Results Overall, this analysis finds no support for

6. Conclusion and Policy find no evidence that TIF effectively Implications

obtained desired economic development outcomes.

This paper effectively answers the ‘but-for’ While the findings of this paper are clear question at the level of the City of Chicago’s and decisive, it is important to comment

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here on their exact extent and external valid- ity, and to discuss the limitations of this analysis. First, the findings do not indicate that overall employment growth in the City of Chicago was negative or flat during this period. Nor does this research design enable us to claim that any given TIF-funded proj- ect did not end up creating jobs. Rather, we conclude that, on-average, across the whole city, TIF was unsuccessful in jumpstarting economic development activity—relative to what would have been likely to have occurred otherwise. Secondly, these results are limited to the universe of observations from which treatment was specified (i.e. the City of Chicago). Thus, these findings should not

be interpreted as a broad indictment of the use of TIF in any context. Lastly, while this paper uses the most detailed information available and includes a test of not only TIF designation, but also aggregate investment levels on economic development outcomes, we still lack data at the ‘project level’ which would allow one to separate out TIF invest- ments in non-economic-development- related activities. While there is a good argu- ment to be made that these investments themselves may increase local development activity, due to the City of Chicago’s past reluctance to make TIF expenditure data

public, a full accounting of TIF-funded proj- ects is not possible at this time. Ultimately, however, this analysis and the story of TIF in Chicago more generally, should serve as a cautionary tale to jurisdictions throughout the US and throughout the world.

The findings of this paper imply that the fiscal strain placed on the City of Chicago’s general fund and the public schools is exa- cerbated by the sequestration of revenue in TIF accounts. Given that the job creation record of TIFs is negligible at best, as shown in this paper, policy-makers in the City should strongly reconsider adopting new TIF districts and should even consider addi- tional legislation that attempts to recoup some TIF funds for general public-sector activities. In practice, a limited amount of TIF funds have been used to support the construction of school buildings and other authorised capital improvements. However, since TIF by nature localises fiscal capacity, this may generate structural inequality across the city.

For policy-makers outside the City of Chicago, there are applicable lessons to be taken from this paper. First, it is best to tie TIF designation to actual redevelopment proposals with a private-sector partner up- front. This is a requirement by state statute

Table 3. The impact of TIF designation by TIF designation type, 1990–2008 Conservation TIFs

Blighted TIFs Ln total employment a (N = 35,598, 23,308)

20.008 (0.021) 20.016 (0.042) Ln total establishments a (N = 35,598, 23,308)

Ln total building permits b (N = 22,706, 14,691)

0.003 (0.022) 20.006 (0.046) a Data sources for outcome variables: National Establishment Time Series (NETS).

b Data sources for outcome variables: CMAP/City of Chicago, Department of Buildings. Notes: All regressions include year and block group fixed effects. Robust standard errors, in parenth-

eses, are clustered at the TIF district level for all regressions. Significance levels are indicated by: * for 10 per cent, ** for 5 per cent and *** for 1 per cent. N for total employment and establish- ments are 35,598 and 23,308 for conservation and blighted TIFs respectively. N for building permits impacts are 22,706 and 14,691 respectively. All estimates are weighted by the propensity score based on the prediction of TIF assignments. TIFs classified as both blighted and conservation were coded as blighted.

CHICAGO’S TIF PROGRAMME

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672 T. WILLIAM LESTER

in North Carolina, where TIF has been used Kajer and Patrick Nerz for providing valuable only sparingly. Secondly, each TIF proposal research assistance and to Ashley Tindall for should be coupled with careful cost–benefit editorial assistance. analysis that projects and clearly articulates the job creation outcomes of the redevelop- Funding ment proposal. Thirdly, while it was not an This research received no specific grant from any explicit aspect of this paper’s empirical funding agency in the public, commercial or not- analysis, it is critical that public agencies for-profit sectors. considering TIF make all transactions as transparent as possible so that the public Notes can clearly understand where their seques- tered tax dollars flow and hold public offi-

