Tax Increment Financing in Chicago: The Perplexing Relationship Between Blight, Race, and Property Values

Abstract

Cities use tax increment financing (TIF) to trigger growth in blighted communities. Critics argue that Chicago’s broad conceptualization of “blight” facilitates the designation of TIF districts that do not resemble conventional notions of blight, bolstering their natural ability to generate capital, thereby exacerbating the gap between wealthy and poor minority spaces. This study examines Chicago’s TIF districts to determine whether blight levels and percentage of non-White residents interact to reduce the effectiveness of TIFs measured as the change in the equalized assessed valuation (EAV) of properties. Using composite indices to measure physical and economic blight, the results of a quantile regression analysis indicate that economically blighted TIFs with predominantly non-White populations outperform other districts. These findings run counter to expectations given that TIFs report high rates of growth in property values, yet they remain substantially blighted. This suggests a need to reconsider change in equalized assessed valuation as the measure of TIF effectiveness given that the “growth” in TIFs does not seem to reflect a higher quality of life for residents.

Growth Management Effectiveness: A Literature Review

“…There is some evidence that TIF positively impacts real estate value growth (Byrne 2006; Ginsburg 2003; Smith 2009; Blackmond Larnell and Downey 2019). A recent study suggests that parcels located within TIF districts sold for more than parcels outside of TIF districts by approximately $5,000 (He and Azizi 2020).…”

The Fiscal Effects of Tax Increment Financing on Rural School Districts: The Case of Iowa

“…He and Azizi (2019) find that parcels within TIF districts in Indiana sell at higher prices than those outside of TIF districts; similarly, Yadavalli and Landers (2017) find positive effects for properties in TIF areas. A TIF district's property value growth can depend on types of municipal expenditures within the district (Kane & Weber, 2016), as well as the district's spatial and demographic characteristics (Byrne, 2006;Larnell & Downey, 2019). Value growth may also vary depending on the TIF district type (e.g., commercial, industrial;Byrne, 2006;Weber et al, 2003).…”

The Impact of Tax Increment Financing on Business Entries and Exits in Iowa

“…1 Evidence from the literature remains inconclusive as to whether TIF incentives can have an impact on establishment location decisions; that is, cause more establishments to locate within TIF areas because of TIF incentives. Previous studies have empirically evaluated the potential effects of TIFs on various outcomes, including property values (Blackmond et al, 2019), school district finance (He et al, 2022;Nguyen-Hoang, 2021b), and, as discussed in this study, economic development. Our study contributes to the literature on TIF in three ways.…”