Is Mayor Daley's Billion Dollar Slush Fund Broke?

Originally posted at Examiner.

As the City of Chicago's $500 million budget gap has come to the forefront, eyes have begun to peer behind the curtain of the somewhat bewildering subject of the City's TIF Districts. There is a lot of money out there somewhere. The reasoning is that it should be reallocated to help cover the budget gap. The Chicago Reader calls the TIF program Mayor Daley's Shadow Budget.

We recently came into possession of hard evidence of what we've long argued: that the city produces two annual budgets, one released to the public, covered by the media, and debated by the City Council, and the other forged behind closed doors by the Daley administration, shared only in pieces with certain aldermen, and never fully disclosed to citizens. Both budgets are funded by taxpayers.

For the last few years, we've been trying to force the city to open up that shadow budget, which is funded by property taxes diverted into Chicago's tax increment financing program. As regular readers know, the TIF program is a complicated system in which property tax dollars in designated districts are collected in special accounts that are supposed to be used to eradicate blight and bolster development where it might not otherwise come.

Daley administration officials insist that the program has been a huge success and that everything the public needs to know about it is available on the city's Web site. But many aldermen have started to disagree publicly with the administration—a rarity these last 20 years—and in April the City Council unanimously passed an ordinance requiring that additional documents and data showing the use of TIF money be posted online.

The City of Chicago has indeed posted a tremendous amount of information about its TIF Districts on its website. The problem, as with most government websites, is that the data posted is not open source, meaning that it's not readily usable by the public. All 162 TIF districts are on the City's site, all with audited financial statements and summary level reports provided by the Department of Community Development. Each TIF district's funding agreements that are in place are also posted. These are the agreements whereby money is allocated to redevelopment projects. The issue with the City's website is that it is confusing, some links are broken, and everything is posted in PDF format. The City has also commissioned a myriad of different accounting firms to perform the audited financial statements on each individual district. As such, there is no congruent, master financial data provided. This takes a lot of browsing through a confusing website structure, and a lot of downloading and compiling of data. The Windy Citizen did it in 2008 (for Fiscal Year 2007) and created a great informational tool in its TIF district map. Now, I've compiled the data for FY2008 in Excel. The story that data tells is intriguing to say the least.

Focusing on the Department of Community Development's summary level reports, one finds that in 2008, the TIF collected $545,753,147 in revenue, and spent $468,631,911. The fund as a whole therefore recorded a gain for the year of $77,121,236. The summary level reports also portray each TIF district's net balance. This is the total money in the bank, as it were, that each district has on hand. At The fund as a whole showed a total net balance of $1,249,217,223. In its summary level reports, the Department of Community Development also addresses the TIF's "Planned Minimum Expenditures." Each district's summary report tells how much money is intended to be spent. The assumption behind this is that agreements are either already in place, or are close to being in place. The Reader's Shadow Budget article bears this out:

Many of the items in the TIF budget seem to be pretty far along. Most are categorized as "appropriated," meaning the expenditure has already been approved or finalized, or "committed," meaning it's "locked in" or expected to be shortly, according to community development department spokeswoman Molly Sullivan, who provided written answers to our questions about the documents after her department declined our FOIA request. Fewer projects are listed as "pending," meaning they've been proposed.

"The designations are informal and used only for budgeting and planning purposes," Sullivan wrote. "There is nothing binding about the terms in this context; they are in fact determined by DCD TIF staff as a way to prioritize potential expenditures."

But that's not substantially different from the way it works with the city's official budget, which the mayor publicly introduces as a set of "recommendations" and which changes throughout the year depending on how closely projections meet reality.

Planned minimum expenditures total out to $1,304,671,279. These committed costs put the City of Chicago's TIF fund $55,454,056 in the red. And this is before any new TIF agreements that might have been made since this data was all prepared and published in June 2009. As a best-case scenario based on this data, the City would expect another net gain of $77 million, and would not commit any new costs, and the fund would find itself about $22 million ahead at the end of 2009.

When Alderman Thomas Allen asked the simple question about plugging the budget gap using TIF funds, he was told that "it can't be done."
ALLEN: Why can't we take resources that are in the TIF districts, income, and use it to plug this hole. Why do we give this money to private developers? Let's give it to the citizens. That can't be done, according to a city spokeswoman. She says state law does not permit Chicago to spend TIF money on general expenses.
After Mayor Daley spoke about the budget on October 21st, Progress Illinois had a simple question for him.

Listening to his speech, you'd never know that the TIF network is the single largest tool that the city has at its disposal to balance the budget and jumpstart the local economy.

So why the silence?

Indeed, Anna Tarkov quipped, "The silence from the 5th floor is deafening."

With a $500 million shortfall in the general budget, and a supposed billion dollar slush fund apparently running another $55 million in the red, it's no wonder you can hear a pin drop.

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.