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, project bonds and notes, expenditures, and TIF surplus.

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 amount of incremental equalized assessed value (EAV) above the base EAV that existed before an area was designated as a TIF district.

TIF Districts

There have been a total of 180 TIF designations in Chicago since the start of the TIF program in 1984. The number of active TIF districts peaked in 2011 at 163 and has since declined to 145 TIF districts currently active in the city. Since the start of the TIF program, 19 districts have been terminated, 11 districts have expired, and five have been repealed. Most recently, the 69th/Ashland, Addison Corridor North, and Calumet River TIF districts were terminated at the end of 2016. Two new TIFs were designated in 2016, the Red-Purple Modernization (RPM) Transit TIF and Diversey/Chicago River TIF. The map below shows the location of current TIF districts and the location of districts that have been terminated, repealed or expired.

TIF Revenue

Funds are used to build and repair neighborhood streets, alleys, bridges, and lighting; modernize and improve schools; construct and upgrade the transit system; build and improve parks; increase affordable housing; and promote neighborhood economic development.

Funding for investments is generated by growth in property values within a designated district over a period of 23 or 24 years, or up to 36 years if extended by State of Illinois legislation. TIF is used to fund community projects, public improvements, and provide 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 after the TIF ends.

The charts below detail: 1) EAV citywide and in TIF districts (including the Transit TIF), by tax year, and 2) total amount of TIF revenue by source since 2007. TIF revenue received in a given year is based on the prior year’s EAV and composite property tax rate. Property taxes are paid in arrears, and thereby, revenue received in 2016 reflects the 2015 EAV and 2015 property tax rate.

The chart above provides the total revenue received from the City’s TIF districts annually since 2007. 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 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.

EAV in the City’s TIFs declined steadily after 2009 and began showing modest growth in 2014 with more substantial growth in 2016 as the result of the triennial reassessment and the increasing property tax rate due to increased contributions to police and fire pensions. Due to the timing of the County’s triannual reassessments, EAVs did not begin to reflect recessionary sales and valuations following the economic downturn until 2011. 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 2015, which also saw the overall revenue impacted by further EAV declines as well as TIF expirations, particularly the expiration of the Near South TIF.

City TIF revenue increased in 2016 as the result of the triennial reassessment and the increasing composite property tax rate. During 2016, the City received incremental property tax revenue from 134 of the 148 TIF districts that were active during the year, totaling $493.1 million. This trend is expected to continue as property values grow and the tax rates continue to increase to fund police, fire and teachers’ pensions. The 2016 TIF revenue also includes a net $1.0 million reduction due to losses from interest income on these TIF funds.

TIF Commitments

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, presents TIF funds committed from 2009 through 2016 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 (CPS), Chicago Park District, and the Chicago Transit Authority (CTA).

• 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. Transfers have been used to pay debt service on bonds issued to fund school construction, including Modern Schools Across Chicago (MSAC) projects which are discussed further below, as well as to fund major Chicago Park District projects, CTA track and station improvements and other neighborhood development projects. (Between 2007 and 2016, a total of $647.9 million was transferred between TIFs.)

TIF Funding Provided to Sister Agencies

Since the start of the TIF program, the City has provided $1.32 billion for school related projects, $367 million to the Park District for park and open space projects, and $926 million to the CTA for track and station renovation and related projects. TIF funding has also been committed to CPS for 107 school-related projects using funds from 56 TIF districts citywide. This funding supports capital work at schools that range from new windows and roof repairs to ensuring classrooms and bathrooms are wheelchair accessible. Additionally, it supports the construction of new schools or school additions in order to alleviate overcrowding. Schools that have received TIF funding, include Amundsen High School, Budlong Elementary School, Clemente High School, Franklin Elementary School, Hope College Preparatory High School, Tilden High School, Coonley Elementary School, Addams Elementary School, Gallistel Elementary School, Penn Elementary School, among others. A significant portion of the TIF funds provided by the City to CPS has been through Modern Schools Across Chicago (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 million 1 in TIF funds to MSAC over the life of the program.

TIF funding from 45 TIF districts citywide to date has been committed to the Chicago Park District for 78 parks and open-space projects, including Hadiya Pendleton Park, the Morgan Park Sports Center, Dvorak Park, Welles Park, Devon-McCormick Park, and the Quad Communities Arts and Recreation Center.

The City has committed funding from 19 TIF districts for 37 CTA projects, including station and track construction and repairs. Major projects include the Loop Link (bus rapid transit service), a new Cermak Green Line Station, rehabilitation of the Quincy Station which includes the addition of an elevator to make the station wheelchair accessible, modernization of the Illinois Medical District Station, and track improvements along sections of the Blue Line O’Hare Branch from Damen to Clinton.

Transit TIF

The Red Purple Modernization (RPM) Transit TIF was designated in late 2016 to help provide funding for repairs and reconstruction of the nearly 100 year old Red and Purple CTA lines. Phase One of the RPM project includes modernizing stations from Lawrence to Bryn Mawr, and constructing a flyover bypass north of the Belmont Station that allows more trains to run per hour and decreases the number of delays. The Transit TIF funding and project work is separate and apart from the other CTA transit work that is funded with TIF. The Transit TIF enabling legislation passed by the Illinois General Assembly in June 2016 permits the creation of a TIF narrowly tailored for the sole purpose of renovating and expanding capacity of a single, vital public asset. The term of the TIF is up to 35 years, and the boundaries can only extend up to a half-mile from specific transit facilities.

The distributive share of Transit TIF incremental revenue is different than traditional TIFs; it allocates increments to the Transit TIF and the overlapping taxing districts. The CPS portion of the increment, which is the growth in revenues, goes to the schools based on their share of the property tax rate. Of the remaining Transit TIF incremental revenue, 20.0 percent is distributed to the remaining taxing bodies based on their share of the property tax rate, while the Transit TIF receives 80.0 percent.

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 MSAC. The City issued bonds in the Pilsen Industrial Corridor in 2004. These bonds were refunded in 2014, in the amount of $35.7 million. The City has not issued bonds for TIF since 2014 and continues to prioritize using available TIF resources to fund projects.

TIF Surplus, Downtown Freeze and Closings

The table below indicates the amount of money returned to local taxing districts based on their proportionate share of the property tax levy since the 2009 budget as surplus. This occurred from existing TIF districts declaring a surplus or from those that have closed through expiration, termination, or repeal. During this time, the City has received approximately 20.0 percent, the Park District approximately 6.0 percent, and CPS approximately 52.0 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 distributed to the other taxing bodies such as 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, which returns proportional shares of the funds to the applicable 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 a single redevelopment project, so not support debt service costs, and have a balance of at least $1 million. The amount of the surplus is at least 25.0 percent of the available cash balance in the TIF, after accounting for current and future project commitments and contingencies, revenue volatilities, and tax collection losses. 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 returns approximately $250 million in surplus over the subsequent five years. This downtown TIF freeze accounts for the majority of the TIF surplus in 2017.

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. After a TIF district ends, surplus funds are returned to the taxing district, 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 outside of 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

More information on the City’s TIF program is available online. 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 amount, through the life of the TIF for each district generating incremental tax revenue and the reports show this activity for a five 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.

  1. 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