Arlington Heights officials proudly point to their downtown as an example of tax subsidies that work.
The village transformed the once-sleepy area into a thriving destination with high-rise luxury apartments and condominiums, entertainment and restaurants. In fair weather, the streets close to draw steady crowds to a festive al fresco dining district.
Just 2 miles down the road, though, lies another attempted redevelopment that went terribly wrong. International Plaza was once filled with Asian restaurants and stores, a karaoke bar, even a competitive table tennis club. Now it’s mostly abandoned, marred with potholes and boarded windows.
Both sites were designated by the village as tax increment financing, or TIF, districts. The two areas, one thriving, and one nearly deserted, illustrate the range of possible outcomes for TIFs.
The tax subsidy tool has come under increased scrutiny now that a TIF has been suggested as a potential funding mechanism to help draw the Chicago Bears to redevelop the closed Arlington International Racecourse, a 326-acre site the team bought earlier this year for $197 million. In November, the Village Board approved a predevelopment agreement that specifies a TIF as a potential funding tool for the project.
For decades, TIFs have been used in Chicago and across the suburbs to help develop real estate. They have been criticized by some as a “slush fund” for municipalities to use as they wish, while diverting money from schools and other taxing bodies.
And they have been praised by officials of towns large and small as economic engines that bring jobs, development and an improved tax base.
TIFs work by using any increase or “increment” in property tax revenues in the TIF district for the municipality to redevelop that site, typically by building infrastructure such as roads and utilities. Other taxing bodies, such as schools, parks and libraries, typically get only the same amount of property taxes as when the TIF took effect, with no increased revenue during the 23-year duration of the TIF.
The Bears’ say they will pay to build a new stadium, but would only proceed with their planned $5 billion mixed-use development if they get tax “certainty” and public funding for infrastructure such as roads, utilities and stormwater management. Apartments, condominiums and other development planned for the site would be built by private developers — and could mean the added expense of more students for local schools.
State Sen. Ann Gillespie, a Democrat from Arlington Heights, has concerns about TIFs. She is sponsoring a bill that would limit the amount of time that TIFs could be extended to two years past their normal 23-year term.
Gillespie also introduced a bill that would allow for the Bears and other megaprojects to freeze property taxes and instead make a negotiated payment in lieu of taxes. But with Chicago lawmakers and others likely opposed, she did not expect that measure to pass.
“I understand the economic development that TIFs can bring,” Gillespie said, “but there is abuse with TIFs. It results in taxpayers having to pay a disproportionate share, particularly in latter years, because millions of dollars are going into the TIF.”
The problem, Gillespie said, is that current law lets municipalities control the TIF proceeds at the expense of schools, libraries and park districts.
Arlington Heights officials say they have been good stewards of seven TIFs they have created. The downtown TIF, which ended in 2009, leveraged about $50 million in tax funds to facilitate $200 million in private investment, officials said, bringing a “windfall” to local taxing bodies when the subsidy ended.
“The downtown has become a dining destination for this area,” Director of Planning and Community Development Charles Witherington-Perkins said. “That could not have happened without the use of TIF.”
One crucial difference between the Bears’ site and International Plaza is that the Bears are seeking public help, while business and property owners at International Plaza fought their TIF.
The 1980s-era mall had difficulties in part because, unlike typical strip malls, most of it is far back from the road, where passing motorists don’t see its storefronts. In 2002, the village created a tax increment financing district of 35 acres, including International Plaza, to be demolished in favor of a SuperTarget store. Owners filed lawsuits to fight the plan, saying the site was mostly occupied and wasn’t “blighted” as required by state law.
The village won in court, but it took years, and by that time, Target backed out of the deal. Now, after years of delay helped drive out tenants, and COVID closures drove away customers, developers have proposed demolishing the site to make way for apartment buildings.
In one corner of the strip mall, one of the last remaining stores there is having a blowout moving sale. Everything must go at Sports Outlet Express, which is leaving after some 20 years.
“They should have done something earlier and talked to the business owners,” said Sports Outlet owner Alex Zajac, who took part in protests against the TIF.
Economic studies have found TIFs often fail to deliver growth beyond what otherwise would have occurred, and may simply divert investment and business from other areas.
Arlington Heights’ predevelopment agreement states that it will only enter a partnership with the Bears if a public investment is needed to make the plan feasible, and if the project will generate a net fiscal benefit.
Arlington Heights is hardly alone in using TIF developments. Across Cook County, 442 TIFs generated a record $1.6 million in 2021, most of it in Chicago, diverting 9% of all property taxes, according to the latest report by the county clerk.
North and northwest suburban TIFs saw a 24% decline in taxable values, mainly due to the Illinois Department of Revenue lowering the equalization factor that determines tax payments. Some large suburban TIFs, such as the Hoffman Estates Sears site, Glenview Naval Air Station, and in downtown Des Plaines also ended that year.
A 2018 University of Illinois at Chicago study found that TIFs can be beneficial, but often have helped successful areas rather than depressed areas.
Study author David Merriman, a professor of urban planning at the UIC, said questions should be asked about whether any TIF meets the legal definition for a blighted area, and whether it is needed, or whether market forces likely would develop the property anyway.
One potentially beneficial TIF that meets those criteria, Merriman said, is targeted to extend the CTA Red Line and modernize the Purple Line in Chicago.
Merriman testified this year at a hearing on Sen. Gillespie’s bill. He called for greater transparency and oversight of whether TIFs are achieving their goals, with a review every five years or so, and allowing other taxing bodies to opt out.
TIFs can work, Merriman said, but they need greater oversight and input from schools, parks and libraries that stand to lose new revenue for years to come.
