Follow-up Report on Charitable Donations in TIF Public Benefits Clauses

Executive Summary

In October 2011, the Inspector General’s Office (IGO) released a public report detailing the process by which charitable entities are named as beneficiaries in City Tax Increment Financing (TIF) redevelopment agreements (RDAs) through contractual provisions knows as “Public Benefits Clauses.” That report found that the City’s process for selecting private beneficiaries lacked transparency and accountability, which created a risk for preferential treatment. The IGO recommended that the City either discontinue its inclusion of private non-profits as recipients of public benefits clauses or take immediate steps to improve both transparency and accountability in the public benefits process. Today, the IGO releases a follow-up report that describes 10 additional, previously undisclosed public benefits clauses and details and assesses the City’s actions taken in response to findings published in the IGO’s 2011 report.

Earlier last month, the IGO provided the enclosed report to the Department of Housing and Economic Development (DHED) for comment. As detailed in the report, in March 2012, the Mayor’s Office and DHED issued new “Tax Increment Financing Policy Guidelines” which restricted cash donations to just those private entities “integrally involved” in a TIF project. The IGO noted that while the new guideline did limit the practice, as then drafted, the guideline did not eliminate the naming of private entities as recipients of public benefits clauses and did not provide criteria or procedures for the qualification, identification, or selection of entities that are “integrally involved in the TIF-funded project.” The IGO follow-up concluded that the City’s 2012 guidelines neither barred the practice, nor fully addressed the transparency, accountability, and preferential treatment concerns raised in the IGO’s 2011 report.

DHED was immediately responsive to the concerns noted in the IGO’s follow-up report and has taken steps to address those concerns. Specifically, in its response, which is being posted with the IGO’s follow-up report, DHED stated that the practice of directing cash donations to private entities through TIF agreements stopped in 2009 and that, under the current administration, the practice is not permitted. In further response, DHED has revised the TIF Guidelines to reflect the City’s “true intent.” Consistent with the IGO’s 2011 report recommendation, the further revised TIF Guidelines affirmatively prohibit the City’s practice of directing cash donations to private charities by eliminating an exception for private charities integrally involved in a TIF funded project. DHED’s formal termination and prohibition of the practice effectively moots the continuing concerns noted in both of the IGO reports. The IGO has separately communicated this conclusion to the Commissioner of DHED, whom we commend for his department’s responsiveness in this matter.

More generally, the IGO appreciates the City’s efforts to address an issue that presented significant concerns regarding transparency and accountability in the City’s TIF program. The IGO will continue to monitor the City’s use of public benefits clauses and the TIF program to ensure it is administered effectively and with transparency and accountability.