1. California’s recent decision to eliminate all cials accountable for their decisions.

Community Reinvestment Authorities in These findings also support the position

the state and return property tax incre- put forward by some urban theorists that,

ments to the State’s general fund is one, as cities seek new ways to become ‘entre-

well publicised example. 2. The so-called ‘but-for’ test is a basic criterion

preneurial’ (Harvey, 1989), they essentially in cost–benefit analysis of public policies. cede power to private capital, which may or Essentially the analyst must ascertain if the

may not be located within the city limits. In economic activity in question would not have the case of TIF, as Weber (2010) elucidates,

occurred ‘but-for’ the policy intervention. as more and more tax revenue is seques-

3. Author’s analysis of data released by the tered, the standing of developers and foo-

City of Chicago in ‘‘TIF projection reports’’ tloose capital is strengthened as resources

available on-line: https://data.cityofchica- are shifted to accommodate their interests,

go.org/Government/TIF-Projection-Reports/ while the provision of public goods such as

(accessed 11 August 2011). basic education and shared infrastructure

4. For example, the City Council passed the are rationed in the name of ‘fiscal crisis’. ‘TIF Sunshine Ordinance’ in 2011 that Essentially, Chicago’s extensive use of TIF required for the first time a public account-

ing of all TIF district spending and revenue can be interpreted as the siphoning off of

collections.

public revenue for largely private-sector 5. Started in 2000, the Small Business purposes. Although, TIF proponents argue

Improvement Fund programme offers that the public receives enhanced economic

direct grants up to $150,000 to industrial or opportunity in the bargain, the findings of

commercial properties located in a subset this paper show that the bargain is in fact

of TIF districts (currently 74 districts allow no bargain at all.

accrued increment to be used for SBIF). 6. Cook County Clerk. Commissioner Mike

Acknowledgements Quigley office report, ‘‘A Tale of Two

Cities’’, April 2007. The author would like to thank Rachel Weber

7. One of the more common uses of TIF dol- and Daniel Hartley for sharing critical data

lars outside the Loop is to assist the devel- sources and helpful comments, and three anon-

opment of retail centres, often in areas that ymous referees at Urban Studies. Thanks to Bill

have been without major grocery or general Rohe and Meenu Tewari for opportunities to

merchandise stores. For example, over $100 present this research in the Department of City

million in TIF dollars were devoted to a and Regional Planning. Thanks also to partici-

shopping centre that housed a Target pants in the World Planning Schools Congress

department store in the Wilson Yards TIF (July 2011) in Perth, Australia. Thanks to Jason

on the north side.

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CHICAGO’S TIF PROGRAMME 673

8. For more discussion of clustering standard of Economics and Statistics, 92(4), pp. errors, see Dube et al. (2010) in the context

of policy evaluation. See Bertrand et al. Dye, R. F. and Merriman, D. F. (2000) The (2004) for a broader discussion of cluster-

effects of tax increment financing on eco- ing standard errors in difference-in-differ-

nomic development, Journal of Urban Eco- ence estimators.

nomics, 47(2), pp. 306–328. 9. The specific variables that enter into the Fainstein, S. S. and Fainstein, N. (1989) The probit model are those listed in Table 1

ambivalent state, Urban Affairs Review, 25(1), except for the last two variables that mea-

pp. 41–62.

sure changes in the outcome variable Felix, R. A. and Hines, J. R. Jr (2011) Who offers (employment changes). Due to space con-

tax-based business development incentives? straints, the probit analysis is available in

Working Paper No. 17466, National Bureau of Economic Research, Cambridge, MA.

an on-line appendix and from the author Gibson, D. (2003) Neighborhood characteristics upon request.

and the targeting of tax increment financing 10. Specifically, the GIS shapefile contained poly-

in Chicago, Journal of Urban Economics, gons for 160 active TIFs as of 2008 (https://

54(2), pp. 309–327. data.cityofchicago.org/browse?tags=gis). See Harvey, D. (1989) From managerialism to entre-

Ahmed-Ullah, Noreen S. ‘‘CPS cuts back preneurialism: the transformation in urban capital spending in ‘difficult fiscal climate’’’

governance in late capitalism, Geografiska Chicago Tribune, 5/3/2012.

Annaler B, 17(1), pp. 3–17. Logan, J. R. and Molotch, H. L. (1987) Urban Fortunes: The Political Economy of Place. Ber- keley, CA: University of California Press.

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Appendix. Description of the

in 1998 only includes establishments that were

National Establishment Time-series located there and operating in 1998, even if (NETS) Database

some businesses subsequently moved. Because it is based on information from D&B—

which has a strong economic incentive to reach

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