous Freedom of Information Act Requests to collect the information. The efforts of the students have both provided a useful analysis of the troubled TIF program as well as a valuable public data resource.

Posted in Illinois, Tax Increment Financing | Leave a Comment »

Naming Tax Credit Names

June 15, 2010

Corporate lobbyists have long blown a fog of fear, disinformation and confusion about public disclosure of corporate income tax credits.

It’s time to clear the air.

First, a definition: corporate income tax credits are dollar-for-dollar reductions in the amount of income tax a company pays to a state (or federal) government. A company can earn such credits by performing activities deemed to constitute economic development, such as making capital investments in new capacity, performing research and development, hiring new employees, and/or producing movies or commercials.

These credits are very costly; among economic development tax breaks, they are likely the fastest-growing revenue drain on state budgets over the past decade. For example, one state gives a credit of 5 percent per year for 20 years for new capital investment. That is, if a company has enough taxable income, over time, the state will pay the entire cost of a new facility in foregone corporate income taxes.

Corporate lobbyists would have us believe that letting taxpayers see which company is getting these credits, and the dollar value of the credits, would somehow violate confidentiality or poison the “business climate.”

Nothing could be further from the truth. (Of course, we also need disclosure of outcomes: were the jobs created? How well do they pay? Do they have health care?)

I offer two kinds of evidence: 1) almost every other costly economic development subsidy has been disclosed for decades; and 2) many states have been disclosing corporate income tax credits for years, and there is no evidence they suffered any “business climate” harm.

First, regarding other costly subsidies: If a company gets a property tax abatement or reduction, there’s a public record at the county tax assessor’s office. If a company gets an Industrial Revenue Bond, that’s an open record at the county development authority. If a company gets a training grant, that is visible at the Workforce Investment Board. If a company benefits from being in a Tax Increment Financing (TIF) district, copious records enter the public domain. If a company gets a discretionary or competitive grant, those files are usually very public.

So what’s the big deal about income tax credits? Remember: this is not about disclosing tax returns; this is about disclosing tax breaks.

Second, regarding states that have been disclosing corporate income tax credits (naming the company, specifying the dollar value of the credit), just take a look at this quick sampling our staff threw together in an afternoon:

Connecticut – see pages 406-407 re: urban/industrial and job creation tax credits

Florida – Qualified Target Industry Refund

Illinois – numerous tax credits and exemptions, including EDGE

Maryland – film, biotech, job creation, and research and development credits

Missouri – 20 different economic development programs, including film credits

Montana – Low Income Housing Tax Credit Program

New Jersey’s BRRAG Program

North Carolina – William S. Lee tax credits

Pennsylvania — more than 200 programs, including film and enterprise zone credits

Wisconsin — 107 programs, including film investment, film services, and dairy credits

Other states, such as Maine (since 1999) have been collecting and disclosing tax credit data, but they just haven’t put them online yet (the 21st century progresses slowly…)

The list will soon get longer. Subsidy disclosure bills are getting introduced more frequently in state legislatures, and they often call for making public the names of corporate tax-credit recipients. This year, Massachusetts enacted a law that will do so, and several other states took a step in this direction by mandating the publication of tax-expenditure budgets that show the total cost of tax credit programs.

Bottom line: the amount of company-specific tax credit data online is exploding. Anyone who claims it will violate confidentiality or hurt the business climate, well, that’s just so 20th century!

Heads up to state commerce secretaries: in the same way we have twice graded the states’ Recovery Act websites, we are coming back at you to rate how well you disclose on major subsidy programs, revisiting our State of State Disclosure report of 2007.

No calls, please; that’s all the hints you get.

Posted in Disclosure, Film Industry, Hidden Taxpayer Costs, Illinois, Subsidies, Tax Expenditure Budgets, Tax Increment Financing, Taxes | 1 Comment »

Chicago Cuts Checks to Corporations, Not Schools Lacking Teachers

October 1, 2009

Chicago’s Mayor Richard M. Daley recently added insult to injury by awarding additional funds in a relocation deal for United Airlines. Daley gave another $10 million in subsidies –on top of the $25.9 million in TIF monies we previously reported– bringing the total two-year subsidy from the city of Chicago to United Airline’s parent company to $50 million. Politicians often claim that TIF and other development subsidies cannot distress budgets. If this were true, why are crucial city services being cut concurrent to lavish subsidies being given?

