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Are TIFs A Good Tool for Small Businesses?
Historically, it has been difficult for most small
businesses to directly benefit from tax increment
financing arrangements. Most of the commercial TIF
deals (called “redevelopment agreements”)
to date have subsidized larger-scale developments
such as shopping centers or movie theater complexes.
Very few have provided financial assistance to small
business owners and operators to improve their facilities
or help them expand their operations. There are several
reasons for this pattern:
The City is looking for the most “bang
for its buck” when it selects TIF projects.
Each redevelopment agreement must be negotiated with
the developer, then approved by the Community Development
Commission and the City Council. These activities
all require substantial involvement by the staff of
the Dept. of Planning and Development, not to mention
a considerable investment of time by the business
owner. A smaller number of big deals, so the City’s
logic goes, is easier to manage than a large number
of smaller ones. In other words, it’s easier
to subsidize the construction of a large new shopping
center than it is to help a dozen shop owners improve
their existing businesses. Homeowners and renters
face a similar problem when trying to get direct benefits
from the TIF program.
Building on vacant property provides the
fastest increases in tax revenue. The engine
behind the TIF program is growth in property values.
Without that growth, there is no money to pay for
redevelopment, so the City tends to look for the projects
that will provide the quickest growth in tax revenues.
A vacant lot pays little or no property taxes. Constructing
a new project on this vacant, unproductive land –
any project – means an immediate and
substantial jump in the City’s tax revenue.
The chance to make this sort of “instant increment”
is more appealing to the City than plans to improve
the properties of existing small businesses, which
will generate new taxes more gradually.
Existing small businesses typically don’t
ask for or benefit from a TIF’s powers of land
acquisition and assembly. One of the most
powerful tools in the City’s TIF arsenal is
the ability to acquire many smaller parcels of land,
assemble them into larger properties, then sell that
land to a developer. This power is especially useful
to developers who wish to build large projects –
a shopping mall, for example – in an area where
there are many smaller pieces of land owned by many
different people. The City’s power of “eminent
domain” – the ability to force property
owners to sell their land at market value for a “public
good” – makes it much quicker, cheaper,
and easier for the City to take this task on itself.
Big developers often see their projects progress more
smoothly because of the City role, but small businesses
are often hurt by it.
In fact, the TIF program can pose a number of risks
to small businesses if the overall redevelopment
plan for the TIF does not make an explicit effort
to benefit existing residents and businesses:
Direct Displacement: The TIF can
be used to acquire private properties and then re-sell
them to a private developer.
Indirect Displacement: The TIF
could gentrify the neighborhood, raising property
taxes above what existing businesses can afford to
pay, forcing them to close or relocate to another,
less expensive area.
New Competition: The TIF could
subsidize similar businesses or relocate the center
of commerce to another part of the area, leaving your
business with fewer customers or higher operating
costs than the competition.
While these changes don’t take place in every
commercial TIF, they are valid concerns. Many community
based organizations and small business associations
are now insisting that the Alderman and the City address
these concerns as the TIF moves forward.
How Have TIF Dollars Been Used for
Commercial Development?
As you can see from the following lists of redevelopment
agreements, very few TIF dollars have gone to traditional
neighborhood commercial areas. Overall, $237,401,829
of TIF dollars have gone to commercial projects outside
the Central Loop.
But the vast majority of these funds has been used
for either shopping centers, “big box”
retail, movie theaters, or corporate office space.
For example:
$49.8 million in TIF dollars have gone to retail
and shopping center development
$14.8 million has gone toward “big box”
retail stores
$9.8 million has been allocated for movie theater
projects
$34.7 million has gone to office building development.
$127.2 million has gone to mixed-use residential/commercial
development
In some cases, these projects have filled a neighborhood
need, particularly in cases where the development
brought a full-service grocery store to a long-neglected
area. But the fact remains, very few local small businesses
have been able to cash in on TIF funds. “Mixed-use”
development – where retail and residential properties
are developed side-by-side, or even one on top of
another – are most like what is found in typical
Chicago commercial areas. While $88.4 million in TIF
funds have been pledged for mixed-use development,
the vast majority of it is for one highly specialized
project: the redevelopment of the University of Illinois
at Chicago’s South Campus. The only real dollars
that have gone to traditional neighborhood commercial
projects have come through the TIF Small Business
Investment Fund Program (see below) or the $1.33 million
in TIF-funded streetscaping projects made in the Greektown
commercial area in the Near West TIF. But the SBIF
funds, which total about $750,000 in the one commercial
area where the program is in place as of this writing,
are only a tiny fraction of the $183 million in commercial
TIF subsidies promised by the City.
