Yesterday, Chicago Tonight did a piece on TIFs. I really hate TIFs and I really like Chicago Tonight, so I was excited. Here is that video:
For those not in the know, TIFs siphon money from property taxes and put it into a slush fund for the mayor totaling over 6.5% of the city’s annual revenue (TIFs are $450m/yr, revenue is $7b/yr). Some of that money goes to private developers, some goes to infrastructure for schools and parks (if you curry enough favor with the mayor/aldermen). That money would otherwise go to… schools, parks, streets, etc.
Hopefully you can see the racket here: They take $10 from schools, you beg to get it back, they give $2 to you and $8 to their friends and then you’re supposed to be grateful.
I did some rough calculations that show that if the TIF program never existed and half of that money went to infrastructure and half went to the underfunded pensions, there would be no pension crisis. Those calculations will appear in a forthcoming post. In short, this is a manufactured crisis.
Now you’ll say, “Surely the development that we bought with our TIF dollars improved the local economy, just like the mayor promises!” Leaving aside the obvious conflict of interest from what the mayor says (those TIF dollars awarded to developers come back to him in the form of campaign contributions), most economists agree that the multiplier on pensions is much higher than on things like basketball stadiums. For those who aren’t arm-chair economists, this means that pensioners spend more money locally than people spend on basketball games. This seems counterintuitive at first, but the idea and supporting math suggest this story:
Pensioners, like the unemployed, don’t save so their money goes right back into the local economy; 90% of them stay local. On the other hand, if people don’t go to a basketball game on date night, they’ll go to the movies or a nice restaurant or a concert. There isn’t a lot of extra spending being done, the spending is just being shifted from one place to another.
Next week, I’ll be doing some research that suggests the current implementation of TIFs violate the spirit, if not the letter, of the law. So aside from starving the beast that is a retiree’s weekly trip to the cafe and underfunding schools and parks, the city is also running an illegal skimming operation with your property taxes. Stay tuned.