Is TIF the Solution to the Chicago Public Schools’ Budget Crisis?

June 17, 2010


On June 15, 2010 the Chicago Board of Education approved measures to cope with the school district’s estimated $600 million deficit for the coming school year. The measures include authorizing the establishment of an $800 million line of credit to cover delayed state payments and authorizing CEO Ron Huberman to increase class sizes to 35 students if necessary.

Could Tax Increment Financing (TIF) district revenues held by the City of Chicago be used to reduce the deficit and prevent teacher layoffs? No, TIF money cannot be used to bridge operating deficits of the Chicago Public Schools (CPS), City of Chicago, or any other local government. The TIF statute is clear:

65 ILCS 5/11-74.4-3 (q) (1.5)

After July 1, 1999, annual administrative costs shall not include general overhead or administrative costs of the municipality that would still have been incurred by the municipality if the municipality had not designated a redevelopment project area or approved a redevelopment plan.

The only budget relief that TIF could provide would be capital funding for projects that become part of a TIF redevelopment plan. This could provide capital funding that would otherwise have come from other sources. Indeed, CPS has already received almost $400 million in TIF revenue for school construction and is due to receive almost $500 million more.

Has TIF taken money away from CPS? No, TIF does not take away tax revenue from CPS or any other unit of local government in Chicago; instead, it raises property tax rates higher than they otherwise would have been. The value of the property tax base (Equalized Assessed Value, or EAV) has risen much faster than the rate of inflation in Chicago since tax caps were introduced in Cook County fifteen years ago. Therefore, CPS’s property tax levy is no longer limited by the amount of EAV in its jurisdiction, only by the rate of inflation per the tax cap law. In Illinois counties that do not have tax caps, TIF does indeed limit some school districts’ property tax revenues by freezing the EAV they can access during the life of the TIF, but this is no longer the case in Cook County. In Cook County, TIF freezes EAV without freezing revenue; frozen EAV simply limits the denominator of the tax rate equation (levy / EAV = rate) and pushes tax rates higher than they would have been.

TIF is neither the cause of nor the solution to the CPS budget crisis.