ASSESSING THE IMPACT OF TAX INCREMEKT FINANCING IN NORTHEASTERN ILLMOTS ElMPIRICAL ANALYSIS AND CASE ST'UDIES RESEARCH SERIES ASSESSING THE IMPACT OF TAX INCREMENT FINANCING IN NORTHEASTERN ILLINOIS EMPIRICAL ANALYSIS AND CASE STUDIES Edited By: Roland Calia. Ph.D. The Civic Federation 213 south Wabuh, Suite 850 Chicago, Illinois 60604 (312) 341-9603 FOREWORD The Civic Federation has monitored and evaluated the ta.. policies and financial practices of local governments in Northeastern Illinois for over a century. We have always taken a particular interest in evaluating the operation and impact of tax incentive programs provided by state and local government to spur ecnnomic development. Since the 1970s. tax increment financing (TIF) has been one of the most widely used tas incentive programs and economic development tools available to local governments in Illinois. TIF is designed to offer local governments the ability to promote projects in areas that would not otherwise receive investment. However. to date, there has been little effort to compile comparative data and conduct analyses that measure the tau and economic impact TIF has upon local government finances. To address the lack of research in this area, The Civic Federation joined with the lnstitute of Government and Public Affairs at the University of Illinois (IGPA) and the Metropolitan Planning Council to undertake the Northeastern Illinois Tax Increment Finance Project. The purpose of this study was twofold: 1) to evaluate the tax and economic development impact of TIF on the region and on selected municipalities; and 2) to provide a detailed description of the operation and performance of select TIF districts. We hope that the information in this study will not only shed some light upon the operation and impact of TlF in Northeastern Illinois. but will also stimulate discussion of the advantages and limitations of current municipal tax increment finance policy. The Northeastern Illinois Tax Increment Finance Project was prepared by a team of experts in tax increment finance. At this time, we would like to express a special word of thanks to the authors. Dr. Richard F. Dye, the Ernest A. Johnson Professor of Economics at Lake Forest College and Adjunct Professor at the Institute of Government and Public Affairs at the University of Illinois. who authored "A Comparative Analysis of Tax Increment Financing in Northeastern Illinois;" Krista Grimm, an independent consultant affiliated with the Metropolitan Planning Council, who authored the City of Chicago case studies: and David Silverman of S.B.Friedman & Company: a member of The Civic Federation. who authored the suburban Cook County case studies. We would also like to thank Peter Skoscy. Urban Development Director of the Metropolltan Plann~ns Council, for his invaluable assistance in administering and editina the studv: Susan Fortin, Research ~ss,wiateat The Civic Federation for her l~elpfulsuggestions and editoriai&sistance: and all the members of The Civic Federation, the Metropolitan Planning Council, and the Institute of Government and Public Affairs who participated in the study. The Civic Federation is indebted to the generosin. of Chicago Dock 6 Canal TNS~:Kenny Brothers. Inc.; Chapman & Cutler; The Thomas I. Klutmick Company; and the Anhur Rubloff Residuac Trust for funding the Northeastern Illinois Tau Increment Finance Project. L Lance Pressl, Ph.D Roland Calia, Ph.D. President Director of Research CONTENTS FOREWORD CONTENTS LIST OF FIGURES AND MAPS INTRODUCTION: Roland Calia Methodology Summary of Findings Regional Database 8 Case Studies How TIF Works 8 Tax Increment Finance in Illinois The Controversy Over Tax Increment Financing A COMPARATIVE ANALYSIS OF TAX INCREMENT FINANCING IN NORTHEASTERN ILLINOIS: Richard F. Dye The Database What Are the Characteristics of Municipalities That Adopt TIF? How Do Growth Rates in Property Values Compare Between Municipalities That Contain TIF Districts and Those That Do Not? How Do Growth Rates in Property Values Compare Between the Years Before Municipalities Adopt TIF and the Years After? How Do Growth Rates in Property Values Compare Between the Portion of a Municipality Containing a TIF District and the Remainder of the Same Municipality? Revisiting the Comparative Questions with Multiple Regression Predicting TIF Adoption: Revisiting the "Characteristics: Question The Relationship Between TIF and Growth in Municipal EAV: Revisiting the "With and Without TIT and "Before and After TIF Adoption Questions The Question of Causation: Des TIF Cause Growth or Does Anticipated Growth Cause TIF Adoption? Conclusion References Appendix 2- 1 : Summary TIF Database Files CONTENTS ASSESSING TAX INCREMENT FINANCING Near South Why Was TIF Selected? Planning Context