TIFs have their place and can be useful in certain circumstances, principally those circumstances for which they were originally created–to restore blighted areas. But TIFs have been embraced by municipalities everywhere and are often used for general development purposes. Whenever people sing the gospel of anything, including the gospel of TIF, it makes me wary and makes me wonder if they really know what they’re dealing with. From what the mayor has been saying, he either doesn’t undestand TIFs or he’s putting a special spin on it.

I’m talking about the Summer 2007 edition of the Elgin Spirit newsletter, and its front page article about Elgin’s downtown TIF. The article is an expanded version of a March 4, 2007 Daily Herald letter to the editor published under the mayor’s signature. I had a blog response to that, which I never published. But if you want it, email me. I’ll send it to you.

Let’s take a look at the newsletter article now, and highlight some of the claims and the problems with them:

1. Incentives “cost residents nothing.”
2. “The City is at no financial risk.”
3. $20M in incentives will generate $40M over the next 20 years.

Claim number one is that incentives cost us nothing. Well let’s see, did it cost nothing to purchase the Crocker, the old GBL, and the other properties the city has accumulated in recent years? Did it cost nothing to demolish those buildings?

Which takes us to claim number two that there is no financial risk. Well since it did cost us something to buy those buildings and destroy them, it sure does seem that we put significant amounts of money at risk. We destroyed the Crocker, and to this day, I see no evidence that they have broken ground on that site.

You know, when you buy properties and destroy them at the cost of millions of dollars, and then the developer doesn’t follow through. Guess what? You’ve lost a lot of money. Guess what else? The city now owns the property, so I guess it will collect property tax from itself. Or is it tax exempt? Is it clear now that there is a financial risk? If the mayor doesn’t understand this, then I’m not sure how much confidence we can have in the City’s ability to manage financial risks.

We’re told that we’re making a good investment, because we put up $20M in incentives and will collect $40 million over 20 years. If this was about making money, if we put $20M into government bonds, we would collect $60 million over the same period. Heck, putting some money away might not be such a bad idea if it allows us to create a community foundation independent of the city, but that’s an idea for another post.

There are other issues with this TIF. For example, under TIF law, U-46 and the GBL for the next 20 years will collect no more taxes each year in the TIF than they collected in the year 2002. So while new residents will be using their services, the library and school district will not collect taxes on them. What that means is that for the next twenty years, everybody else will be paying for them, whether through increased taxes, tuition (ECC) or reduction in service quality. So the idea that the TIF costs residents nothing is bogus for this reason as well.

The idea that property values would increase only if there was a TIF is an interesting idea, but inaccurate. Property values in downtown Elgin before the TIF was ever created (2002) increased by a phenomenal amount in the past two decades. Even if no TIF was created, property values would have been likely to continue increasing–if at a more moderate pace than in the past decade. The only difference is that the school system, library, etc. will no longer derive any benefit from the increased property values. That increase will instead be captured by developers in the form of incentives and by public works projects in the TIF district.

I believe that under Illinois TIF law, taxes generated by the TIF must be used within the TIF. This can lead to an interesting situation where the downtown gets improved and improved and improved to the point where “improvements” are ridiculous (if they aren’t already–look at Festival Park), while surrounding neighborhoods can’t even get their potholes filled in.

In any case, the basic point I’m trying to make is that let’s not sing the gospel of TIF. Understand it for what it is. As with everything, it has drawbacks. It has benefits and it has costs. It has people who benefit more than others, people who benefit somewhat, and people who don’t benefit at all. It’s not like the mayor describes, “a win-win situation for everyone involved.”

Hopefully that is all I will ever have to say again about TIFs.

Filed under: citycouncil, downtown, politics.
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