• Editor’s note: This is part one of three stories on the performance of tax increment financing.
For decades, hundreds of communities around Illinois have used tax increment financing to provide economic development incentives to blighted areas in need of investment.
Under TIF, property taxes in a defined geographic area are collected and, over time, as property values rise, the increased tax revenue which would have been collected normally, goes into an incentive pool to grow and be used for specific projects. Traditionally, TIF incentive pool funds go to development or other projects designed to improve buildings or areas within the TIF-defined region which are deemed 'blighted' by the TIF Act.
However, many municipalities use the tax dollars to augment their budgets, utilizing the money to pay for administrative and police salaries. Meanwhile, millions more are spent with no officially reported purpose at all, a Shaw Media review of tax increment financing records over the last 10 years has found.
The selective reporting requirements of the Illinois Comptroller’s Office make it nearly impossible to track these expenditures at best, and at worst may be helping to mask millions in misspending.
Rep. Jonathan Carroll, D-Buffalo Grove, said TIF districts are always a hot button issue because taxpayers want to understand how much money goes into them, how much is taken out of them and for what purpose.
"What we're seeing with the issues is that there's not enough transparency," Carroll said. "Through the proper use of TIF and the proper reporting of TIF, the voters will have more transparency around the issue and be able to ask better questions."
One of the most publicized occurrences of questionable TIF spending came to light in 2018, when a forensic audit found officials in the south suburban village of University Park had used at least $14 million from TIF accounts for non-TIF-related expenses over a four-year period. To the west, city officials in DeKalb were accused of using $11.25 million over 20 years for ineligible administrative expenses.
But an in-depth look into the financial reporting within a dozen counties in and around the Chicago area shows numerous other municipalities reporting their spending in a similar fashion to DeKalb and University Park without identifying how they are spending TIF funds – and whether those expenses are TIF-eligible.
For some municipalities such as Kirkland in DeKalb County and Geneva in Kane County, this amounted to hundreds of thousands of dollars in administrative expenses being covered by TIF. But for others, such as East Dundee in Kane County and West Chicago in DuPage County, millions have been allocated to staff salaries.
An analysis of tax increment financing reports filed with the Illinois Comptroller since the 2010 fiscal year identified roughly $10.3 million in unspecified administrative expenses, over $17 million in undisclosed fund transfers and $6 million in completely unidentified expenditures – primarily from University Park. Given the distribution of the Illinois property tax burden, the bulk of those funds would have gone to support public schools.
What is TIF?
Tax increment financing works by capping the base value of a designated area a third party determines to be blighted for 23 years, which could be extended to 35 years.
Any property taxes collected from that area up to the capped value go into the city’s general fund. Any taxes collected from new value above the cap are diverted into a special account reserved for economic development. This is the "increment" in tax increment financing.
Local governments that collect taxes on property within a TIF district continue to collect property tax on the base value of the TIF, but derive no benefit when property values increase. The increment funds diverted away from local government can, over time, add up to millions.
State law requires a local joint review board comprised of representatives from the local taxing bodies in a TIF district, who may or may not be well-educated on such a complex funding instrument, meet annually and review its progress and annual reports.
However, many local taxing bodies don't bother to participate, said Thomas Henderson, executive director of the Illinois Tax Increment Association.
“Unfortunately, many taxing districts don’t show up to the annual JRB meetings, nor provide any responses to the annual reports,” Henderson said.
David Merriman, Stukel Presidential Professor in the University of Illinois at Chicago’s Department of Public Administration, has written extensively on the performance of TIF nationwide and touted Illinois as having some of the best financial reporting requirements in the country.
However, Illinois' annual TIF reports – which are available to the public on the Illinois Comptroller's website dating to the 2010 fiscal year – make it optional to report several key indicators, including the base and current year value of property in each district.
Before 2017, local governments were required to identify the reason for any expenditure over $10,000. After Susana Mendoza, a Chicago Democrat, took office in 2017, providing a justification became optional, according to Rosanna Barbaro-Flores, director of the Illinois Comptroller's Office.
