From Greg Hinz at Crain's this week http://chicagobusiness.com/cgi-bin/article.pl?article_id=27955
TIF love
Mayor Daley is so taken with the subsidy that he uses it for undeserving projectsBy Greg Hinz
June 18, 2007Gov. Rod Blagojevich and legislative leaders made headlines last week when they huddled in search of $100 million to keep the Chicago Transit Authority from slashing service and ratcheting up fares.
No agreement was reached. Important as public transit is, $100 million is serious money, even in Springfield.
But apparently not in Chicago.
In a pair of actions that have received far less attention, City Hall in recent days announced plans to write even bigger subsidy checks —” totaling a cool $108.8 million —” for developments located down the block from each other on the Near West Side. The two mixed-use projects combined would dump 500 condos and 1.05 million square feet of office space on the market, at a time when downtown condo sales have dropped for seven quarters in a row and Chicago has one of the weakest office markets in the country.
Why do developers get bags of gold for less-than-vital projects while commuters wear out good shoe leather waiting on Springfield? That question ought to rekindle a much-needed debate over Mayor Richard M. Daley's favorite honey pot: tax-increment financing.
Handled right, TIF districts can be valuable tools to spur the rebirth of lagging neighborhoods. Stripped of all the big words, a TIF is simply a means to lever development today by borrowing against increased property tax revenue such development would generate tomorrow.
Mr. Daley truly loves TIFs, and at times has used them well. Spending a few million TIF dollars to lure Boeing Co. here provided a badly needed boost to Chicago's reputation as an international business center. Similar potential exists in a pending deal in which a rare local high-tech success, Navteq Inc., would get $5 million to keep its headquarters and 550 jobs here and add 350 more Chicago workers.
But, as in any long-term relationship, Mr. Daley increasingly has taken TIFs for granted. With more than $386 million in TIF revenue becoming available every year, it's too easy to spend it on frills, not priorities. Like on the Near West Side.
In the first deal, the administration wants up to $51 million in subsidies for a $310-million project to convert the old Main Post Office into offices, condos and a 236-room hotel. In the second, $58.8 million would go toward a similar, $457-million office-condo-hotel project involving Union Station and a tower that would be built atop it.
Officials argue that both projects have languished for years because of special, expensive factors —” the Post Office has lots of asbestos, Union Station is a registered landmark —” and that neither will get done without help. Some outsiders agree that the market eventually will absorb the space, and the Post Office surely is a big eyesore now.
City officials make one other argument: The projects will pay for themselves, since the subsidies would be front-funded with the developers' future property tax payments. But that may not be true, at least not completely.
A recent study by Cook County Commissioner Michael Quigley concluded that 40% of "extra" revenue generated by growth in TIF districts isn't extra at all but the result of inflation and other natural growth that would have occurred without subsidies. Since TIF districts force up taxes for everyone else —” taxing bodies just raise their rates to make up for what they don't get within TIF districts —” Mr. Quigley figures the median Chicago homeowner now pays a TIF tax of at least $93 a year, a total of $140 million.
Even if that figure is overstated —” Mr. Quigley says it's understated —” imagine the reaction if Jane Byrne or Harold Washington had proposed such subsidies with minimal public review while schools and transit were begging. This $108 million could go to build schools or CTA stations, market the East Loop to small business or jump-start the Create plan to boost freight rail here. Is the priority really more development in what already is the hottest office submarket in town, near the commuter train stations?
Both these deals still need final City Council approval. The question before aldermen: Is this the best use for $108 million?
©2007 by Crain Communications Inc.