Chicago Tax Increment Finance “surpluses” have increased more than ninefold in the past decade.
Chicago Mayor Brandon Johnson unveiled his plan to close Chicago’s $1.15 billion budget shortfall for 2026 on October 16. Among the mayor’s recommendations, were to declare a record-setting $1 billion “surplus” in the city’s Tax Increment Financing districts balances. The move, which is a one-time fund sweep, would result in an additional $232.6 million in additional revenue for the city and an even larger amount, estimated at $552.4 million for the Chicago Public Schools budget.
In the wake of the mayor’s proposal many aldermen are questioning the decision, while others are highlighting the fundamental issues with Tax Increment Finance districts themselves. In the past decade, the amount of TIF dollars the city has declared as “surplus” has increased by nearly ninefold, rising from $113 million in 2016, to more than $1 billion for the 2026 fiscal year.
While the city of Chicago has relied on fund sweeps from TIFs to balance the city budget for nearly two decades, the reliance on TIF surpluses has surged in recent years. The consistent “surpluses” suggest that either many TIF districts do not need a significant amount of revenue for redevelopment projects, or that the city is abusing TIF districts in order to create a piggybank of funds for the city, school district, and other units of local government to pillage for increased spending without having to directly ask taxpayers for more money.
Either scenario raises fundamental questions about Chicago’s TIF system and perpetuates the structural budget issues driving Chicago’s recurring budget deficits.
What is a TIF district?
Tax Increment Financing districts are partitioned areas within the city where additional tax revenues are supposed to be specifically dedicated to redevelopment within the district and separate from the city budget. TIF districts raise money primarily through the growth in property tax revenues within the community, which is then supposed to be used to spur economic development within the “blighted” areas of the city.
For the city to create a TIF district, officials must determine the area to be blighted, deteriorating, or in need of development but these definitions are very vague. That’s what allows Chicago to implement TIF districts in the Loop and River North.
Once established, TIF districts “freeze” the equalized assessed value of property within the district for local taxing bodies, meaning that the growth in property tax revenues due to changes in property values all goes directly to the TIF district. However, it is important to note that TIFs do not hinder the ability of local governments to raise revenue, since local units of government set their property tax levies independently of the taxable value of property. Instead, TIFs simply serve to drive up property taxes on everyone as the full value of their property is not considered in the property tax base, leading to higher tax rates applied by taxing bodies. Those within the TIF district don’t get a break either, as they pay the same tax rate as those outside the district, their tax dollars just go to the TIF district rather than other taxing bodies.
TIF districts last for 23 years, with an option to extend their lifespan for an additional 12 years. Since their inception in 1984, 185 TIF districts have been created in Chicago, yielding more than $5 billion in revenue. There are currently 124 active TIF districts across Chicago.
How can TIF funds be in surplus?
Per state legislation, any money within a TIF fund that has not been pledged for specific projects can be considered surplus and is to be distributed to the overlying local taxing districts proportionately to their property tax levies. In Chicago, where roughly 55% of property taxes go to the Board of Education, that means that CPS will get 55% of any TIF surpluses, the city will receive about 27% and other units of government will get smaller, proportionate shares of the revenue.
This practice used to be much less common until Mayor Emanuel signed an executive order formalizing the annual declaration of TIF surpluses in 2013. Now the city annually declares surplus funds as part of the city budget in three primary ways:
- Downtown Freeze” TIFs are those in and around the Central Business District that have been reserved only for major infrastructure and targeted economic diversification projects. The full available balance in these TIFs is declared surplus each year.
- TIFs being terminated or otherwise ending must have any balance after closing out projects returned as surplus.
- For the remaining TIFs, surplus is declared in TIFs with a balance over $750,000. The city declares 25% of the balance over $750,000, progressing up to 100 percent of the balance over $2.5 million.
Because property tax rates are determined without considering the growth in property values within a TIF district, when property values grow rapidly within the district, so too do the tax collections of the TIF. This is what has happened in recent years to allow for record-breaking TIF surpluses annually, as the cost of redevelopment projects remains relatively flat, the boon in TIF collections can be used as surplus.
However, the surplus declaration process, in addition to the creation of TIF districts in general, offers the potential for abuse. The surplus funds declaration can provide some incentive for the city to delay projects within TIF districts to have additional resources available for the city budget.
While TIFs don’t hinder local governments from raising revenue, they can offer taxing bodies an additional avenue for revenues if they carry a surplus. This is particularly important for areas subject to Illinois’ Property Tax Extension Limitation Laws, where growth in property tax levies is capped. In tax-capped areas like Chicago, TIFs offer taxing bodies the ability to collect additional property taxes without an explicit property tax hike.
Whether Mayor Johnson’s budget proposal is doing this or simply taking advantage of the rapid increases in property values spiking TIF balances is unclear. Still, the city is certainly benefitting from TIFs in ways that they were not intended to when the districts were created.
If TIFs are found to carry large surpluses, the funds should either develop plans to reinvest in the community as designed, or the districts should be dissolved and the money returned to taxpayers. However, it should be noted that when TIF districts expire or are terminated, local taxing bodies can capture all of the “unlocked” revenue into their property tax bases without being subject to PTELL, even though they have not limited the collection of property taxes for any taxing body.
Rather than utilizing large one-time fund sweeps to balance the budget, Johnson’s budget strategy for Chicago should focus on structural reform that corrects years of financial mismanagement and fosters long-term economic growth. The city should also conduct regular reviews of TIF districts and their associated projects and a deadline system to prevent funding for anticipated projects from being withheld indefinitely, as previously recommended by the Office of the Inspector General.