“In the best interest of transparency and accountability, we wanted to try and collect that, but we didn’t necessarily have a right to it because the statute didn’t dictate it,” Barbaro-Flores said.
State law says annual administrative costs can not include overhead or administrative costs not directly related to a TIF district. This was instituted because some municipalities were using TIF funds to pay the salaries of employees who would have been paid regardless.
This rule is hard to enforce, however, because in most cases, no one's checking – city officials are not required to justify their administrative expenses.
“The [Illinois Office of the Comptroller] is only authorized to collect the reports and ensure that the statutory reporting requirements are met,” comptroller’s office spokesman Abdon Pallasch said. “However, the reporting expenditures are self-reported. The IOC does not have auditing authority over the self-reported information.”
Pallasch said that before Mendoza took office, policy dictated that the reports were due within 180 days of the fiscal year’s end. The Comptroller’s office’s policy now accounts for the statute’s caveat of allowing reports to be filed “as soon thereafter as the audit for the redevelopment project area for that fiscal year becomes available.”
The reports themselves are in a PDF format that leaves little opportunity for data mining and long-term analysis, according to a 2018 TIF task force report.
If that deadline can’t be met, the TIF administrator of the municipality must show that the report is in the process of being completed by an auditor in order for an extension to be granted.
If the report still isn’t filed, the comptroller may impose fines that escalate to $20 a day.
Barbaro-Flores said, historically, fines were imposed on municipalities who did not file TIF reports.
“[Fines] were never meant to be punitive,” Barbaro-Flores said. “They were meant to be a mechanism to try and get compliance to happen.”
Pallasch said forced audits related to TIF are underway in several Illinois municipalities but fines have yet to be imposed in these cases.
University Park has not filed required documentation for its six tax increment financing districts with the Comptroller’s office for the past few fiscal years.
In reports village officials filed between 2010 and 2012, University Park’s Industrial Park TIF showed a $428,808 expense listed as a “transfer out” without providing any information about where the money went, or why.
In 2011, University Park’s Industrial Park TIF reported a $1.7 million expense for “costs of studies, administration and professional services” but did not disclose what the money bought. Another $2.4 million expenditure was reported in 2010 and only labeled as “administration.”
Other unjustified administrative or professional costs in University Park included $347,000 from the Cicero Industrial TIF in 2011, $416,000 from the Governors East TIF in 2011 and $3.4 million from the Dralle Industrial TIF in 2011.
Decades of inappropriate TIF spending came to light in DeKalb in 2018 after a lawyer for DeKalb School District 428 discovered what he believed to be excessive administrative costs in the city’s financial reports.
A redacted report from a 2013 audit of DeKalb finances stated that annual TIF revenue was transferred to the city’s general fund to cover TIF-eligible administrative costs. But the same report recommended that after the expiration of the city's districts, which generated about $6-10 million a year in increment funds, city officials would need to consider how to maintain the same level of operation without the annual infusion of TIF funds, suggesting that the money was needed regardless of whether the TIF district was in place.
Last year, DeKalb Mayor Jerry Smith and former interim city manager Molly Talkington proposed the declaration of a surplus in the amount of administrative costs from the city’s TIF districts over the last 20 years.
Smith acknowledged that the TIF Act does not have explicit requirements regarding the documentation of expenditures, but said it is up to the local Joint Review Board to identify concerns related to TIF.
"We certainly understand that the JRB has historically not been a very active committee, but that ultimately represents the will of the members of the JRB at that time, as representatives of the taxing districts," Smith wrote. "Had there been questions regarding the use of TIF dollars, the payment of administrative expenses, or any other similar inquiries, they would have been much easier to resolve at the time of the annual report rather than trying to work through questions a decade or more after the fact."
In response to the scrutiny, the city also authorized the DeKalb County State’s Attorney’s Office to oversee an audit of TIF spending. DeKalb County State's Attoreny Rick Amato chose the auditor, Chicago-based Ernst & Young, in March of 2019. The audit has not yet been completed.
