The Effect of TIF Districts on Property Tax Rates in Cook County

October 20, 2010

Tax increment financing (TIF) districts do not freeze property tax revenue available to other taxing districts in Cook County; the principal effect of TIF is to raise tax rates higher than they otherwise would have been.[1] Any additional effects of TIF districts depend on whether or not the redevelopment would have occurred even if the TIFs had not been created.

Opponents of TIF often claim that TIF diverts millions of dollars from Cook County school districts and other taxing districts. It is argued that these governments are thereby deprived of badly needed dollars for basic services and that TIF represents nothing more than the capture of other districts’ property tax revenues by cities and villages. This view fails to understand the effects of tax caps on non-home rule taxing districts in Cook County and it presumes that all the new construction in a TIF district would have occurred even if the TIF had not been created.

TIF freezes the equalized assessed value (not the amount of tax revenue) or EAV available to other taxing districts from a redevelopment area thereby limiting the size of the denominator of the basic tax rate equation Levy ÷ EAV = Rate. As described on page 22 of the Cook County Property Tax Extension Process primer, tax caps (not rate limits) are now the effective tax limitation for the vast majority of non-home rule Cook County taxing districts such as school districts.[2] Tax caps limit tax extensions to the increase in Consumer Price Index, not EAV, although some additional property tax revenue beyond CPI growth can be obtained from new property as described on page 18 of the report. Unless rate-limited funds of the taxing district are at or close to their maximum rates, freezing the EAV simply causes tax rates to rise.

Home rule taxing districts cannot lose revenue to TIF because any limitations on their taxing authority are self-imposed and can be changed if they seek additional tax revenue. If one believes that 100% of the new construction in a TIF district would occur even if the TIF were not created, then it is true that those non home-rule taxing districts which seek to maximize their property tax revenues do lose some revenue during the life of the TIF.[3] They lose the additional revenue they could receive from new property in the TIF because new property is outside the tax cap in the first year it is assessed (see page 18 of the report for what is “outside” the tax cap). But the tax cap law allows the entire TIF increment EAV to be outside the tax cap when a TIF is dissolved, and this has the benefit of allowing tax-capped districts to access EAV growth from which they could not normally generate extra revenue. Under tax caps, the growth of existing property EAV does not increase revenues to the taxing district; it simply lowers the tax rate. But in a TIF, the growth of existing property EAV becomes part of the increment and is eventually returned to the taxing districts’ EAV base outside the tax cap. Thus TIF ultimately allows tax-capped districts to capture revenue from existing property EAV growth that they could not capture without TIF. The end result is a significantly higher tax extension upon the dissolution of the TIF.

Click here to read additional Civic Federation research about TIF.

[1] TIF does raise property tax rates, but in the absence of TIF municipalities might choose to directly levy additional property taxes for economic development purposes. Thus eliminating TIF might not necessarily lead to a corresponding decrease in property taxes unless municipalities eliminated or scaled back their property tax-funded economic development programs. Eliminating TIF could also lead municipalities to increase other taxes or fees to fund economic development.
[2] In the 1990s and early 2000s rate limits still limited many Cook County taxing districts, however, and the fact that TIF froze some EAV did reduce the amount of tax revenue available to taxing districts that were at their rate limits.
[3] It is important to note that not all tax-capped taxing districts seek to maximize their property tax revenues every year. The Chicago Park District, Metropolitan Water Reclamation District, and Chicago Public Schools are all examples of districts that have chosen not to go to their tax cap limit in recent levy years. If a taxing district has voluntarily chosen not to maximize its property tax levy, it is illogical to contend that it has lost revenue to TIF. Furthermore, as described on page 33, some taxing districts receive capital funding directly from TIFs.