The TIF Small Business Investment
Fund
The City has begun to acknowledge that it is difficult
to get TIF dollars directly in the hands of residents
and small business owners. In response to community
pressure to ensure that TIFs benefit long-term local
stakeholders, the City launched a pilot program called
the Small Business Investment Fund (SBIF) in a handful
of neighborhood TIFs. The program has two steps:
1. The
City persuades a local bank to loan a sum of money
that can be used to front-fund the TIF. The
bank will be repaid, with interest, as the TIF generates
revenues of its own.
2. Small
businesses apply to receive grants of up to $50,000
to improve their businesses. SBIF funds can
be used for such rehabilitation or remodeling expenses
as roof and façade improvements, signs or awnings,
projects that help the business comply with the Americans
With Disabilities Act, environmental clean-up, certain
beautification projects that also benefit the general
public, and improvements to the building’s heating,
cooling, and mechanical systems. SBIF dollars cannot
be used for new construction, painting or other minor
repairs, equipment, interior improvements to residential
units on the property, or security fencing are not
eligible expenses.
The TIF SBIF program, if it is expanded beyond the
initial two test areas, could become one good way
to help small businesses take advantage of the TIF
program.
The chart at the end of this fact sheet lists TIF-funded
commercial developments outside the Central Loop TIF.
For information on projects downtown, see the NCBG
fact sheet, “The Central Loop TIF,” p.
96.
Are There Any Other Options for Small
Businesses?
There are other economic development programs besides
that can help small businesses, or that could be combined
with SBIF. An organized group of businesses that forms
partnerships with other local organizations may be
able to benefit from a combination of the following
initiatives:
Special Service Areas
Small businesses may want to form a “Special
Service Area” (SSA) as an alternative to TIF.
An SSA can be established when those taxpayers located
inside of a proposed geographic boundary agree to
a small increase in their property tax rate. Unlike
a TIF, members of the community decide how the new
revenues will be spent – not the Mayor or the
Alderman. SSAs can be used for a wide range of projects
specifically geared toward existing businesses, such
as: joint advertising campaigns, extra street sweeping
and security, landscaping, façade improvements, and
small infrastructure improvements. An appointed commission
of local stakeholders has authority over how the SSA
funds are spent, guaranteeing local control over priorities.
Community Infrastructure Planning
Public infrastructure improvements enhance the
quality of life in a neighborhood for existing residents
and small businesses alike. For example, landscaping,
sidewalk repairs, lighting improvements, and additional
parking could help revitalize a neighborhood commercial
district. Repairs to major streets or better traffic
signals could ease congestion for residents and business
owner s alike. Community groups, residents, and business
owners need to work together to identify their public
works priorities, then push the City to include those
public improvements either in the City’s ongoing
Capital Improvement Program or in the TIF plan. While
TIFs can help pay for infrastructure improvements,
TIF funds should always supplement – not substitute
for – the general City investment in public
works improvements in your neighborhood.
Other Options
The City has a wide range of economic development
programs for businesses, ranging from equipment loans
to the façade rebate program. For a more detailed
list of economic development programs available to
Chicago businesses, see TIF Alternatives.
TIF-Funded Commercial
Developments Outside the Central Loop TIF
The following charts
use jobs figures provided by the City, which are based
on figures reported by the companies. We have used
either the “actual” job creation figures
in the City’s annual reports on each TIF district,
or the number of jobs promised in the original redevelopment
agreement. In either case, there are serious questions
about how many jobs were actually created as a result
of TIF deals. In cases where the number reported is
“0” it indicates that no jobs were promised
in the agreement or reported by the City at a later
date. Developers who get TIF subsidies submit their
own numbers for jobs retained or created. This “self-reporting”
can be self-serving. Sometimes, the figures do not
explain whether the jobs are part-time or full-time,
and in extreme cases even may include jobs created
“indirectly” at nearby businesses.
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