The Right Tool for the Job? An analysis of Tax Increment Financing: Volume 1 -- Analysis and Recommendations

In Part 1 of Volume 1, we summarize data on the effects of five TIF districts in Chicago, including changes in the number and types of businesses, number and types of jobs, housing prices, and other measures of economic and social change. These data provide a template for examining TIF districts. While it is impossible to draw general conclusions from five case studies, these data show how to develop an overall picture of the effect of TIF and how to address the question of whether TIF districts actually generate new jobs and businesses, or merely move jobs and businesses from one location to another. Since the interpretation of this data depends on an understanding of the nature of the property tax and related issues, some discussion of these issues is included in this section.

In Part 2, we present an analysis of TIF from a community perspective. We ask how requirements of the TIF process can determine what kinds of communities are chosen as TIF sites, how success is defined, who has input into TIF planning and implementation, and what kind of development is most likely to be encouraged. This analysis is less quantitative than Part 1, which involved counting jobs and documenting housing prices, but it is no less important.

Part 3 asks whether TIF conforms to popular notions of justice, fairness, and community self-determination, and Part 4 presents a series of recommendations to improve TIF, a brief overview of principal findings, and concluding remarks.

Appendix 1 records the steps that must be followed to create a TIF in Illinois. It also contains an explanation of a technicality in how the tax increment is calculated that allows municipalities to maximize the increment they receive, and even to receive an increment in some cases when total assessments within the TIF district decline. Appendix 2 describes the methodology and data sources used for this report.

Our findings can be briefly stated:

1. The template for analysis illustrated by the five TIF districts provides a way to address TIF’s effect on jobs, businesses and housing in a community. The districts studied for this report do not support the claim that TIF causes a net increase in jobs or the number of businesses. Rather, economic activity that would have occurred outside the TIF district moves inside the district, and less economic activity seems to take place overall than would have occurred in the absence of the TIF district. This is consistent with what we would expect from our analysis of TIF law.
2. TIF favors development that dramatically increases land value, thereby favoring new construction over rehabilitation of existing homes and commercial buildings. It favors large businesses over small, higher-income housing over lower-income housing, and changes in land use that can increase value.
3. TIF often involves only certain groups in the decision making process. Those who have access to the process gain more benefits than those who do not. Often, the benefits for the groups with access come at the expense of groups with less access.
4. TIF defines a community based on what it lacks, and focuses on bringing in outside residents and businesses. Existing residents and businesses seldom reap benefits from TIFs, and they are sometimes forcibly moved out of the way to make room for new, TIF-funded businesses and TIF-subsidized residents.
5. Our recommendations include seeking development alternatives to TIF, helping communities learn about the effects of TIF, making the TIF planning process more transparent, and making sure that, in communities where TIF exists, the benefits are distributed more fairly.

Quick Links

• Executive Summary (pdf)

• Volume 2: Case Studies (pdf)