Review of TIF Public Benefits Clauses and Charitable Donations

Executive Summary

A recent investigation prompted the Inspector General’s Office (IGO) to review the process by which private charitable entities are named as beneficiaries in Tax Increment Financing (TIF) redevelopment agreements (RDAs) through the inclusion of “public benefits” clauses. Public benefits clauses are terms in TIF RDAs (as well as City grant agreements and land sale contracts), which obligate the recipients of the City subsidy to make donations to specific charities or public programs as a condition of receiving the City subsidy. Of the 73 RDAs the City identified as including public benefits clauses from 1985 through 2009, 27 agreements directed cash contributions to private non-profits. All but one of the 27 agreements were signed in the ten-period from 2000-2009.

The IGO’s review revealed a lack of transparency and accountability in the City’s process of choosing specific non-profit organizations worthy of inclusion in public benefits clauses. TIF recipients interviewed by the IGO established that, in the vast majority of cases, the private, nonprofit recipients of public benefits were unilaterally chosen by the City. However, City employees responsible for the negotiation of TIF agreements were unable to articulate the criteria by which specific non-profits are chosen to receive corporate donations through public benefits clauses, or how such decisions are made. City employees interviewed for this review could only report that decisions are made collectively by the City’s Department of Housing and Economic Development, the Mayor’s Office, and aldermen.

The absence of transparency and accountability in the selections, particularly in relation to the selection or designation of private entities as recipients, undermines public confidence in whether the TIF process is being used appropriately. Such doubts are fueled especially when overall outcomes are imbalanced and suggestive of preferential treatment. The IGO’s review of TIF RDA public benefits clauses revealed just such an imbalance. Specifically, the IGO’s review established that After School Matters (or its KidStart Program), an organization with close ties to the City, was named as a recipient in 59% of those agreements directing contributions to private non-profits, making it by far the most frequent private recipient of public benefits clause donations. Among all recipients both public and private, After School Matters was second only to the City itself in the number of mentions.

The IGO did not review and thus does not raise any question about the value of work done by After School Matters. With that said, the lack of transparency and accountability in the public benefits process raises an appearance of preferential treatment for selected private non-profits. In the case of After School Matters, such appearances are only exacerbated by After School Matters’ close ties to the City and utilization of a City employee to oversee its grant writing and fundraising.

One resolution might be for the City to cease naming private entities as recipients of private donations under public benefits clauses. If, however, the City continues to leverage TIF subsidies to private corporations for the benefit of private non-profits, the IGO recommends that 1) the City establish an open process, using publicly available criteria, for the selection of eligible public benefits clause beneficiaries; and 2) TIF recipients be permitted to choose which eligible private charities they wish to support as a condition of the TIF subsidy.

Noting the Mayor’s Task Force on TIF Reform did not specifically address public benefits clauses in its final report, I encourage the Mayor and City Council to include this review in their efforts to improve the TIF process.