Annual Financial Analysis
Tax Increment Financing

Tax Increment Financing

Chicago’s Tax Increment Financing (TIF) program began in 1984 with the goal of promoting business, industrial, and residential development in areas that struggled to attract or retain housing, jobs, or commercial activity.

The following section discusses property-tax-derived revenue for the City’s TIF program, TIF revenue, TIF project bonds and notes, TIF expenditures, and TIF surplus.

TIF Revenue

TIF is a funding tool used to improve neighborhood infrastructure and promote investment in communities across the city. The program is governed by a state law allowing municipalities to capture property tax revenues derived from the incremental equalized assessed value (EAV) above the base EAV that existed before an area was designated as a TIF district. Funding for investments is generated by growth in property values within a designated district over a period of 23 or 24 years. TIF is used to fund community projects, public improvements, and incentives to attract private investment to the area. The intention is that an effective use of tax increment funds helps expand the tax base, thus increasing the amount of tax increment generated in the district for re-investment within the district and ultimately increasing the property tax base for tax districts.

The tables below detail: 1) the total TIF districts citywide and number of districts created and terminated each year since the start of the program in 1984; 2) EAV citywide and in TIF districts, by tax year, and 3) total amount of TIF revenue since 2001.

As of July 2016, there are 146 TIF districts in the City. The Roosevelt/Canal TIF district was terminated at the end of 2015; no new TIF districts were designated in 2015. The chart above shows the growth in the number of TIF districts, peaking in 2011 at 163 and declining steadily since that time.

During 2015, the City received incremental property tax revenue from 128 of the 146 current TIF districts, totaling $365.2 million. The chart above provides the total revenue received from the City’s TIF districts since 2001. In each TIF district, the amount of TIF revenue depends on the amount of incremental EAV in the district and the composite tax rate, which is applied to that EAV.

The total amount of TIF revenue grew steadily from 2005 through 2008 as new TIFs were added and as property values in TIF districts increased in line with property values citywide. The first TIF district to expire was the largest TIF district designated to date, the Central Loop TIF. The expiration of that district in 2008 explains the decline in TIF revenues in 2009. The increase in revenues in 2011 is attributable in part to the increase in the composite tax rate in that year. The composite tax rate in Chicago increased as property values began to reflect the decline in the real estate market brought on by the recession.

The EAV in the City’s TIFs declined steadily since 2009 and began showing modest growth in 2014 and more substantial growth in 2016 as the result of the triennial reassessment. Due to the timing of the County’s triannual reassessments, EAVs did not begin to reflect recessionary sales and valuations immediately following the economic downturn until 2011. As discussed above, in 2011, on a citywide basis, the increase in the tax rate outweighed any decrease in EAV in the City’s TIF districts, resulting in increased TIF revenues. In 2012, however, the relative impact of the decrease in EAVs began to outweigh the impact of the increase in the tax rate, and overall TIF revenues decreased. This trend continued into 2013, which also saw the overall revenue impacted by the closing of ten TIFs in the prior year. Revenue in 2014 was also impacted by further EAV declines as well as TIF expirations, particularly the expiration of the Near South TIF. The 2015 TIF revenue showed a slight decrease due to fewer TIFs from expirations and less incremental growth. The City anticipates TIF revenue will increase in 2016 as the result of the 2015 growth in EAV.

TIF Project Bonds and Notes

The City has issued bonds and notes financed with future TIF revenues to fund certain TIF projects. The proceeds of bonds and notes are used to pay for TIF-eligible improvements in the districts, and the debt service is then paid with subsequent TIF revenue. Such financing allows the City to undertake larger projects sooner, rather than having to wait for annual TIF revenues to accumulate. In 2007 and 2010, the City issued bonds as part of the Modern Schools Across Chicago program (MSAC), which is discussed in more detail below. The City issued bonds in the Pilsen Industrial Corridor district in 2004. These bonds were refunded in 2014, in the amount of $35.7 million.

