Mayor Daley's Empty Property Tax Rhetoric

Originally posted at Examiner.

The City of Chicago finds itself, like much of the rest of the country, in dire financial times. The glimmer of hope on the horizon was, at one point, the 2016 Olympics. The Mayor (and nearly everyone else in politics) seemed certain that the games would call Chicago home seven years from now. So sure were the City's politicians of the imminence of the games and their being carried out successfully, that the City Council passed an unanimous ordinance to guarantee the games financially. Billions were going to flow into Chicago, and all would be well. "Pay no attention to the $500 million budget gap behind the curtain!" bellowed the Great and Powerful Daley. Then the hammer fell. A woman in Copenhagen gasped. Chicago was eliminated first from Olympic contention. Immediately eyes began to peer behind the curtain. How would Mayor Daley close such an enormous defecit in the City's budget? Credit where it's due, the Mayor refuses to raise property taxes.

"You can't [raise property taxes] ... That would hurt people tremendously," Daley said.

"You can only take so much. People are being laid off on a daily basis. People are getting cut back. They don't have the money anymore. Government has to look at itself and find out what they can live with and what are their priorities. Simple as that."

Spoken like a true fiscal conservative.The charge levied that the City must become a smaller, efficient, responsible government is something one might expect a libertarian to charge a government with doing. If only the Mayor's actions actually bore this philosophy out in practice, he might not find himself in such dire straits, both financially and politically (the budget gap has contributed to Daley's lowest approval rating ever, 35%).

The truth behind why a property tax hike won't happen would appear to have nothing to do with how much the government is willing to take from its citizens. As Ben Joravsky and Mick Dumke at the Chicago Reader have worked tirelessly to shine light onto Mayor Daley's shadow budget created by Tax Increment Financing, it becomes abundantly clear that a property tax hike would do little to affect operating budgets, while pouring more money into what ultimately amounts to a personal slush fund for the mayor to utilize to play favorites among clout heavy developers, politically powerful alderman, and to throw a little corporate welfare in for good measure.

As Joravsky and Dumke point out, "When the City Council creates a TIF district—and in all our years of observing, it's always at Mayor Daley's urging—it typically freezes the amount of property tax dollars that the schools, parks, county, and other taxing bodies get from that area for 24 years. Any extra tax revenue generated during that time flows into the TIF account."

This works as the values of properties increase. If a TIF District is created with a base assessed value of $1 million, then for the next 24 years, schools, parks and other city entities that might draw on property taxes for operating revenue, receive revenues as taxed on $1 million. This isn't even indexed for inflation or cost of living, so that as teachers get paid more, or materials simply cost more over time, each of these disctricts necessarily has less money to rely on. Costs go up, but incoming revenue remains the same. The schools and parks and other agencies find themselves in a precarious position. They must raise taxes to remain operating, but if they raise taxes too much, people will simply leave. This is the same position Mayor Daley finds himself in with the City's operating budget on the whole.

According to research done by the folks at The Windy Citizen, TIF Districts now cover over 30% of the City's physical area. Most importantly, they cover the areas of Chicago that generate the highest amounts of taxable revenue. For an example, one need look only as far as one of the most recently retired TIF Districts, the Central Loop District.

When it was created in 1984, the Central Loop District had an estimated assessed value of $985 million. It's estimated assessed value in 2005 was $2.6 billion. Over those 21 years, the value of the property in the Central Loop increased by 163%.

What this really illustrates is that a property tax hike would do little good. If the property tax rate was raised by 1%, the amount of additional money going into the City's operating budget would increase by 1% only on the original $985 million, an increase of $9.85 million in operating revenue. In conjunction, the TIF would see its revenues increase by 1% on the additional property value. That would be 1% on $1.615 billion, or $16.15 million to the TIF, rather than to the City's operating budget. Where this money goes is largely at the discretion of the Mayor himself.

Mayor Daley is talking the talk of smaller, responsible government, in lieu of pillaging his citizens by raising their property taxes. With light beginning to shine on his shadow budget slush fund, his true purpose may be to divert as much attention away from TIF as possible. If he sounds responsible, perhaps Chicago won't find out just how shadowy he is. Pay no attention to the man behind the curtain.