What is Tax Increment Financing (TIF)?
The City of Chicago is one of many cities that utilizes a public and private fundraising program called Tax Increment Financing (TIF) to subsidize redevelopment and infrastructure improvements across designated areas. Funds are normally allocated in union with a private development project, such as a company relocating its headquarters to the city. In order for projects to receive funding, minimum requirements (e.g. timelines for redevelopment, jobs created, and jobs retained) must be fulfilled. Each district is formed with specific goals to help improve real estate values. Currently, there are 163 TIF districts covering 30% of the City’s physical area and 10% of its property tax base. The overarching goal of the program is to attract new businesses and expand current companies to create more employment opportunities for residents.
How are funds raised?
Once a certain area is classified as a TIF district, a base amount is set by aggregating the amount of property tax generated. The City of Chicago uses a method of Equalized Assessed Valuation (EAV) over a period of 23 years. The growth in property tax over the base amount results in funds that can be used for each district’s redevelopment efforts. These funds can be applied for approved projects as they are accumulated or to pay back bonds issued for upfront costs. At the end of 23 years, the increase over the base amount is distributed among Chicago’s taxing bodies based on property values.
Recently approved TIF legislation
Three firms recently received significant TIF funding as each committed to moving its corporate headquarters to Chicago. The retail and food service divisions of Sara Lee Corporation was approved to receive $5.0 to $6.5 million when they relocate its offices from Downers Grove to a redeveloped building at 400 South Jefferson. Although not finalized, Sara Lee is in discussions to occupy between 200,000 and 220,000 square feet. The company will relocate 500 full-time positions from Downers Grove and plans to add 150 new full-time over the next four years. Essentially, Sara Lee receives $10,000 per job created in Chicago and must retain at least 500 positions over the next 10 years in order to keep its TIF funding. The reimbursement will help offset the approximately $30 million cost of redeveloping and building out the space.
Coyote Logistics, one of the nation’s fastest growing companies, is in the process of securing TIF funding for relocating its headquarters from Lake Forest to the Green Exchange building on Chicago’s near northwest side. The approved funds would partially reimburse the cost to build its new state-of-the-art office space. In return, Coyote Logistics agreed to relocate all full time jobs as well as create hundreds of new jobs in the first two years of the lease. Last month the company announced plans to create at least 400 new positions in 2012. MB Real Estate represented Coyote Logistics in lease negotiations and managed the construction new offices.
A steel company was recently approved for TIF funding for their corporate relocation from Ohio. The company leased 29,000 square feet at 227 West Monroe and was approved for TIF funds to help
offset buildout costs, pay off its existing lease in Ohio, and help aid in the higher real estate cost of doubling the size of its headquarters. To receive TIF funding, the company must retain the number of full-time employees currently at two production facilities in Chicago. Of the employees currently based in Chicago, 50 high-level executives would be moved to the new corporate headquarters. An additional 50 positions must be added, either from Ohio or as new hires, within the next four years. MB Real Estate represented the company in their lease negotiations.
Recent projects reurning TIF funds
While beneficial, some firms have not been able to capitalize on TIF funding. Three large companies recently returned or rejected a combined $34 million in previously approved TIF funds. CME Group chose not to accept $15 million for headquarter construction work after settling tax issues with the state. CNA group was approved to receive $13.7 million to renovate its headquarters. However in 2010, the group fell short of the 2,700 employees needed to receive TIF funding, prompting the group to return funds to the local taxing districts. Similarly, Bank of America returned $5.4 million dollars last November to the River West TIF District after failing to retain 2,700 employees. The company had been awarded funding for ABN Amro and the redevelopment of 540 West Madison.
With the initiatives put in place by Mayor Emanuel, Chicago’s TIF program is poised to become more efficient and effective in creating and retaining jobs for Chicago. In the past few years the economy had kept firms such as CNA and Bank of America from capitalizing. But in less than a year in office, Emanuel has shown a commitment to bringing more jobs to the city, with more than 5,500 new jobs announced among 11 companies. Companies approved for TIF funding will be more closely monitored to make sure they are in full compliance with their obligations. Companies considering expanding within or relocating to Chicago should be cognizant of the TIF program and the benefits it can provide in retaining and attracting a talented workforce.