TIF Expenditures

Expenditure data, categorized at a high level into financing, public improvement, site preparation, administration, development, and job training costs, can be found online in the audited annual financial reports for each TIF. The pie chart below, TIF Commitments, presents TIF funds committed from 2009 through 2015 as follows:

  • Infrastructure, includes the construction, repair, and maintenance of City streets, sewers, bridges, bike lanes, and other critical infrastructure.

  • Sister Agencies, includes projects undertaken by Chicago Public Schools, Chicago Park District, and CTA, as further described below.

  • Planning and Administration, includes the cost of studies, program administration, and professional services for the TIF program.

  • City Facilities, includes the construction and renovation of City facilities such as libraries, police stations, and fire stations.

  • Economic Development, includes redevelopment projects throughout the city.

  • SBIF/NIP/TIF Works, includes Small Business Improvement Funding, Neighborhood Improvement Program funds, and job training programs.

  • Residential Development, includes the construction of low income and affordable housing, rehabilitation of homes, and funds for the Chicago Housing Authority.

Under certain circumstances, the City may transfer TIF revenue from one district to an immediately adjacent TIF district, or pay costs involving public property adjacent to certain TIF districts, for a specific project. Transfers have been used to pay debt service on bonds issued to fund school construction, including Modern Schools Across Chicago (MSAC) projects, as well as to fund major Chicago Park District projects, CTA track and station improvements and other neighborhood development projects. Between 2005 and 2015, a total of $609 million was transferred between TIFs.

TIF Funding Provided to Sister Agencies

Since the start of the TIF program, the City has provided or is committed to providing $1.26 billion for school related projects, $363 million to the Park District for park and open space projects, and $301 million to the CTA for track and station renovations and related projects.1

TIF funding has been committed to CPS for 104 school-related projects using funds from 54 TIF districts citywide. This funding supports capital work at schools along with work to alleviate overcrowding. Schools that have received TIF funding, include Amundsen High School, Budlong Elementary, Clemente High School, Franklin Elementary, Hope College Preparatory High School, Tilden High School, Coonley Elementary School, Addams Elementary School, Gallistel Elementary School, Burke Elementary School and Penn Elementary School, among others. A significant portion of the TIF funds provided by the City to CPS has been through MSAC, a capital improvement program established to fund the construction and renovation of 23 schools over seven years. The City has committed to providing $781.4 million2 in TIF funds to MSAC over the life of the program.

TIF funding has been committed to the Park District for 72 parks and open-space projects supported with funds from 42 TIF districts citywide to date, including Hadiya Pendleton Park, the Morgan Park Sports Center, Dvorak Park, Steelworkers Park, Welles Park, Devon-McCormick Park, and the Quad Communities Arts and Recreation Center.

The City has committed funding from 19 TIF districts for 34 CTA projects, including station construction and repair as well as and track improvements, among others. Major projects include the Loop Link (bus rapid transit service), a new Cermak Green Line Station, the Quincy Station rehabilitation and the Illinois Medical District rehabilitation, and track improvements along sections of the Blue Line O’Hare Branch from Damen to Clinton. Most recently, in the summer of 2016, the Illinois legislature passed a new law that enables municipalities to establish Transit Facility Improvement Areas or a Transit TIF to provide dedicated funding for long-term transit improvement projects in Chicago.

TIF Surplus, Downtown Freeze and Closings

The table below indicates the amount of money returned to local taxing districts since the 2009 budget as surplus, either from existing TIF districts through the declaration of a surplus or from those that have closed through expiration, termination, or repeal. During this time, the City has received approximately 20 percent, the Park District approximately 6 percent, and CPS approximately 52 percent of all surplus dollars, with slight yearly variations based on each taxing district’s applicable share of the tax rate. The remaining share of any annual surplus is provided to the other taxing bodies – Cook County, Metropolitan Water Reclamation District, etc. – based on their share of the property tax levy.

Surplus Declaration

On an annual basis, the City declares a portion of the funds in an active TIF as surplus, returning the proportionate share of the funds to the applicable local taxing districts. Such surplus declaration occurs during the budget process and is pursuant to Mayor Emanuel’s Executive Order No. 2013-3, a policy to consistently return unneeded TIF revenues to the taxing districts according to set criteria.

