Saturday, November 03, 2007

Chicago's $895 Million Dollar Elephant in the Room

Sometimes Chicago's infatuation with Mayor Richard M. Daley is understandable - the city is green, clean and with lots of new construction. Other times - in the face of pandemic corruption, the continuing protection of torturing cops, the shambles of the CTA - it seems to take on the form of mass delusion.

How else to explain the schizoid ability of the city's major civic associations and mainstream media to rant and rave about Chicago's mounting pile of crises while remaining willfully blind to the billion dollar scandal behind them. The mayor has taken a sound development tool - the TIF, or tax increment financing, district, used to jump-start private investment in depressed neighborhoods - and transformed it into a massive slush fund that diverts nearly $400 million each year from schools and basic city services.

The only Chicago journalist regularly paying attention to the scandal, the Chicago Reader's Ben Joravsky, has an article this week analyzing information the city has finally, after years of keeping them it a deep, dark secret, posted about the TIF program on the city's website. Joravsky added up the amount of TIF money sitting in bank accounts, as of December 31st. And what did he find? How does $895,000,000 strike you?

Let's put this in perspective: that number is 8 times the mayor's proposed $108 million hike in property taxes. It's 8 times the CTA's 2007 operating deficit, and 3 times the mayor's proposed $293 million overall increase in taxes, fees and fines. It's even more than the outrageous $888 million dollar in tax hikes sought by Cook County Board President Todd Stroger.

And yet all the pontificators continue to swallow the mayoral kool-aid. They faithfully cover the mayor's press conferences demanding Springfield get it's act together to save the CTA, but they always seem to forget to mention that Diamond Jim Brady's own contribution has been stuck at a paltry $5,000,000 a year for a better part of a decade. Even as he points fingers everywhere else, he's shown absolutely no interest in increasing it.

Yet Daley's administration has earmarked $40 million in his TIF slush fund for the Chicago Mercantile Exchange/Chicago Board of Trade, despite the fact that:
  1. the CME/CBOT has never threatened to leave the city.
  2. far from being economically distressed, it's rolling in money, recently announcing a 94% increase in third quarter profits, to over $200 million.
  3. it's not adding jobs, but slashing them, as it eliminates redundancies in the merged organizations.
TIF's have been allowed to become chronic enablers of massive - and massively costly - stupidity. The "superstation" under Block 37 could said to be its poster child. Its basic concept of creating a crossover track between the Red and Blue subway lines - at what is arguably the most expensive location in the city to do it - is designed to support express service to the city's airports that does not exist. There is no plan to make it exist. There's no source for the additional funding - upwards of a billion and a half dollars, according to some estimates - required to create the track bypasses to make such a service possible.

No matter - at a time when basic CTA maintenance was being deferred for lack of funds, $217 million was commited to the superstation project and $42 million of that was TIF funding. Now it's become the nightmare that keeps on giving. Crain Chicago Business's Greg Hinz is reporting this week that cost overruns on the project are at $100 million and counting, with TIF funds again being eyed as one way to plug the deficit.

In August, Crain's reported the city was talking with Macquarie Bank, which did the $1.8 billion 2004 deal leasing the Chicago Skyway from the city, about a possible similar deal to bail out the city from its station from Hell. It would become the latest addition to the mayor's ongoing fire sale - with Midway airport next - of Chicago's assets. The mayor gets a huge pot of money upfront in exchange for a 99-year lease, and unseen future residents, onto the fifth generation, get stuck with the problems. And if you don't think there's a good chance of there being problems, check out Fortune magazine's cautionary article where one analyst portrays Macquarie's business model as bearing "the hallmarks of a Ponzi scheme." In the case of the Skyway deal, Fortune reports: "In 2007 the Skyway will pay interest of just $129,000 on $961 million of debt. But the interest payment for 2018 is to be $480 million - that's not a typo."