Between 2013 and 2017, the village of East Dundee – which has eight active TIF districts and experienced total TIF EAV growth of roughly $29 million, according to Village Administrator Jennifer Johnsen – reported around $2.2 million in unidentified administrative expenses and unspecified transfers to other municipal funds on their Comptroller reports.
Over $45,000 in “administration” expenses were reported from East Dundee’s Christina Drive TIF, over $26,000 came from its Cook County TIF, over $101,000 came from its Downtown TIF, over $48,000 came from its Prairie Lake TIF, over $26,000 came from its Route 25 South TIF, over $448,000 from its Dundee Crossings TIF and over $26,000 from its Route 68 West TIF.
In the 2017 fiscal year, these expenses accounted for 38% of the village administrator’s salary, 10.5% of the deputy village administrator’s salary and 10% of the finance director’s salary. IMRF contributions and health and dental insurance also were included.
This amounts to over $720,000 in “administration” costs over five years, none of which was identified under $10,000 in expenditures on the city’s TIF reports to the Illinois Comptroller and none of which was identified as TIF-eligible due to limited reporting requirements.
In addition, a $48,666 expense from the city’s downtown TIF in 2017 and another $433,009 expense in 2016 were listed as “transfers out,” although it's not clear from the reports where they were transferred to or for what purpose.
In 2017, $877,196 from East Dundee’s Prairie Lakes TIF district was listed as a “transfer to other funds” but no recipients were provided. Recipients also weren’t identified in a $175,592 “transfer to other funds” from the Dundee Crossings TIF in 2017.
Johnsen said these transfers went toward bond debt as both of those TIF districts, by design, support several bond payments.
Many municipalities have taken advantage of eligible administrative costs such as the marketing of sites within the TIF district and property acquisition costs.
In recent years, Downers Grove has spent roughly $84,000 annually on administrative costs for its Ogden Avenue TIF district. Although the recipient was not reported in the TIF reports, Downers Grove Deputy Village Manager Mike Baker said these funds went to a not-for-profit corporation focused on economic activity within the city's Ogden Avenue TIF district.
Since the Ogden Avenue TIF district was created in 2001, its EAV has grown $17 million above the base value and has generated $9.8 million in tax increment.
"But not for the use of TIF, we wouldn't have a downtown with the vitality that it has without the TIF and there are many projects along Ogden Avenue we can point to that TIF was instrumental in facilitating along that corridor," Baker said.
Between the 2010 to 2017 fiscal years, the city of West Chicago – a town of around 27,000, according to 2010 Census data – spent more than $3.8 million from its downtown TIF district on salaries and benefits for city employees. In recent years, this accounted for more than half of the total property tax increment the city collected.
According to the city’s budget, it projects $633,800 in staff salaries and wages – including overtime, FICA, health, dental and life insurance – to come out of the TIF district for the 2019 fiscal year and $662,000 for the 2020 fiscal year.
None of the West Chicago staff expenses were reported in the $10,000 expenditures.
West Chicago city officials could not be reached for comment.
The village of Villa Park transferred between $90,000 to $100,000 on average each year from two of its TIF Districts to the village’s corporate fund between the 2014 and 2018 fiscal years.
Kevin Wachtel, Villa Park finance director and treasurer, said the funds covered a portion of administration, community development and economic development staff costs as well as transfers to pay for property and facility maintenance.
"These costs are TIF eligible because the work that is being done by those employees is directly related to projects and development within the TIF districts," Wachtel said. "Often, these projects and development are possible because of funding that has been generated by TIF."
Between the 2012 and 2016 fiscal years, the village of Kirkland spent over $206,000 on an administrative expenses labeled as “security,” according to comptroller reports.
Village president Ryan Block said it was for a portion of the police department's salaries and expenses for police patrols and protection of the TIF district.
“They were not listed as greater than $10,000 because it was a variety of employees and expenses that did not exceed $10,000,” Block said.
Henderson said he has heard of TIF funds being used to purchase police vehicles under the premise that the TIF district created a need for them but was not aware of any communities using the funds to cover police salaries.