Those Troublesome TIFs
By Michael Kleen
October 2, 2013
Rock River Times
In “Trouble with TIFs,” I discussed Tax Increment Financing (TIF), and how TIF districts deprive local governments and school districts of revenue. I also talked about how several studies have shown the unfavorable results of using TIF districts to address blight. In most cases a blighted area was no better off after TIF than it was before, and in some cases it was worse.
There is no doubt that when taken as a whole, Rockford’s experiment with Tax Increment Financing has been a failure. City leaders, however, continue to create new TIF districts and bet on their ability to stimulate growth, despite sobering evidence to the contrary. Not only have TIF districts failed to spur widespread development and raise property values, they threaten to drown our city in a sea of red ink.
In 2010, the consolidated balance for Rockford’s 30 TIF districts was $1.9 million in the red. That deficit was projected to increase to $4.1 million in 2022, before the trend would turn positive. Less than three years later, the consolidated balance for Rockford’s 32 TIF districts was $2.76 million. That deficit was projected to increase to $11.38 million in 2023, before reversing and ending in a small deficit in 2032. This projection was based on 1 percent annual growth of assessed property value and the assumption that no new TIF districts will be created, or no current TIF districts extended beyond their expiration dates.
Unfortunately, Rockford’s property values have fallen by 27 percent since 2008, a 5.4 percent average annual decline over the span of five years. Overall Property tax revenue in 27 of Rockford’s 32 TIF districts declined 13 percent over the past year. That makes it more difficult to make payments on more than $27.58 million in outstanding debt service. If TIF districts encourage development and raise property values in blighted areas, why have property values declined in all but a handful of Rockford’s TIF districts?
Since 2008, Rockford’s real estate market has teetered on the brink of collapse. 32 percent of all home mortgages in the city are under water, meaning their owners owe more on their mortgages than their houses are worth. As reported in the Wall Street Journal, this is the highest percentage of underwater mortgages in the entire country. An average home worth $103,300 in Rockford in 2008 was worth $84,209 in 2012.
TIF districts require rising property values in order to stay financially solvent, but Rockford’s political leadership continued to create new TIF districts even after the real estate market crash in late 2007. The City created 11 new TIF districts between 2008 and 2013.
In 2009, the City Council approved a strategy of transferring funds from successful TIFs and the Redevelopment Fund to unsuccessful TIFs in order to cover some of their losses. This means that a substantial portion of revenue that would normally go toward projects in successful TIF districts is now being spent to pay down debt in unsuccessful TIF districts. Illinois law allows the transfer of funds between adjacent TIF districts.
Business owners in a TIF district expect that tax dollars they pay into the TIF fund will be spent on improvements in their own district. Instead, much of that money is being diverted to another TIF district without their consent. It is easy to see why some have called this “legal larceny.”
In 2010, the City Council voted to transfer $10,000 from the Seventh Street TIF into the Redevelopment Fund. $10,000 was then transferred out of the Redevelopment Fund to pay for security at the On the Waterfront festival. Alderman Frank Beach (R-10) told the Rock River Times, “The TIF area—the money that’s there, that increment, is generated by the businesses in that TIF. And to just pick that money up and to give it away, I think, is really an insult to the businesses that have invested their monies to build that TIF and that increment.”
Likewise, City leaders plan to transfer $1.05 million out of the East Side TIF over the next three years to cover debt on the Coronado Theater. That is $1.05 million that will not be available to address blight in the East Side TIF, which was the entire purpose of the TIF district. Something has clearly gone wrong when TIF district funds are not being used for their intended purpose.
TIF districts will continue to drain the City’s coffers of much-needed funds for basics like street lights, public safety, and street repair for the next decade. Closing the nonperforming TIF districts this year would cost Rockford nearly $3 million, but it is better to bite that bullet now than when the cost is $11 million or more, and the City is cutting basic services to keep up with debt payments.
Michael Kleen is an author, publisher, and local historian. He holds a B.A. in Philosophy and M.A. in History from Eastern Illinois University and M.S. in Education from Western Illinois University. He lives in Rockford, Illinois where he owns and operates Black Oak Media, Inc.