When tax base is diverted, other city services must be paid for either by raising new taxes or reducing existing services. Chicago Public Schools just passed a draconian budget that slashes teacher benefits. Experts point out that TIF has skimmed at least $500 million away from school tax revenues. Listen to neighborhood residents speak out against TIF diversion.

What is the result of these perennial budget issues linked to TIF diversion? This September students started school without teachers in neighborhoods with significant achievement gaps. Three weeks into the school year, students still lacked permanent teachers. At the same time, however, the city of Chicago had no qualms about giving a private interest another $10 million.

Posted in Hidden Taxpayer Costs, Illinois, Tax Increment Financing | 1 Comment »

Struggling Chicago finds $25 million for United Airlines

September 3, 2009

Last month, the City of Chicago offered a substantial tax increment finance (TIF) subsidy of $25 million to an ailing United Airlines (UAL) if it promised to relocate its operations center to the Willis Tower (formerly the Sears Tower). Use of TIF as a relocation incentive is problematic given net new jobs are not being created and TIF is intended to help revitalize downtrodden areas, not encourage occupancy in skyscrapers.

The TIF subsidy encourages UAL to leave its current operations center next door to Chicago’s O’Hare Airport, shifting commutation patterns for 2,800 employees –employees who probably use airport facilities.  The operations center used to house UAL’s headquarters between 1961 and 2006 until the city gave tax breaks and incentives to UAL for a new office in the Loop. Why would an airline relocate its operations center 19 miles away from the world’s 4th busiest airport?

Historically, Chicago and outlying suburbs use incentives in controversial ways. In 1989, Sears, Roebuck & Co. announced that it was seeking to relocate from the Sears Tower to cut costs (see page 36 of our 2003 report, A Better Deal for Illinois). The State of Illinois feared losing $411 million in income taxes (from 5,400 jobs) and 2,200 ripple-effect jobs if they left Illinois. An affluent suburb 29 miles northwest of the Loop put together what was the largest subsidy package ever in Illinois history at $178 million. The state not only chipped in but expanded the definition of ‘blight’ in Illinois’ TIF law so that the wealthy suburb could buy 786 acres of land with TIF bonds to be repaid out of Sears’ property taxes.

Although Sears promised to make up shortfalls in the property tax revenues (and did in 1998 and 2001), missing was a clawback relating to the 5,400 jobs which the state based its incentive rationale on from the get-go. Sears never approached the original employment number, which begs the question: did it move out of necessity or to avoid paying for mass layoffs and the negative media attention?

The City of Chicago is in a pinch. Two recent winters have threatened the city’s budget to the brink of collapse and forced the mayor to lease the city’s parking meters to a private entity for 75 years. Despite city coffers in ruin, TIF funds overflow. A new report by the Chicago Coalition for the Homeless shows TIF-funded units are disproportionately sold or rented to high-income households. Recent investigations indicate that TIF dollars are awarded on dubious basis in lieu of need in a city full of questionable zoning practices. Moreover, a recent $10.4 million TIF deal fell through, leaving the city without the jobs it paid for. Despite this, the city resists passing TIF sunshine laws.

Chicago’s 158 TIF districts covering 30 percent of the city are diverting revenues that would otherwise keep schools solvent, plow streets, maintain public transit, and fix potholes. TIF has strayed from revitalizing distressed communities and is instead being used to shuffle tax base across the region. Moving jobs does not create new jobs. TIF reform is long overdue in Illinois.

Posted in Clawbacks, Disclosure, Financial Crisis, Illinois, Job Piracy, Jobs, Property Taxes, Subsidies, Tax Increment Financing, Taxes, Transit | 3 Comments »

Starting Up Stalled State Economies: Experts Give Some Do’s and Don’ts

November 14, 2008

With the election of a new president, officials in many states are hoping a renewed federal/state partnership will jumpstart the troubled economy. Until the new president takes office, however, falling revenues have prompted some states to take actions that are counter-productive rather than counter-cyclical.

