Tax Increment Financing - a Case Study of Recent Examples in the Chicago Metropolitan Area

Tax Increment Financing

A Case Study of Recent Examples in the Chicago Metropolitan Area

Samantha Wei

Economics 309-Public Finance

Professor Eric Schulz

March 3, 2012

Implemented as a public financing tool to redevelop and stimulate both community investment projects in blighted neighborhoods and communities, Tax Increment Financing (TIF) has been used by the local government to subsidize businesses and developers to help improve and revitalize the infrastructure of neglected communities and their surroundings, using funds from the future streams of tax revenues precipitated by such projects. Elements of “obsolescence,” “overcrowding of facilities,” “excessive land coverage,” and “dilapidation or deterioration” of physical structures need to be apparent for an area to be TIF eligible. Originally created to encourage the proliferation of business investments in a region, these districts are expected to stimulate the correspondence with local businesses to expand their operating capacity, correspondingly inducing job growth (Healey and McCormick, p.1).

To describe the functionality of TIF districts and effectiveness of using TIF, the baseline value of the current amount of tax revenue collected by the local government, as composited in the EAV, or the equalized assessed valuation, is compared with the EAV at a later period, a measure the local government use to gauge the success of the rehabilitative projects within that region. Often active for at least 23 years, TIF redevelopment, through attracting developments that ostensibly increases property values above the previous threshold and consequently generating new taxes above the baseline, funnels these incremental tax growths into future projects for that area. Soliciting the expertise of outside contractors, the viability of TIF funding and the proper amount of funding to allocate can be determined. Adherence to federal, state and local project requirements as defined in the policies is imperative and binding (City of Chicago).

        The effectiveness of TIF financing to re-stimulate a degenerate community can be assessed using the policies and criteria surrounding the enactment of TIF districts as vital indicators of future economic growth and development, paralleling the preeminence of TIF to restore an insalubrious neighborhood. Specifically, this paper will analyze the legitimacies of the different criteria, set forth by the city of Chicago, as plausible indicators of economic growth, as dictated by rise in real estate values and job creation, while also examining the efficacy of funding disbursement as decreed by the policies surrounding the enactment of TIF districts while providing insight into the causes of such behaviors.