Tax Increment Financing (TIF)

City of Chicago designated districts where new tax revenue can be used to finance and promote future public and private infrastructure. As of January 1, 2020, there are 136 active TIF districts throughout the City of Chicago.

Value Range: $110,000 - $636 million
Date Range: 2010-2021
Total Number of Projects: Infrastructure: 1065 Redevelopment: 345
Additional Resources: City of Chicago TIF - TIF Districts and Projects - Cook County TIF 101 - Applying for TIF

What is Tax Increment Financing?

Tax Increment Financing is a special funding tool used to promote public and private investment in specific areas. It was introduced in Illinois in 1977 through the Illinois Tax Increment Allocation Redevelopment Act of 1977. Per state law, municipalities wishing to create TIF districts must establish them in areas that are or may become blighted. TIF funds are generated by retaining the projected tax growth of the properties within the designated district over a period of 23 years.

How does it work?

To create a new TIF district, typically a property or business owner approaches the City with a development proposal. The City then hires a consultant to conduct a study to determine if the proposed area is eligible for a TIF district. If the area meets the State standards for TIF designation, the City conducts additional studies and develops plans for the proposed district. The process also includes community meetings and public hearings before the City’s Community Development Commission, Chicago Plan Commission, and City Council. When an area is designated as a TIF, the amount of property tax that area generates is set as the base tax amount. As property taxes increase, the tax growth above that initial base amount can be used to finance projects within the district.

The City of Chicago and Department of Planning and Development (DPD) classifies TIF projects under two designations, Infrastructure and Redevelopment. Infrastructure investments are often smaller disbursements for projects that do not have Redevelopment Agreements or Intergovernmental Agreements. Examples include sidewalk repairs, street and alley resurfacing, and other accessibility improvements. TIF investments classified as Redevelopment are projects with Redevelopment Agreements or Intergovernmental Agreements that must be approved by City Council. Examples include construction of new private and public infrastructure, development, repair or rehabilitation of existing buildings, and the Red-Purple Modernization (RPM) Transit TIF.

A proposed development located within an existing TIF district is eligible to receive revenue generated within that district through an application process initiated by submitting the Universal Financial Incentives Application. If a project is determined as eligible to move forward next steps include review by the TIF Investment Committee, and an additional ‘but for’ analysis to determine if the project would only be viable with a TIF disbursement. Redevelopment TIF projects are typically large, complex, and frequently request millions of dollars in funding. For this reason, development teams selected to move forward in the grant process work closely with City staff on a project by project basis to determine the terms of Redevelopment Agreements prior to presentation for approval by City Council.

Where and how can it be used?

TIF funds can only be used in designated TIF districts, but there are no specific geographic criteria for where TIF districts can be created. Locations are usually determined by the Chicago Department of Planning and Development (DPD) based on TIF applications or, in the case of Transit TIF, by the Mayor’s Office. Under state law, for an area to be eligible as a TIF it must have several blighting factors, including the age of properties, inadequate utilities, code violations, excessive vacancies or overcrowding of facilities, lack of maintenance, lack of community planning, lack of light and ventilation, and dilapidation or deterioration. Per law, TIF funds may be used for the administration of a TIF redevelopment project, property acquisition, rehabilitation or renovation of existing public or private buildings, construction of public works or improvements, job training, relocation, financing costs; studies, surveys, and plans; marketing sites within the TIF; professional services, such as architectural, engineering, legal and financial planning; and demolition and site preparation.

What are its intended outcomes?

A goal of creating TIF districts and granting TIF funds is to incentivize economic development in blighted areas that would not otherwise happen without the creation of the district and the revenue generated with it. The primary goal is to attract investment and development in the TIF district community. To meet the intended goals, State law establishes specific criteria for local governments to determine if a proposed area is eligible for TIF. Generally, actual outcomes of TIF district creation and fund disbursement may include new development in the district, increased tax base and property values, and ancillary effects of economic development on employment. TIF may capture some tax revenue that would have been generated through normal appreciation in property values, even without the TIF-funded investment. Over-capture of revenue has the unintended consequence of sequestering tax revenue within the district boundary and in turn diverting resources away from public services citywide.