What are TIF funds? Experts explain tax increment financing amid Chicago budget crisis

CHICAGO (WLS) -- Recent debate over how Chicago Public Schools should pay for it's pension debt and a new teachers contract has centered around the use of TIFs, or tax increment financing.

Experts spoke with ABC7 to explain what TIFs are and how they work.

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Across Chicago, there are 124 TIF districts that are used to primarily spur development, like what can be seen in places like Fulton Market.

When a TIF district is established, the property tax revenue for government agencies is capped at the current level. As property values go up, any additional tax dollars go into a separate surplus fund.

"That money does not go to the schools, does not go to the parks, etcetera. It's captured by the TIF district in a sort of a slush fund," said Tom Tresser with the TIF Illumination Project.

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TIF surplus money was used a number of years ago to help building Westinghouse College Prep on the city's West Side, as well as other projects like a playground at Jensen Elementary. They are the kind of expenses those funds were intended for.

"Money from the TIF district must be spent in the TIF district if it is part of the TIF, part of the TIF expense, right?" said Ald. Jason Ervin, Budget Committee Chair. "However, if it's surplus, then it becomes general money for everybody, including the city of Chicago."

As CPS is considering how to pay for a new teachers contract and $175 million in pension payments, CEO Pedro Martinez and the Chicago Teachers Union have separately advocated for using TIF funds, but Mayor Brandon Johnson favors taking out a high interest loan.

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"Reality is that you generally will borrow in anticipation of a new revenue source coming in," Ervin said. "And the reality is that the state is behind in its own formula with us. And so why would the city of Chicago take money out of its pockets to fund something that somebody else should be funding?"

With additional state money questionable, the mayor may have to tap TIFs to help CPS. According to Tresser, whose organization carefully tracks those funds, the money is there.

"At the end of 2023 there was $3 billion sitting in the TIF funds," Tresser said. "Over half of that should have gone in the CPS."

Despite the debate, TIFs will continue to be used to fuel development and make structural improvements for the city and CPS. The public will find out how the mayor intends to use them when he reveals his budget plan at the end of the month.