Policymakers in Washington often talk about using public-private partnerships to boost infrastructure spending and unlock value. Here in the Chicago area, local communities have actively and successfully implemented PPPs for years, largely in the form of Tax Increment Financing (TIF) districts.
A new study just released by NAIOP Chicago and SB Friedman Development Advisors takes a deep dive into five successful regional projects that would not have happened without TIF support. They stretch from an urban industrial park on Chicago’s South Side to a downtown redevelopment in suburban Palatine.
So how do TIFs work? Under a TIF agreement, the incremental increase in property taxes generated within a designated area (the TIF district) can be used by the municipality to pay for or reimburse other cost-prohibitive impediments to development within the district. TIFs ultimately help pay for improvements utilizing future increases in property taxes, which the improvements themselves work to generate. Public funds are made available for extraordinary development costs, seeding and incentivizing significantly higher private investment without increasing taxes.
TIFs work to move projects forward in the face of barriers that otherwise would deter private investment. In the Chicago area TIFs have been used to overcome site specific challenges such as demolition or cleanup of environmental contamination, lack of or inadequacy of public infrastructure, assemblage or acquisition of land and other factors that make a project infeasible. As NAIOP Chicago highlights, TIFs have been deployed across the region in projects both large and small, and they are succeeding.
Glenview, the north suburban village challenged with what to do with 1,100 acres of a decommissioned former Navy base following the closure of Naval Air Station Glenview, is just one example of a profiled TIF that is making a difference.
Seeing a once-in-a-lifetime opportunity to build a “city within their city,” Glenview officials worked with a private development partner to create a TIF-supported redevelopment that was respectful of current residents’ needs yet could attract new people to the village. TIF funding supported demolition of legacy buildings and airfield runways, cleanup of contaminated soils, construction of new infrastructure improvements, transit, open spaces, historic preservation, shopping, and new employment opportunities.
In the five TIF projects studied, more than 12,000 jobs were created, including 8,300 in Glenview alone. That development also added 4,500 residents to the village, and a Metra train station to ease commutes into and out of the area.
TIFs also spur private investment, creating a “radiating benefit” that helps grow the economy. In each project studied, private investment far surpassed public funding. In Berwyn, a $6 million public investment attracted $15 million in private funding – money that wouldn’t have been invested otherwise. Across the projects studied, the private to public investment ratio ranged from that 2.5 multiple in Berwyn up to a 14.6 multiple in the Village of Melrose Park.
In every case, the local government saw an increase in Equalized Assessed Value (EAV) of the developed property. This increase ranged from 1.4 percent to 38.3 percent, depending on the project. Growth in EAV can also help improve schools and education after the expiration or retirement of the TIF district – another benefit of TIFs.
Under Illinois law, municipalities are responsible for generating economic development. By using TIFs, local governments can effectively leverage up-front investments from private entities in return for comparably much smaller investments from local governments.
TIFs are most successful when best practices are employed. Decision makers should be aware of the need to target a TIF’s use toward projects that generate compelling public benefits. They should also confirm a right-sized amount of public assistance for the specific project, and follow through with monitoring the proposed development’s performance.
In the five cases studied, TIFs delivered nearly 914,000 square feet of industrial space in one location; nearly 1.9 million square feet of retail, hotel and office space in another location; and more than 600 condominium and apartment units in a third location. They helped replace abandoned, obsolete or otherwise challenged properties with useful development where people can live, work and play.
NAIOP Chicago’s study shows that TIFs, when properly implemented, deliver big benefits to local governments and communities alike. TIFs are, and should remain, one of the most powerful, effective tools at local communities’ disposal to foster development and economic growth all while creating jobs and converting underutilized sites into productive real estate.