Under Executive Order No. 2013-3, the City declares a surplus in TIF districts that are older than three years, were not created for single redevelopment projects, are not transferring funds to other TIF districts to pay MSAC debt service costs, and have a balance of at least $1 million. The amount of the surplus is at least 25 percent of the available cash balance in the TIF, after accounting for current and future project commitments and contingencies, revenue volatilities, tax collection losses, and tax liabilities.

Also in July of 2015, the City froze new spending in downtown TIFs and will sunset them when the current and committed projects are paid off. This policy affects seven TIF districts and frees approximately $250 million over the subsequent five years This downtown TIF freeze accounts for the majority of the TIF surplus in 2016.

TIF Closings

There are a number of ways in which TIF districts come to a close:

  • A TIF district expires automatically after 24 or 23 years, depending on when it was established.

  • The City can terminate a TIF district before its planned expiration if it has achieved its initial goals; if no outstanding commitments or obligations are owed, or if an extended period of inactivity or lack of investment has indicated that additional development is unlikely.

  • The City must repeal a TIF district if no substantial redevelopment activity has been initiated during the first seven years of the district’s existence.

The City continues to evaluate the performance of each TIF district and will consider additional terminations as appropriate going forward, in accordance with the recommendations of the TIF reform panel. After a TIF district ends, surplus funds are returned to the taxing districts, and the incremental EAV of the district becomes part of the aggregate EAV that is available to all taxing districts. Taxing districts, including the City, have the ability to recover their portion of the revenue from the incremental EAV by adding it to their levy following a TIF district’s dissolution. Amounts recovered through this practice are not subject to the State-mandated property tax cap that applies to certain taxing districts, including CPS. This practice is further discussed in the Property Tax section

Additional TIF Information and Resources

Much more information on the City’s TIF program is available online. The amount of data and information available to the public regarding the TIF program has steadily increased in recent years. Currently, the following information can be found on the City’s website:

  • A redevelopment plan for each TIF district. The redevelopment plan provides the basis for designating an area a TIF, including the area’s history, the existing land use at the time the TIF was designated, and the factors that qualified the area as eligible for tax increment financing. The plan also states the goals and objectives for the TIF and outlines the redevelopment budget.

  • Redevelopment agreements (RDAs). An RDA exists for each project in a TIF that involves a private developer. The RDA includes the name of the developer and the terms of the agreement, the amount of TIF assistance, and the start and end dates of the agreement.

  • Annual financial reports. These documents include audited financial statements required by state statute. Each year, one such report must be submitted to the State Comptroller for each TIF district.

  • Projection reports and dataset. The dataset provides estimates of TIF revenues and obligations, including encumbered amounts, through the life of the TIF for each district generating incremental tax revenue and the reports show this activity for a 5 year period.

  • The TIF portal. This online portal provides an interactive map-based view of TIF districts by ward and the projects located in each TIF.

  • TIF policy guidelines and applications for TIF assistance.

  • Maps of the City’s TIF districts by geographical area, as well as each individual TIF district.

In addition, through the City’s data portal, detailed financial information is provided in searchable format, including the data used to create the projection reports noted above; balance sheets showing detailed statements of revenues, expenditures, and changes in fund balances over the previous years; and over ten years of revenue expenditure data for each district.

  1. The 2015 AFA showed amounts for CTA and the Park District that were larger than the amounts shown here. This was due to a misclassification error which has since been corrected. 

  2. The 2014 AFA listed the City’s commitment to MSAC at $763.1 million and accounted for the projected full value of an interest subsidy on Build America Bonds that were issued In connection with the MSAC 2010 series. The interest subsidy was reduced as part of the 2013 Balance Budget and Emergency Deficit Control Act. Further, annual reductions are expected through 2024. The rate of future reductions is unknown at this time; therefore the subsidy is not accounted for in future debt service payments.