Tax Increment Financing Districts Research Articles

The dynamic and persistent effects of tax increment financing as an example of place-based policy: evidence from Cook County, Illinois

ABSTRACT Using a staggered difference-in-differences design, this paper analyses the effects of tax increment financing (TIF) in Cook County, Illinois. TIF is negatively correlated with the number of establishments in Chicago, likely due to unintended tax burdens and competition between TIF districts. In non-Chicago areas, TIF shows positive effects on employment for 6–20 years. Lastly, this study provides evidence of the persistent effects of TIF and its potential to move localities from low- to high-density economic activity, calling for a re-evaluation of the argument against subsidising economically lagging areas.

Does tax increment financing affect business survival and failure in Chicago, Illinois?

ABSTRACT This study examines how and to what extent tax increment financing (TIF) affects changes in business operations—the risk of businesses moving away from their original locations in Chicago, Illinois. Using a Cox proportional hazard regression with multi-year business license datasets, the study finds that TIF districts are not a favorable environment for existing businesses that opened prior to the actual TIF-funded investments, leading to more business closures than their counterparts outside of the districts; on the other hand, new businesses that opened after the TIF investments are better equipped to survive in and around TIF districts than the comparable areas. The study provides a better understanding of the survival and exit patterns of businesses induced by public tax policy, as well as of what factors are ascribed to such business market dynamics and transformations. Findings from this study will yield valuable reference data for both planners and policymakers in decision-making processes for future economic development and corresponding tax policy initiatives.

The Influence of TIF Overlay Zoning on Residential Real Estate Prices

Tax increment financing, a form of overlay zoning, are purported to spur economic development and promote the public interest of the community. However, these municipal overlay zones frequently generate hostility due to their use of public funds. While a large volume of knowledge exists on the impact of residential real estate prices within a tax increment financing district, little is known about the impact of the municipal overlay zone on the surrounding community. Using four, similarly timed, but separate tax increment financing districts and a transactional residential real estate dataset, we test price implications for residential real estate property at three separate geographic distances. Using propensity score matching and fixed effects modeling, we find that the imposition of tax increment financing districts increased surrounding residential real estate property values.

The effect of tax increment financing districts on job creation in Chicago

Tax Increment Financing (TIF) districts are the largest economic development program in the City of Chicago allocating nearly $1 billion in tax revenues annually. This paper uses comprehensive data on employment by place of work and place of residency to study if TIF districts see an increase in jobs as a result of designation, and whether the residents in neighborhoods designated as TIF districts see employment benefits from the designation. To account for the endogenous selection of TIF areas, I implement a propensity score matching dynamic difference-in-differences approach exploiting differential timing of TIF designation. I find that TIF designation increases the number of jobs in a selected census block by approximately 15% over 5 years. However, the employment levels of residents living in or around TIF districts shows no increase due to designation. I also find evidence of substantial spillover effects to adjacent blocks, and limited neighborhood compositional changes. These findings suggest that TIF districts can be effective in revitalizing commercial and industrial areas while the ability of TIF to improve outcomes in blighted residential neighborhoods surrounding the district is limited.

Impact of Tax Increment Financing on School District Revenues and the Spillover Effect

Tax Increment Financing (TIF) is used by local governments to promote economic growth using “revenue diversion” from overlapping tax jurisdictions. The controversy of TIF arises from the debate whether the captured revenue would have occurred without the incentives of TIF. The school district is of particular interest as it levies the largest tax rate on the property value of TIF districts among all taxing entities. This study examines the fiscal impact of active TIF districts and expired TIF districts on school district revenues by also incorporating potential spillover effects. Using various sets of measurements, empirical evidence in Cook County, Illinois, reveals that school districts with intensive use of TIF received less revenue and that school districts received promised windfall upon the dissolutions of TIF districts.

Value Creation, Capture, and Destruction

Problem, research strategy, and findings Municipalities relying on tax increment financing (TIF) to underwrite large-scale infrastructure and development projects assume that tax revenues from the increase in property values will be sufficient in the short run to cover capital expenses (i.e., that projects are self-financing). By examining a case of TIF in action, we move beyond expectations about how TIF should work in theory. Hudson Yards on the far West Side of Manhattan is one of the largest TIF projects in the United States in recent years and the first one implemented in New York City. We refined the conventional fiscal impact analysis approach by tracking costs and revenue flows of the project between 2005 and 2020 and comparing rents, assessed values, property tax appeals, abatements, and land prices across relevant submarkets. Through this exercise and critical reading of the literature, we developed a framework for analyzing TIF that treats property values as extrinsic and determined by the political arrangements and calculative negotiations that create, capture, and destroy them. Interactions between private property markets and governing bodies cause costs to fluctuate, responsibility for different expenditures and claims on new revenues to shift, and the location and magnitude of spillover effects to change over time. The flexibility of property values in Hudson Yards allowed the taxes to be used at cross-purposes, jeopardizing the payback streams and inflating risks shouldered by the public sector. Takeaway for practice Although our findings are limited by the single case study approach, the creation–capture–destruction heuristic we developed can help planners modify their expectations of the future and spend economic development dollars more effectively in the present. We suggest that municipalities claw back subsidies upon a property’s sale through a local capital gains tax and restrict the use of appeals and abatements in TIF districts to limit the potential for value destruction.

