Magazine article Government Finance Review

Urban Revitalization and Tax Increment Financing in Chicago

Magazine article Government Finance Review

Urban Revitalization and Tax Increment Financing in Chicago

Article excerpt

This article describes how the City of Chicago used tax increment financing to lure business and development, while revitalizing the local economy.

Throughout the late 1800s and early 1900s, the Chicago Stockyards provided jobs for thousands of residents and fueled the local economy, earning the city the nickname "Hog Butcher to the World." But as traditional meatpacking and butchering industries declined rapidly in the late 20th century, the South Side's Stockyards closed production in 1980, leaving vast parcels of vacant and blighted land and buildings. At the time, few federal resources were available to rebuild the area's infrastructure; the soil was unstable, many roads were privately owned and unusable, and the land was divided into small lots. These factors made large-scale redevelopment for modern industries impossible.

Through a series of industrial and commercial tax increment financing (TIF) districts, the city has successfully brought this once-thriving industrial center back to life. TIFs provided the funding mechanism to clean up the stockyards and prepare land for redevelopment. The Stockyards Industrial Park is now home to modern industrial facilities for companies like Culinary Foods, Inc., Luster Products, and OSI Industries, while a new retail center has brought stores and services to a onceunderserved area. In this age of dwindled state and federal funding, the Chicago Stockyards have become a national model for urban economic development.

Tax Increment Financing

Tax increment financing is a technique for financing a capital project from the stream of revenue generated by the project. It can be an important community development tool for attracting the development that will generate new taxes.

Federal economic development money available in 1997 was down 56 percent from its 1980 level, and what little funding is available usually is offered on a short-term annual basis, which makes it too unreliable to support multi-year revitalization and development programs. In response to these cutbacks, many areas began using TIE Another advantage of using TIF over federal economic development money is that it allows for more project flexibility and local control.

TIF was first enacted in Illinois in 1977 after the drastic reduction of state and federal economic development funds. For an area to be eligible for TIF in Illinois, the structures in it must have some of the following problems:

* age;

* obsolescence;

* illegal use of individual structures that are below minimum code standards;

* excessive vacancies;

* overcrowding of facilities;

* lack of ventilation, light, and/or sanitary facilities;

* inadequate utilities;

* excessive land coverage;

* deleterious land use or layout;

* lack of physical maintenance;

* lack of community planning; or

* dilapidation or deterioration.

Even though the TIF law was established in 1977 in Illinois, Chicago approached the program cautiously and did not create its first TIF district until 1984. When Mayor Richard M. Daley took office in 1989, there were only 12 TIF districts in the city. Many of them were not well monitored, and as a result, had not been generating much in terms of private investment. Mayor Daley's administration embraced TIF as a tool for reaching Chicago's economic development goals. From 1990 to 1997, the city adopted 32 more TIF districts. By the end of 1999, there will be more than 75 TIFs in Chicago.

In terms of sheer scope and scale, Chicago's use of TIF to retain and attract industry is unprecedented in urban America. Through TIF, Chicago has become one of the strongest industrial markets in the country.

TIF in Chicago

The City of Chicago works with local aldermen, community groups, businesses, and developers to identify areas not living up to their potential. …

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