CHICAGO | Lincoln Yards

[Suiram]

People always misunderstand TIFs. Its just a financing source. Everyone should remember the alternative would just be for the city to issue general obligation bonds and pay for new bridges or new roads that the city sees fit. Maybe to address future traffic concerns / improve access / or prepare for increased density development.

The city would issue bonds, spend that money on infrastructure and then hope that as property tax revenues grow in the area invested, the growth in tax revenues would hopefully cover the debt service payments on the bond.

All the TIF does is extract this whole process from the general city budget and put into a special purpose box so the property tax revenues (only the net increase) goes into that box and that box issues the debt and gets recovery.

Its not a profit mechanism for a developer. The infrastructure gets built with debt and the debt gets repaid. If the development goes gangbusters and gets massive density built quickly, property taxes will grow rapidly beyond debt service. That potential excess does not go to the developer it goes to the TIF.

If things go great, the city could retire the TIF early by paying back all the debt faster than 23 years. And then all the tax revenues start flowing to the normal property tax allocation locations. Now more likely excess TIF earnings can sit in the TIF and then be used for other things. In theory this makes sense as its a pool of money that can be used to do new improvements, but its also quite prone to corruption or at least "light corruption" as in pet projects.

Almost all of the shrill screamer-type complaints about TIFs are either completely non existant or at least addressed by the procedures and regulations of TIFs. The issue most people have really lies with the city staff administering the TIF. The City is responsible for ensuring fair competitively priced contracts are used for the infrastructure and that the infrastructure is broadly beneficial and needed. And that the city investment has a benefit. This is all not really on the developer but on the city and the people appointed / elected.

My bigger issue with TIFs is fairness around land appreciation. Infrastructure improvements and upzoning will automatically cause land values to appreciate in a market value sense (as the residual of development value - development costs). Development should be rewarded but landbanking should not. It is not a productive activity to acquire a bunch of land and hold it while the city funds public infrastructure improvements.

So my view is that property taxes should not be the only revenue stream to the TIF. The TIF should capture some significant share of land appreciation occurring after the infrastructure is put in place. As long as land owners are developing or investing, this should be relatively minor compared to the value of improvements and sold value. But if someone just sits on land and then disposes of it after its improved, it would recoup a significant portion of that value.