Lightfoot vows to reform Chicago’s controversial TIF system. What will change?

Chicago’s tax-increment financing (TIF) system is poised for a major overhaul announced by Chicago Mayor Lori Lightfoot. The controversial funding mechanism, originally envisioned as a tool for kick-starting investment in areas in need of economic assistance, has faced criticism from opponents for back-room deals that line the pockets of the city’s wealthiest developers.

“For too long, the city’s TIF spending decisions have occurred in the shadows,” said Lightfoot in a statement. “With our reforms, we are bringing a new level of transparency to the way the city spends precious taxpayer dollars, while holding private recipients of TIF dollars accountable to higher standards during the review and approval process.”

Tax-increment financing essentially freezes property taxes for blighted areas at their existing levels. Then, any additional tax revenue generated from new developments is used to pay for infrastructure and other improvements over the next 23 years.

In Chicago, however, TIF has been used much more broadly throughout the city as a development tool, fueling fierce debates about what kind of properties qualify as “blighted” and whether or not TIF should be used in more affluent areas as long as it creates a large number of jobs or provides other economic benefits for the city.

Early on as a candidate, Lightfoot vowed to pump the brakes on the Emanuel administration’s rush to approve $2 billion in tax-increment subsides for the developers of The 78 and Lincoln Yards megaprojects. Once elected, she ultimately signed off on the two TIF deals, but only after securing a last-minute commitment from the developers to employ more minority- and women-owned construction firms.

In 2019, Lightfoot announced that her administration had begun a detailed review of Chicago’s use of TIF money and align the spending more closely with the administration’s equitable economic development goals as well as bring more transparency to the process. “The days of the TIF slush fund are over,” declared Lightfoot at the time.

The latest reforms would subject TIF projects to a more rigorous “but-for” test, which must prove that new development (and the future property taxes it is expected to generate) would not occur without receiving TIF assistance. City officials will also publish an annually-updated guide that explains Chicago’s TIF process as well as monthly data that shows how and where TIF spending decisions are made.

Lightfoot is also looking at lifting Rahm Emanuel’s earlier ban on new TIF projects in the city’s central area and would evaluate potential downtown developments on a case by case basis, according to Crain’s.

The city selected private engineering and development consultant AECOM to finalize a draft of the revised TIF regulations. That choice, however, elicited criticism from the Grassroots Collaborative—a coalition of activists that served as co-plaintiff in a law-suit aimed at blocking the Lincoln Yards TIF deal.

“We agree with much of what [Mayor Lightfoot] says but the words we are hearing do not match the actions we are seeing,” said Amisha Patel, executive director of the Grassroots Collaborative, in a statement. “The reality is that the changes to the TIF program put forward by her administration will increase inequality by turning over the development of new standards to AECOM, and by reopening the luxury developer cash grab that is downtown TIF districts.”

Lightfoot will have to strike a delicate balance in how and where the city will allocate the hundreds of millions of dollars generated by Chicago’s 136 individual TIF districts each year. So while TIFs are likely here to stay, the administration hopes the changes will ensure that the city’s economic investments do not rely solely on a developer-driven approach.

Lightfoot’s proposed reforms have yet to take effect, but the administration has already shown what a more equitable and community-focused approach to tax-increment financing spending could look like. For example, TIF money will be used to support a recently approved 100-unit affordable housing project in Logan Square as well as help fund the city’s $250 million Invest South/West economic development program.

“Rather than ad hoc projects, we’re going to use rigorous standards to look at the totality of the need in neighborhoods,” Deputy Mayor Samir Mayekar told the Chicago Tribune.