Unaccountability in the TIF program
If an economic development project is supposed to create jobs, but no one is around to monitor it, should they still get our tax dollars?
The City of Chicago touts “creating employment opportunities in Chicago” as part of the objective of the Tax Increment Financing (TIF) program. The Chicago TIF program involves setting aside a portion of property tax revenue in a financially troubled district to support economic development in that district. Many TIF projects have jobs covenants that detail specific job level goals or requirements. These jobs covenants act as a means to judge a project’s usefulness in promoting economic development and add a layer of accountability onto the developers receiving TIF money. For this reason, jobs covenants are often of great importance to City Council’s decision to support a TIF project and give taxpayer dollars to a developer.
I am currently compiling a report on jobs covenants in TIF projects and grading each project based on multiple criteria. As a sample of what can be expected from the report, I’m going to delve into more detail regarding the jobs covenant of the project that received the lowest score.
The Marshfield Plaza project epitomizes the lack of structure and transparency in jobs covenants, and received the lowest score of any project examined in the report. And in order to highlight the problems associated with this project in a way that is easy to understand, I will provide an example of how this would play out in a different situation (that portion is italicized).
The developer, Primestor 119 LLC, was authorized to receive up to $24 million of TIF funds for the construction of a new shopping center. The project was intended to facilitate economic development and increase employment in the 34th Ward.
Imagine I am the owner of a lumber company and I sign a contract to help fund the expansion of a furniture store, with the expectation that the store’s expansion will increase sales and thus increase the store’s demand for my furniture supplies.
The project’s Redevelopment Agreement (a contract between the City and the developer detailing each party’s obligations in a TIF project), or RDA, says 750 full-time equivalent jobs can be “anticipated” from the project, but does not require any job creation or retention. There is no information on how the project is expected to cause creation of those jobs or how the number was estimated. However, because of the elusive writing in the RDA, it hardly matters how the number was obtained as it is essentially meaningless.
My contract with the furniture store says I hope the expansion will allow the store to purchase 15% more lumber from my business than before the expansion. But, I do not require the furniture store to buy any lumber from my store. So, I have no way of ensuring my investment in the furniture store’s expansion will increase my lumber sales.
Strength of Clawback Language
With no clear requirements, the City is unable to penalize the developer for inadequate job creation.
I do not include any clawback language in the contract, so I cannot penalize the furniture store for failing to buy more lumber from my business.
There are no jobs requirements, and there is no evidence regarding the developer’s success or failure in hitting the expected job level of 750. It would not be surprising to learn that the developer has not created the 750 jobs expected from the project, as lack of regulation and enforcement offers no incentive to do so.
With no requirement certifying the furniture store will increase purchases from my company, the furniture store could explore other options for a source of their lumber supply.
The City provided no evidence of any job level monitoring. Because the City cannot penalize the developer for its potential lack of job creation, the value of monitoring job levels is seemingly limited. However, with no guidelines to ensure the developer is earning the TIF money it received, it seems reasonable to expect that the jobs levels would be closely monitored, at least just to determine whether in future projects it is practical to expect developers to create jobs without being required to do so.
I do not monitor whether the store has begun to purchase more lumber from my business after the expansion is complete, so I have no way of knowing whether my investment was worthwhile.
Most of the Marshfield Plaza project’s deficiencies stem from the failure to include any employment requirements in the RDA. The lack of jobs requirements renders developers unaccountable for promoting economic growth in return for TIF funds and the City unaccountable for monitoring the project’s effectiveness. Additionally, when no jobs standards are placed on the developer, the developer is not responsible for any job creation and cannot be penalized for failing to create jobs. Essentially, any means of guaranteeing the developer increases employment in return for TIF funds are absent from the RDA.
For the City to ensure the developer will create jobs in return for taxpayer money, it is important that the jobs covenant in the RDA to include a clear jobs requirement. The developer must be required, not merely expected, to create jobs to receive TIF funds and the City should be able to request reimbursement of City funds if the developer fails to fulfill its requirements. Lastly, the City should closely monitor the developer’s employment total and enact clawbacks if necessary. By following these steps, the City can remove much of the risk of giving out the public’s money to increase employment.