States are in a tough spot. For example, Illinois officials predict a revenue hole this fiscal year of $800 million or more. The Center for Budget and Policy Priorities (CBPP) projects state budget shortfalls across the nation will total $100 billion in fiscal year 2010.

Since every state but one must balance its budget, without federal support lawmakers must raise taxes, cut services, or both. (Outright fiscal irresponsibility—e.g., failing to pay Medicaid bills, underfunding state employee pension funds—is another option: Illinois’ unpaid bills could top $5 billion by early 2009.)

New York Governor David Paterson has just proposed school and health care funding cuts of $3.2 billion over two years, similar to those that have already occured in other states. But CBPP economist Nicholas Johnson argues cutting services and income supports makes the economy contract even more as the purchasing power of struggling families falls.

Johnson cites the work of noted economists Joseph Stiglitz and Peter Orzag. They argue tax increases, by reducing savings and not just consumption, are less harmful to a depressed economy, especially when they fall mainly on wealthier taxpayers.

While some states have enacted such tax increases or closed loopholes, others have instead considered tax cuts. Yet tax cuts are the least effective way to stimulate state economies in a recession. They can lead to further spending cuts while reducing the buying power of public employees. Fortunately, voters in several states have recently rejected the tax cut mantra.

States would be better off strengthening consumer demand by extending unemployment insurance, preserving healthcare coverage, preventing foreclosures, and speeding up already scheduled public works projects. The federal government could help by providing grants, paying a larger share of Medicaid costs, and rescinding (or actually funding) burdensome, federally-imposed unfunded mandates that cost states nearly $34 billion in the last fiscal year.

States can help themselves by better tracking, targeting or terminating largely unmonitored business incentives and tax giveaways like Single Sales Factor. They could adopt comprehensive unified economic development budgets (UDB), like the excellent UDB proposed for Kentucky. While more federal support is needed, states can use the recession to make their own economic development spending less wasteful and more productive.

Posted in 1, Disclosure, Financial Crisis, Illinois, New York, Single Sales Factor, Subsidies, Tax Expenditure Budgets, Taxes | Leave a Comment »

Can Slowdown in the Chicago Suburbs Lead to Smarter Growth?

October 23, 2008

Chicago-area advocates of more sensible growth and land-use policies got a boost this week when Chicago Tribune columnist John McCarron urged the region’s public officials to see one upside of the painful economic crisis: a chance to put the region’s “suburban sprawl machine” into reverse.

McCarron, an expert on urban affairs and state and local fiscal policy, cited problems in previously booming Chicago exurbs, where higher gas prices have made long commutes painfully expensive, and where affordable housing and public transit are limited or non-existent. He called on the region’s public officials to rethink the “anything goes” development and land use policies that have led to massive traffic congestion, high commuting costs, “monster” mortgage payments, and the loss of agricultural land.

The editorial described the redevelopment of an old naval air station in suburban Glenview as an example of more rational, energy-efficient and compact suburban development based on accessible public transit. A recent report by Chicago Metropolis 2020, a business-oriented civic policy group, predicts that seniors and low-income immigrants (two groups leading the region’s population growth) will demand more such compact and transit-rich communities, as well as more affordable housing.

Even if the recession limits some smart growth investments, McCarron believes local governments can still require private developers to take common sense steps to increase energy efficiency, transit access, and the number of pedestrian walkways.

Besides McCarron’s suggestions, other smart growth measures, affordable even in a recession, include promoting the state’s little used “business location efficiency” incentive, which provides a moderately larger corporate income tax credit to companies locating near affordable housing and public transit. McCarron is certainly right to urge Illinois officials to respond to a bad economy with policies that both promote more sustainable development and save taxpayer dollars.

Posted in Financial Crisis, Illinois, Smart Growth, Sprawl, Transit | Leave a Comment »

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