The Civic Federation is shining a bright and unflattering light on Mayor Brandon Johnson’s plan to declare a record $1 billion tax increment-financing surplus to rescue the city and Chicago Public Schools, stave off classroom cuts and help bankroll a new teachers contract.
In a report issued Monday, Chicago’s preeminent taxpayer watchdog group said the “complex and highly politicized” surplus process revised by the Johnson administration last year has allowed the creation of TIF districts to “act as a sort of stealth property tax” that bankrolls operating costs at the expense of economically challenged areas TIF districts were created to revitalize.
Although “increasingly large TIF sweeps” have bailed out the city and CPS budgets in recent years, the special taxing districts were “not designed to serve as a source of operating revenue” nor will “surpluses of this size continue” in future years.
In fact, the expiration of many TIF districts beginning in 2030 means those surpluses will “begin to decline,” depriving the city, CPS and other cash-strapped local agencies of a way to generate cash windfalls without risking the political fallout from raising property taxes.
Chicago created most of its 108 TIF districts in the late 1990s. Nine are set to expire this year. Thirteen more are due to sunset at the end of 2026. By 2036, “only a handful of current TIFs will still exist,” the Civic Federation reports states.
When TIF districts are created, the equalized assessed value of property within those boundaries is frozen at existing levels for 23 years. The increment or growth is segregated in a pool of money used to reimburse eligible development expenses, such as infrastructure costs.
When those districts expire, the equalized assessed value that had been frozen is returned to the pool of property value taxable by local governments.
The city and other taxing bodies are then free to raise the overall property tax levy by applying the existing rate to the new base, “permanently increasing” the total property tax levy. The increase does not count toward property tax caps, the report states.
“As more TIF districts expire, local governments will be unable to rely on TIF surpluses to provide revenue increases. The city and its sister agencies should beware of counting on TIF surplus revenue in future budgets. Eventually, it will not be there,” the Civic Federation report states.
On the first day of City Council budget hearings, mayoral allies and critics alike were united in their opposition to a TIF surplus they fear could derail or, at least delay indefinitely, improvements to their local schools, parks and libraries.
Rules Committee Chair Michelle Harris (8th), a powerful member of Johnson’s leadership team, said at the time that she could not go along with such a “drastic sweep” of TIFs that serve as lifelines in predominantly Black neighborhoods like her own.
“You now say to communities like mine who don’t have $40 million or $50 million in a TIF, that we can’t do future projecting,” Harris said. “If we sweep TIFs in communities like mine, then my future projects are just dead… Unintentionally or intentionally, we will lose projecting in communities of color… It scares me to death that these projects have the potential to be taken off the table.”
The Civic Federation report explains how the TIF surplus has ballooned —from $177 million in 2017 to $712 million this year and $1 billion in 2026.
Last year, the Johnson administration set the stage for the record-breaking surplus by dramatically altering the city’s policy for declaring a TIF surplus. In the past, City Council members were allowed to hold funding indefinitely for projects in their wards “still in the planning process” but not yet submitted for review.
The new policy reserved such holds for projects “most ready for submission” to the city, with funding held for a maximum of one year.
The change freed up funds for “immediate surplus and generated an additional, one-time windfall,” the report states.
During budget hearings, Ald. Nicole Lee (11th) said she had a field house project “waiting for the park district to contact an engineer and a designer to give us the cost. Now, that TIF is going to be completely swept down to like a couple million bucks,” Lee said.