An evaluation of Churchill Downs’ tax increment financing district

Tax increment financing districts (TIFs) have become important local government tools in the USA over the last several decades as ways to help bring public and/or private investment dollars into inner city areas and/or older neighbourhoods which are deemed to need revitalisation. Within the last ten years, the concept has become popular in Canada, and it has been used as a component piece of enterprise zone programmes in other nations. This paper evaluates one of the first Kentucky USA TIFs started approximately 20 years ago with a pre-eminent Kentucky horse racing track, Churchill Downs, as the target for investment spending. Some of the desired spin-off effects of such investment are to help bring jobs, investment and general economic growth to an older and low-income neighbourhood which surrounds the track. This paper finds mixed results regarding these outcomes for the area surrounding Churchill Downs.

Does the arena matter? Comparing redevelopment outcomes in central Dallas tax increment financing districts

This article evaluates central Dallas tax increment financing (TIF) districts to compare development outcomes in an area with a major professional sports arena to others without a similar anchor. Using a comparative case study approach to assess quantitative and urbanism performance, the project is primarily concerned with whether the arena makes a substantial difference in property assessment values and urbanist revitalization. This study finds that the most successful TIF subsidized redevelopment in the Dallas core has been seen where private parties with a winning vision have assembled sufficient land to attain a critical mass from which further construction can gain momentum. In the absence of this combination or initial developer interest, outcomes have been disappointing despite similar City efforts and core proximity. While the arena-anchored district has been eventually successful in generating construction value, gains have come at a far higher relative public cost than other effective districts.

Is Tax Competition Strategic? Spatial Distributions of Business Property Tax Abatements in the Chicago Suburbs

The authors analyze the locations of property tax abatements awarded to businesses in Cook County, Illinois from 2012 to 2014 to explore their spatial distribution and to examine local government motivations for awarding incentives. The authors’ analysis, which controls for the spatial distribution of businesses, reveals a clustering of abatements at intramunicipal geographic scales. They also find amplified probabilities that abatements are awarded to businesses located near tax increment financing districts or enterprise zones. These patterns suggest that local governments use abatements in a strategic fashion to advance policy goals. The authors use the same data to develop three indices of the degree of abatement clustering at the municipal scale for each of the 64 municipalities in Cook County that awarded five or more abatements. Most of the Chicago suburbs exhibit a pattern consistent with the strategic award of business tax incentives.

Tax increment financing and major league venues

PurposeThis article intends to shine a light on venue-related tax increment financing (TIF) through the first comprehensive inventory of its use at the major league level.Design/methodology/approachFor each 2018 venue in the five North American major leagues, data was collected on TIF contributions to direct venue capital costs as well as to projects using TIF to enable real estate development ancillary to a venue. Neighborhoods surrounding a venue were also assessed for the presence of a TIF district. With both the direct and ancillary elements, data was collected from government, industry, academic, mapping and media sources. A review of this data set and findings are followed by a discussion of implications and directions for future work.FindingsOver one-third of the TIF eligible permanent stadiums and arenas studied in the five major leagues have a direct or strong TIF connection. Direct TIF contributions to sports venues, as well as TIF use intended to generate real estate development around these venues, are most frequent and financially significant in arenas and soccer-specific stadiums. Additionally, arena and stadium projects using TIF often accompany ancillary real estate development.Originality/valueA primary purpose of this article is to provide a previously missing general reference resource to governments and citizens of jurisdictions considering facility TIF use on the scope, nature, extent and identity of TIF projects related to major league sports venues. More generally, the inventory and assessment of TIF use in professional sports venues offered by this article sets the stage for future research on associative relationships between TIF contributions and facility finance outcomes as well as the normative value of venue-related TIF.