Mayor Daley has been in office nearly two decades. He still struts down the street in his pinstripe master manager suit, but the threads have begun to fray. Can Chicago's media and civic elite ever bring themselves to call him to account? Or will they persist in seeing only what he wants them to see, the emperor's new clothes, until the garment completely disintegrates and we find only Abe Beame underneath?

7 comments:

Anonymous said...

Thank you for adding another voice to the TIF subject. Ben Joravsky spent a few years on this issue before the two dailies started looking at it. Ben's logic is compelling.

It seems that this is a shadow budget that goes outside the intent of any democratically elected government. Our Founding Fathers would laugh at the way that Chicago's Executive Branch has taken over many of the powers of the Legislative Branch.

Our Legislative Branch, the City Council, should be doing appropriations, i.e., approving the spending of public monies. However, Daley has created this giant slush fund that allows him to dole out money without the formality of a legislative debate and vote. Sure, the rubber-stamping City Council would approve a lot of goofy projects anyway, but the TIF process removes debate that would occur if the Council managed appropriations.

When our nation's constitution was written, appropriations were intended to be closely accountable to the people via the Congress. Daley has turned that concept on its head. He has his shadow budget being held like a giant goody bag to control his aldermen and his contributors in the private sector. In so doing, he controls many Democratic offices and races, even those beyond the city limits.

It is time for the federal government to review this gigantic TIF slush fund.

Anonymous said...

I agree the TIF situation has been out of control for years and every TIF needs to be examined and probably at least half need to be dissolved. But I think TIF money needs to go towards fixing CPS, basic city services, anything but the CTA.

The CTA is part of the RTA, and funding for it needs to be fixed at the regional level, not by the City of Chicago.

Chicago already has a 1% sales tax earmarked for the CTA and it contributes far more $5 million a year - including over $20 million every year for policing CTA properties and hundreds of millions over the last 10 years to cover shortfalls in capital funding. How much do Oak Park, Cicero, Berwyn, Evanston, Skokie etc. contribute? Zero. The CTA is a regional benefit and responsibility and should be funded as such. Julie Hamos' plan is a great example of how to do it right.

MLH said...

Great post - as an aside, it's my understanding that $5 million per year is correct, and includes police protection.

The second poster has a number of valid points, and Julie Hamos is one of the best people in the General Assembly. However, the City of Chicago should carry a lot more of the CTA load, especially in light of the fact that Rich Daley appoints several board members and has essentially run the CTA through his proxies / hacks for years.

46th Ward voter said...

At one time I got upset with Daley for all the TIFs. I don't anymore. I blame the people who keep voting him in office.

It remains amazing to me that the press keeps their hands off about the connection of high taxes and out-of-control TIFs. My question is this: What is the press getting out of it to remain so silent... or are we just seeing laziness?

Dmac said...

In the words of the immortal Paddy Bauler from days of yore: "Chicago ain't reddy for reform!"

Anonymous said...

TIFs are nothing more than welfare for developers. Eliminate the TIFs and there would be no need for any tax increases.

PCC said...

Thanks, Lynn, for saying what I was going to spend a while writing up. In addition to a lack of transparency, reporting, and accountability, the TIF funds never have much of a guiding plan behind them; there's no attempt to identify the most strategically useful ways of investing them for the city's overall long-term health.

I disagree with this comment: "TIF money needs to go towards... anything but the CTA." The people who financially benefit most from CTA improvements are those of us who own property near said improvements, and it's only fair that our increased property values help to pay for said improvements. Of course transit operations should be funded by the entire region's economy (whose productivity transit supports), but "value capture" is one of the best ways to underwrite the capital costs of transportation capital improvements.

Of course, many other cities (Atlanta, DC, Denver, London, NYC, Portland, Toronto, etc.) use TIF for new transit investments which add substantial value, but not Chicago -- we're content to dole out corporate incentive subsidies (demonstrated time and again to be among the least efficient uses of public dollars) while we let the transit system literally crumble.