The Office of Inspector General (OIG) conducted an audit of the City’s compliance with the Tax Increment Financing (TIF) Sunshine Ordinance and the TIF Surplus Executive Order. OIG concluded that the City does not provide the public with all of the data required by the TIF Sunshine Ordinance. Also, while the City declared a TIF surplus in accordance with the Executive Order in 2020, it limited the amount considered for surplus declaration. TIF—the City of Chicago’s primary funding vehicle for economic development—uses local property taxes to finance public and private projects designed to reduce urban blight by improving infrastructure, expanding the tax base, and/or fostering economic development. In 2009, to increase TIF transparency, City Council passed the TIF Sunshine Ordinance which requires the City to post certain data publicly. Also, in 2013, then-Mayor Emanuel issued Executive Order 2013-3, “Declaration of TIF Surplus Funds in TIF Eligible Areas,” which required the City to declare surpluses in TIF district accounts on a regular basis, to help end the annual practice of holding over most or all funds for unidentified future projects.
OIG found that the public availability of individual data items required by the TIF Sunshine Ordinance ranged from 22% to 99% during our initial review in October 2019. However, the Department of Planning and Development (DPD), which administers the TIF program, improved data availability during the course of the audit—as of March 2021, it ranged from 77% to 100%. The absence of required data makes the TIF program less transparent, thereby jeopardizing the public trust. Additionally, available data is not centralized but posted across three separate websites, which may confuse users or lead them to miss important pieces of information. OIG found that none of the websites contain all the data required by the ordinance. Finally, items such as sustainability requirements and economic disclosure statements are still missing for many projects. Rather than making the economic disclosure statements available on the website itself, DPD included statements for 66% of projects within their redevelopment agreement ordinances but did not provide notice on its public-facing website on where those statements would be found.
We also found that although the City declared a surplus in accordance with the Executive Order, it limited the amount considered for surplus declaration. For fiscal year 2020, the Office of Budget and Management (OBM) declared a surplus of more than $300 million, or 86% of unallocated funds across all TIF districts. This complied with the Executive Order’s definition of surplus as “no less than 25%” of a TIF district’s overall balance but there is room for improvement. Recording errors, a lack of consistency in reviewing projects, and the allowance of stagnant unspent funds inflated the amount of planned expenses and debt obligations, which in turn limited the amount considered for declaration. As such, the City’s timeline for vetting TIF projects can vary significantly and some funds are held year over year for projects that may not be executed.
OIG made several recommendations to help the City comply with the Ordinance and improve processes related to the Executive Order. We recommended DPD upload the missing items required by the Ordinance and make all TIF data available on a single website; develop a reliable system for managing TIF project progress and documentation; and ensure that staff upload data directly from the system. OBM and DPD should also regularly review planned TIF expenses with the requesting departments and consider developing a deadline system to prevent funding for anticipated projects from being withheld indefinitely. Finally, OIG recommended that OBM and DPD develop guidelines for what expenses may be considered project commitments, and that OBM release an annual TIF surplus statement describing in detail how the City calculates the surplus and identify the districts that provided the surplus funds.
In response to our audit, DPD and OBM agreed with our recommendations. Regarding the missing data, DPD stated that the Department had, “already addressed many of the deficiencies and will continue to work through the missing records;” has begun efforts to create a centralized website; has relaunched its internal project management system, allowing data and documents to automatically upload to the Open Data Portal in the interim; and is committed to creating and adopting a written policy regarding the use of this system before the end of the first quarter.
OBM agreed to create guidelines related to the categorization of projects and to develop an annual report providing information on TIF surplus calculations and the sources of surplus. Also, OBM stated that it will: add four TIF positions in 2022, which will allow the City to perform a thorough analysis of all proposed and current TIF projects; establish quarterly reviews of proposed and obligated projects; and in coordination with DPD, create an annual report specific to the surplus.
“Chicago utilizes TIF far more than any other large U.S. city, in an effort to create and improve infrastructure, urban planning, and economic development. This is why adhering to the municipal code is critical for this type of economic tool. And why it is crucial that the City’s taxpayers are aware of what is happening with TIFs, allocated funds, and current and future projects,” said Interim Inspector General William Marback. “Posting the required TIF data and ensuring the public understands the complexities of surplus declarations are key to transparency. OIG is pleased that DPD and OBM have already begun making the necessary changes based on our recommendations.”
The full report can be found online at OIG’s website: bit.ly/TIFAudit.
Visit OIG’s Information Portal to see our TIF Districts Dashboard, where you can analyze TIF fund balances and surpluses by district or ward: https://informationportal.igchicago.org/tax-increment-financing-districts/.
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The mission of the independent and non-partisan City of Chicago Office of Inspector General (OIG) is to promote economy, effectiveness, efficiency, and integrity by identifying corruption, waste, and mismanagement in City government. OIG is a watchdog for the taxpayers of the City and has jurisdiction to conduct investigations and audits into most aspects of City government. If you see corruption, fraud, or waste of any kind, we need to hear from you. For more information, visit our website at: www.igchicago.org.