Variation in the Heartland: Explaining the Use of Economic Development Incentives in Three Great Lakes States

We identify the factors correlated with the use of economic development incentives after the Great Recession of 2007–2009 to determine the presence of entrepreneurial development regimes. We utilize a unique dataset that combines information on incentives (tax increment financing districts and selected tax abatements and business assistance) with economic, fiscal, and political characteristics for all municipalities in the largest Metropolitan Statistical Areas of Illinois, Wisconsin, and Michigan. These three states bordering Lake Michigan share similar histories and settings, thus targeting the research focus on the key attributes of interest. Our empirical results demonstrate substantial dissimilarity between incentive types and across states, most likely due to policy structures and reforms at the state level that encourage different municipal development regimes. Whereas municipalities, particularly larger ones, continue to use tax abatements, exemptions, and credits to pursue employment growth, the municipalities gravitating toward tax increment financing tend to be suburbs with low unemployment rates and relatively highly educated residents, and not places with greater employment density or manufacturing employment.

Transit boundaries: race and the paradox of immobility within mobile systems

ABSTRACT The central city is once again hot. Many city areas where poor minorities were left behind during the decades-long suburban growth are experiencing a revival. New high-rise condominiums and other developments are drawing tens of thousands back to city spaces that were once considered undesirable. These ‘return to the city’ trends are supported in part by growth machine engines, such as Transit Oriented Development (TOD) and TIF (Tax Increment Financing) districts, often to the detriment of lower-income minority residents, who still find themselves trapped within the boundaries of spatial inequalities in the city. Drawing on six years of ethnographic fieldwork in Chicago, I show how public transportation is used to buttress the city’s growth machine, while simultaneously maintaining the boundaries of spatial and other types of inequalities. In doing so, I highlight how public transit is used to create and support growth along race (and class) lines. Specifically, I show how mobility and growth for Whites and predominantly White spaces in the city are proactively shaped through favorable new public transit development and revitalization initiatives such as TOD and TIF. At the same time, in predominantly Black and Latinx spaces, where intracommunity public transportation usage is high, new transit related development is below sparse or completely lacking, further fortifying transit and other spatial boundaries.

Tax Increment Financing in Chicago: The Perplexing Relationship Between Blight, Race, and Property Values

Cities use tax increment financing (TIF) to trigger growth in blighted communities. Critics argue that Chicago’s broad conceptualization of “blight” facilitates the designation of TIF districts that do not resemble conventional notions of blight, bolstering their natural ability to generate capital, thereby exacerbating the gap between wealthy and poor minority spaces. This study examines Chicago’s TIF districts to determine whether blight levels and percentage of non-White residents interact to reduce the effectiveness of TIFs measured as the change in the equalized assessed valuation (EAV) of properties. Using composite indices to measure physical and economic blight, the results of a quantile regression analysis indicate that economically blighted TIFs with predominantly non-White populations outperform other districts. These findings run counter to expectations given that TIFs report high rates of growth in property values, yet they remain substantially blighted. This suggests a need to reconsider change in equalized assessed valuation as the measure of TIF effectiveness given that the “growth” in TIFs does not seem to reflect a higher quality of life for residents.

Did incentives help municipalities recover from the Great Recession? Evidence from Midwestern cities

AbstractThis study assesses the impacts of local business incentives in the largest urban areas of Illinois, Michigan, and Wisconsin, three Midwestern states that share similar histories and settings. We assembled a unique dataset combining information on two types of incentives, tax increment financing districts and tax abatements, together with socio‐economic, geographic, fiscal, and spatial competitive characteristics for all of the municipalities in six metropolitan areas. The outcome measures include employment growth, establishment formation, and business relocation. The analysis extends knowledge of the effects of economic development incentives in two ways. First, we improve upon previous research by incorporating key factors in municipal decisions to offer incentives. Second, we add to limited empirical evidence concerning local incentives following the Great Recession. Variation in the use of incentives reflects not only local decision‐making but also differing fiscal capacities and situations of adaptation to adverse economic conditions, with some governments pulling back on incentives and others initiating new approaches to retain or lure businesses.

Tax increment financing: Capturing or creating growth?

AbstractThis research examines tax increment financing (TIF), a widely used economic development tool, and property values to determine whether TIFs capture activity that would have occurred anyway. Using 2003–2012 data from Indiana counties, we test a two‐stage model focusing on TIF adoption (stage 1) and impact on assessed value within the TIF district and outside the TIF district (stage 2). Model results show that TIF adoption is positively related to TIF use in surrounding counties, median household income and employment growth, which suggests that TIF is used to capture existing growth. The results of the impact model show that as the share of county assessed value in TIF increases, assessed value in non‐TIF areas decreases and assessed value within TIF districts does not increase, which raises concerns about the efficacy of TIF.

