Two economic development projects that may eventually bolster Chicago’s coffers won approval after the current mayor and his successor backed away from a confrontation that had raised uncertainty over votes on up to $2.4 billion in public subsidies.
The City Council signed off in a 32-13 vote on what’s known as the Lincoln Yards TIF — or Tax Increment Financing — and a 31-14 vote on what’s known as the 78 TIF. Both authorize various forms of potential borrowing to cover infrastructure work that would be repaid with incremental growth in property taxes.
For Mayor Rahm Emanuel, the votes marked a victory as he seeks to cement his legacy as an ardent promoter of economic development. For Mayor-elect Lori Lightfoot, the decision not to block the votes provides a measure of assurance that she won't be hostile to subsidized private development. At the same time she won some 11th-hour concessions on minority participation, putting developers on notice that she will strike a tougher tone during her tenure.
The market “is looking at her every step and this is the first big hurdle. It’s her first challenge in having to balance different issues” that impact development, said Richard Ciccarone, president of Merritt Research Services. “Every addition to the tax base eases the burden on everything else. We need growth to mitigate the liabilities that are going to have to be paid off.”
TIF subsidies, even those of similar magnitude, might not draw as much municipal market scrutiny elsewhere, but Emanuel and his predecessor Richard M. Daley’s commitment to economic expansion is viewed as a strength in a city with Chicago's pension and
budget strains, Ciccarone said.
Emanuel, who did not seek a third term, had deemed the transformation of two areas as fundamental to managing mounting pension and other debts. The city must make a $600 million increase in pension contributions over the next three years and then annual increases needed for decades to shore up a system with $28 billion of net liabilities that is just 26.5% funded.
“The best thing we can do for the city is grow the economy and create jobs,” Emanuel said Wednesday.
Opponents have slammed the two developments for the size of subsidies and lack of transparency in the planning process, and have pressed for more community benefits and affordable housing.
Supporters argue that the subsidies coming from the new property tax are generated by the development and so the city isn’t shorting other neighborhoods.
Opponents counter that the TIF is too generous and city, school, and other taxing bodies won’t benefit until for TIF expires in 23 years.
Lightfoot sided with critics during the campaign that ended with her victory April 2, saying the city could get a better deal and on Sunday it appeared she might be willing to dig her heels in on the issue. She issued a statement calling on Finance Committee Chairman Patrick O’Connor to delay a vote scheduled for Monday.
Emanuel issued a statement early Monday raising the specter that the votes would be put off until the new mayor takes office May 20 unless Lightfoot agreed to move forward.
“In our first meeting, as well as in subsequent conversations, I made it very clear to the mayor-elect that I would not move forward on these projects if she wanted to delay the process,” Emanuel said.
That caused an uproar during the meeting. Alderman Brian Hopkins, whose ward includes the Lincoln Yards, called for a vote anyway. O’Connor, who takes his cues from Emanuel, took testimony Monday and said he would reconvene Wednesday ahead of the council meeting to take a vote in hopes Lightfoot could be appeased after talks with the developers.
The end result: Lightfoot backed off with the announcement late Tuesday that she had won some concessions from the developers on minority participation levels and she would not seek to block the vote. While the administration and its allies said Lightfoot could have stopped a vote, she disagreed.
“The votes were clearly there," Lightfoot said later Wednesday during a meeting with lawmakers in Springfield. She also sought to put developers on notice, saying that they “won’t get a deal like this again” and that once in office she would “exercise a tremendous amount” of fiscal control over the developments.
The developers agreed to raise the overall minority and women-owned business participation on the projects by $80 million to $400 million and agreed to language shoring up city compliance oversight.
It’s a good sign that she did not dig her heels in, as that would have been viewed as anti-business and development and could have driven a wedge between her and some aldermen, several market participants said.
Ciccarone cautioned that it’s just a first test and much remains unknown about her future stances and skills at attracting development.
“By claiming more participation by companies owned by minorities and women, she made a mark on the project without having any legal authority over the fate of the project,” Ciccarone said. But, because it was passed before she took office, “you can’t say that this is a bellwether of what’s to come relative to her ability to attract and retain major new projects in Chicago.”
TIFS
The Lincoln Yards TIF is formally known as the Cortland/Chicago River TIF. It’s located on a mostly industrial site once anchored by steel facilities and is bordered by affluent neighborhoods on Chicago’s north side.
Sterling Bay is planning a $6 billion development that includes retail, hotels, entertainment and residential housing towers. It includes new transit stations, parkland, bridges and streets and extended bike trail.
Initially, the agreement calls for the developer to fund nearly $500 million in TIF-eligible projects up front with the city repaying the note with future property tax revenue generated in the district. The ordinance permits up to $900 million of TIF financing for public infrastructure and authorization to spend another $400 million if needed.
The current equalized assessed valuation, or EAV, of the district is $87 million. The anticipated EAV by the tax year 2042 is $2.5 billion.
The area is referred to as the 78 because it would become the 78th city neighborhood. Its formal name is the Roosevelt / Clark TIF. The area is largely vacant, with rail lines on its eastern edge. It is surrounded by development to the east toward Lake Michigan and to the north toward downtown, and it borders the Chicago River.
The developer, Related Midwest, has won approval for a $7 billion mixed-use complex of housing and retail and commercial development that includes parkland, a Riverwalk, and new transit station.
Critics said more public input was needed as Alderman Danny Solis, whose ward includes the district, has been absent in recent months after it was reported that he was targeted by federal authorities on corruption allegations and was cooperating with federal authorities by recording his colleagues.
The 78 EAV of taxable property is estimated at $91 million. That’s projected to reach $2.1 billion when the area is developed.
The agreements call for the developer to pay for $550 million in upfront infrastructure costs, with the city repaying the note as TIF revenue is generated from the development. The ordinances permit subsidies of up to $700 million in diverted property taxes with an additional $400 million in funding possible.
The ordinances for both TIF districts permit the city to issue “notes” to developers for upfront financing and to eventually issue general obligation TIF bonds or special service area bonds.
PROS AND CONS
Critics argue that the projects don’t deserve the size of subsidies the city is providing given that both are located on the edge of prosperous neighborhoods. They contend the areas fall short of meeting the blighted label associated with TIF and that both could attract development without the public support.
“We have to wait 23 years … 23 years before we’ll see property taxes flowing in,” Alderman Scott Waguespack said referencing the TIFs’ life, during which higher property taxes are set aside. He voted against both.
He also slammed the lack of transparency and accountability, saying “lies” and “deception” marked the planning process.
Alderman Michele Smith, another "no" vote, raised concerns over the lack of information on potential borrowing.
“We have yet to see who will pay for the schools, the library and police this mega development will require,” Smith said of Lincoln Yards. “Many believe it is wrong to tie up billions of dollars of public dollars in a single project for decades when we have a financial reckoning ahead.”
Proponents argue that the infrastructure improvements are sorely needed along with the new temporary and permanent jobs created by both. Each will also result in spillover of development that adds to the tax base even as the TIF district tax revenue is diverted for 23 years, the say.
“People will thank us 20 years into the future for the decision we are making today. It benefits our city and it brings about the reality we all talked about, more jobs, more economic benefit, more affordable housing, it is the right thing to do,” said Hopkins.
