Friday, November 16, 2007

TIF Abuse in Chicago

Over the last few years, the amount of money that Chicago has brought into the tax increment financing district has increased to over a half billion dollars this year, TIF districts use current tax revenue to finance economic development that is suppose to later on repay itself through improvement in property values. The money is suppose to be used to increase economic growth and if often used to make pay out to private companies that will then use the money to create new jobs. While this sounds good in theory, in practice it rarely accomplish what it promises to, first of all the money usual ends up going to companies that do not need, companies that can easily raise any capital that they might need in the private investment markets. For the most part any business idea that is a good idea and economically viable will be raise the capital that it needs to get started and to run its operations. For this idea to work the government would have to have a better ability to decide what companies are economic viable than the market place does.
In Chicago you have the add problem that the TIF revenue is off budget so the Mayor Chicago has the ability to do pretty much what ever he wants with it and channel it to the projects he deems best. For example 40 million dollars went to the CME inc, the company that came into existence when the Chicago Mercantile Exchange bought out the Chicago Board of Trade, this merger also result in the company eliminating 400 jobs, so the city ended up paying the company about 100,000 dollars for each job it eliminated, and CME is easily a company that could easily raise all of its capital requirements in the securities market and has zero need for state subsidization.

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