Regional employment and housing impacts of tax increment financing districts

ABSTRACT This paper estimates the impacts of tax increment financing (TIF) districts on employment and residential development in Polk County, Iowa, using quasi-experimental methods. A spatially lagged-adjustment model is adapted for use at the parcel level. Results indicate that TIF districts contributed gross declines in private sector, non-governmental employment. Job losses attributable to TIF totalled 110 jobs per square mile, and the negative employment effects were sustained over the long term between 2001 and 2011. In contrast, there is some evidence that TIF districts have contributed positively to residential development, although the increase in housing near the districts was not found to be statistically significant in the quasi-experimental integrated lagged adjustment model.

Economic Development Incentives, Reported Job Creation, and Local Employment

State and local policy makers continue to utilize and emphasize economic development incentives to attract and retain employers, with tax increment financing (TIF) being one of the more popular incentives. Recently, several states increased reporting requirements for local economic development agencies in an attempt to ensure that targeted incentives are achieving their stated objectives. However, the economic validity of these reported jobs depends heavily on the extent to which the incentives draw new economic activity into an area. In this paper, I examine the credibility of the number of jobs reported by local economic development agencies in Missouri as having been created or retained by TIF. The analysis studies the impact of these reported jobs on county employment, as measured by the Bureau of Labor Statistics. Results suggest that the number of jobs reportedly created by TIF districts do not significantly impact county employment.

The use of Business Property Tax Incentives in Cook County, Illinois

The authors use data on all business parcels and property tax incentives in Cook County to analyze the use of business tax incentives from 2012 through 2014. By law, Cook County commercial and industrial parcels are assessed at 25 percent of market value. Under certain conditions, however, these business parcels can be granted special assessments reduced to a lower fraction of market value (usually 10 or 12 percent) for more than 10 years from the date of the designation. These special assessments, assigned as incentive “classifications,” effectively reduce the tax payments of these parcels by 50 percent or more. More than 2,000 commercial or industrial parcels received special assessments that substantially lowered their property tax liabilities each year. These assessment reductions decreased county-wide property tax collections by approximately $250 million in 2014, which is 5.3 percent of the $4.7 billion of commercial and industrial property taxes that local governments (including school districts) billed in Cook County. Industrial assessment reductions decreased industrial property tax revenue by 20 percent or less in most municipalities, but in a few municipalities the incentives reduced industrial revenue by one half or more. Most municipalities that used commercial assessment reductions lowered commercial property tax revenue by 10 percent or less, but a small number reduced commercial property tax revenue by 30 percent or more. Nearly 50,000 commercial or industrial parcels were located in either Tax Increment Financing (TIF) districts or Enterprise Zones (EZs), making the owners of these parcels eligible for development assistance such as access to land at reduced cost, parcel-specific or larger-scale infrastructure improvements, and sales and income tax reductions. A substantial number of these parcels received property tax assessment reductions as well. Total property tax redirections from local taxing authorities to TIF districts were more than twice the amount of industrial and commercial incentives in Cook County at $644 million in 2014. The data did not allow the authors to analyze the benefits firms obtained due to locations in EZs. The magnitude of incentive use and the interaction of different incentive programs suggest the need for increased scrutiny of their use and greater coordination of their administration.

Evidence About State by State Use of Tax Increment Financing

This short paper provides the best available evidence about the number of tax increment financing districts in US states. It provides complete sources for the data and contrasts our findings with the findings of one earlier study on this subject.

An esham-ijara structure in the United States?

PurposeThe purpose of this paper is to explore Islamic borrowing at the local level in redevelopment authorities in the USA through an ijara and esham framework.Design/methodology/approachA hypothetical example is approached with a real redevelopment authority in the City of Pompano Beach, Florida. Actual data from past borrowing in a tax increment financing district are compared to an Islamic financing approach to test for competitiveness to a conventional approach.FindingsIt was found that when incorporating a crowdsourced option along with an ijara and esham approach, the returns on investment are higher than for a conventional approach. The risk is higher, but the returns are also higher which possibly increases the incentive to invest in these options.Research limitationsThis scenario is only hypothetical and based on many assumptions. A real-world application of the approach would have to be attempted to confidently determine its viability.Practical implicationsThe potential competitiveness of this financing approach as well as its higher sustainability makes this a favorable approach for local redevelopment authorities to implement for needed money for infrastructure projects in blighted areas of the city. It is also of interest to Muslim countries that are devolving authority to their local governments.Originality/valueThis paper considers an alternative approach to tax increment financing which relies on a revenue sharing arrangement called an esham–ijara and esham–sukuk risk-sharing structure in Islamic financing terminology. There is currently very little discussion of esham in Islamic finance and no discussion of the application of Islamic finance to local economic development enterprises.