TIF District Funding and Revenues Public Comment Intergovernmental Review TIF Amendments EAV Trends Economic Development Results Comparative Analysis Why Was TIF Selected? Planning Contea Common Planning Requirements TIF District Funding and Revenues Public Comment Intergovernmental Review TIF Amendments Financial Data Trends EAV Trends EAV Projections Surplus Distribution TIF District Budget Trends Other Data: Jobs Creation and Private Investment Dollars Generated The Economic Development Results of TIF Limitations of Data for Evaluation References Appendix 3-1 Tax Extension Trends Appendix 3-2 City of Chicago Tax Increment Financing Program Appendix 3-3. City of Chicago Tax Increment Financing Program Checklist vii CONTENTS ASSESSING TAX INCREMENT FINANCING SUBURBAN COOK COUNTY TAX INCREMENT FINANCING CASE STUDIES: David Silverman Methodology Community Context The Study Communities Benvyn Theater Redevelopment Area Why Was TE Selected? 8 Planning Context 0 Public Comment and Intergovernmental Review 0 TIF Amendments EAV Trends 0 Economic Development Results Franklin Park Redevelopment Project Area #3 Why Was TIF Selected? 8 Planning Context Public Comment and Intergovernmental Review 0 TIF Amendments EAV Trends Economic Development Results Homewood Central Business District Redevelopment Area Why Was TIF Selected? Planning Context 8 Public Comment and Intergovemental Review 0 TIF Amendments EAV Trends 0 Economic Development Results Matteson Industrial Conservation Area Why Was TIF Selected? 0 Planning Context Public Comment and Intergovernmental Review 8 TIF Amendments 0 EAV Trends 0 Economic Development Results Olde Schaurnburg Center Why Was TIF Selected? 0 Planning Context Public Comment and Intergovernmental Review 8 TIF Amendments EAV Trends Economic Development Results I COmENTS ASSESSING TAX INCWMtNl I-IIVAIYCII*~ Comparative Analysis Why Was IIF Selected? Planning Contea TIF District Funding and Revenues Public Comment Intergovernmental Review TIF Amendments EAV Trends Economic Development Results Limitations of Data for Evaluation References PARTICIPANTS M THE NORTHEASTERN ILLINOIS TAX INCREMENT FINANCE PROJECT ABOUT THE AUTHORS 143 LIST OF FIGURES AND MAPS Summary of TIF Case Study Findings Growth in the Number of TIF Districts in Northeastern Illinois: 1984- 1994 Advantages And Disadvantages of TIF in Illinois Number of Sample Municipalities by County and by TIF Status Number of Sample Municipalities by Year of First TIF Adoption Mean Values of Selected Variables Over 1982-1993 Period by TIF Status Average Growth Rates in EAV Inclusive of TIF by Period and by TIF Status (Percent) Differences From Average Growth Rates in EAV Inclusive of TIF by Period and by TIF Status (Percent) Summary Comparison of Annualized Growth in EAV From Year Prior to Adoption to 1993 TIF District Versus Non-TIF Portion of Municipality 2-7 Probit Estimation of TIT Adoption Decision 2-8 Regression Estimation of Annual Growth in EAV Inclusive of TIF Tax Years I98 1 to 1993 3-1 Chicago Case Study Sample 3-2 EAV Trends For the West Ridge-Peterson TIF District: 1988- 1995 3-3 Composite EAV Trends: 1988-1995 LIST OF FIGURES ASSESSING TAX INCREMENT FINANCING 3-4 Composite EAV Trends: 1988- 1995 3-5 Division-North Branch TIF District Budget 3-6 EAV Trends for the Division-North Branch TIF District: 1992- 1995 3-7 Composite EAV Trends: 1992-1995 3 -8 95th and Sony Island TIF District Budget 3-9 EAV Trends for 95th-Stony Island TIF District: 1991-1995 3-1 1 Amended North Loop TIF District Budget 3-12 EAV Trends For North Loop TIF District: 1985- 1995 3-13 Composite EAV Trends: 1985-1995 3-14 North Loop TIF District: Private Projects to Date (June 1997) 3-15 Near South TIF District Budget 3-16 EAV Trends For Near South TIF District: 1985-1995 3-17 Composite EAV Trends 3-18 Aggregate Annual EAV Growth Rates 3-19 Compound Annual EAV Growth Rates 3-20 Chicago Case Study TIF EAV Projections APP 3-1 Tax Extension Trends 4- 1 Suburban Cook Case Study Sample 4-2 Suburban Study Community TIF District Names. Types, and Formation Dates 4-3 Selected Suburban Demographic Data (1990 Census) LIST OF FIGURES ASSESSING TAX INCREMENT FINANCING Absolute Value Changes in Selected Suburban Demographic Data (1980-1990) Benvyn Theater Redevelopment Project Ares Budget EAV Trends For The Benvyn Theater Redevelopment Project Area: 1988-1995 Composite EAV Trends: 1988- 1995 Franklin Park Redevelopment Project Area #3 Budget EAV Growth and Decline: Franklin Pa* Redevelopment Project Area #3: 1989-1995 Composite EAV Trends: 1988- 1995 Homewood CBD Redevelopment Area Budget First Amended Homewood CBD Redevelopment Area Budget Second Amended Homewood CBD Redevelopment Area Budget EAV Growth for Homewood CBD Redevelopment Area: 1982-1995 Composite EAV Trends: 1982-1995