Is Tax Increment Financing Racist? Chicago's Racially Disparate TIF Spending

• Author: Jared F. Knight
• Pages: 1681-1717

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1681

Is Tax Increment Financing Racist?

Chicago’s Racially Disparate TIF Spending

Jared F. Knight*

ABSTRACT: Tax Increment Financing (“TIF”) is a financing tool used by

cities large and small across the country. Chicago, whose history includes

several instances of de jure and de facto racial discrimination, is an especially

prolific TIF user. This Note examines TIF distribution in each of Chicago’s

50 wards. Both a regression analysis and full population data show that

white wards receive substantially greater TIF allocations than black and

Hispanic wards. To solve this disparity, this Note proposes amending the

Illinois TIF statute to narrow the circumstances in which TIF is available.

This Note further proposes changing Chicago’s TIF allocation process to

restrict TIF dollars to wards experiencing extreme poverty and wards with

little racial disparity, concluding that the latter is the best and fastest short

term option to correct the imbalance.

* J.D. Candidate, The University of Iowa College of Law, 2016; B.A., Iowa State University,

2013. The author thanks Dr. Rhonda DeCook for her assistance with this project.

1682 IOWA LAW REVIEW [Vol. 101:1681

I. INTRODUCTION ........................................................................... 1683

II. WHY STUDY TIF IN CHICAGO? .................................................... 1684

A. TAX INCREMENT FINANCING .................................................. 1684

1. How It Works ............................................................... 1685

2. Why It’s Popular .......................................................... 1686

3. Why It’s Controversial ................................................. 1687

B. WHY CHICAGO? .................................................................... 1689

III. IS TIF RACIST? DATA FROM CHICAGO’S 50 WARDS .................... 1692

A. HYPOTHESES ......................................................................... 1692

B. METHODOLOGY .................................................................... 1693

C. RESULTS ............................................................................... 1695

1. Income’s Effect on TIF Spending .............................. 1695

2. Race’s Effect on TIF Spending ................................... 1697

i. Regression Results .................................................... 1697

ii. Population Results ................................................... 1699

IV. FIXING THE BROKEN SYSTEM ...................................................... 1701

A. AMEND THE ILLINOIS TIF STATUTE ....................................... 1701

1. Blighted Conditions .................................................... 1701

i. Obsolescence ............................................................. 1705

ii. Deterioration ............................................................ 1705

iii. Below-Minimum Code Standards ............................. 1706

iv. Excessive Vacancies .................................................. 1706

v. Declining Value ....................................................... 1707

vi. Lack of Community Planning .................................. 1707

2. The Causation Standard ............................................. 1708

B. TARGET SPENDING ELSEWHERE .............................................. 1709

1. Use TIF in Economically Depressed Wards .............. 1710

2. Use TIF in Racially Integrated Wards ........................ 1711

3. Don’t Allow TIF Projects that Racially Stratify a

Ward ............................................................................. 1711

V. CONCLUSION .............................................................................. 1713

APPENDIX A. RACIAL COMPOSITION BY CHICAGO WARD ............ 1714

APPENDIX B. PLOTS OF TIF SPENDING BY RACE .......................... 1715

2016] IS TAX INCREMENT FINANCING RACIST? 1683

I. INTRODUCTION

The 20th century introduced radical changes to the landscape of

American cities. An evolving economy and the population’s migration away

from farms and toward cities resulted in massive decreases in labor and farm

jobs, and even greater increases in professional and service employment.1 As

manufacturing and labor moved overseas, incomes surged in the jobs that

took their place.2 These shifts, combined with rapid suburbanization in the

mid- to late-20th century,3 left behind abandoned buildings in the nation’s

central cities.4

At the same time as these shifts altered employment in American cities,

black and Hispanic in-migration caused a dramatic change in the racial and

socioeconomic makeup of central cities.5 The race of in-migrants was the

primary motivation for white flight to suburbs, even controlling for

endogenous locational preferences.6 This combination of deindustrialization

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1. Ian D. Wyatt & Daniel E. Hecker, Occupational Changes During the 20th Century, MONTHLY

LAB. REV., Mar. 2006, at 35, 36 chart 1; see also PATRICK J. CARR & MARIA J. KEFALAS, HOLLOWING

OUT THE MIDDLE: THE RURAL BRAIN DRAIN AND WHAT IT MEANS FOR AMERICA 4–5 (2009)

(discussing migration from rural to urban areas).

2. See THEODORE CAPLOW ET AL., THE FIRST MEASURED CENTURY: AN ILLUSTRATED GUIDE

TO TRENDS IN AMERICA, 1900–2000, at 164 (2001) (“Middle-income families —those in the

middle fifth of the aggregate income distribution—saw their average annual in comes, measured

in constant dollars, increase from more than $15,000 in 1929 to more than $47,000 in 1998.”).

3. KENNETH T. JACKSON, CRABGRASS FRONTIER: THE SUBURBANIZATION OF THE UNITED

STATES 4 (1985) (“The 1980 census revealed that more than 40 percent of the national

population . . . lived in the suburbs . . . .”).

4. See generally John Accordino & Gary T. Johnson, Addressing the Vacant and Abandoned

Property Problem, 22 J. URB. AFF. 301 (2000) (describing the barriers to growth created by

abandoned and vacant properties).

5. See DOUGLAS S. MASSEY & NANCY A. DENTON, AMERICAN APARTHEID: SEGREGATION AND

THE MAKING OF THE UNDERCLASS 74–81 (1993) (discussing how racial migration patterns resulted

in “hypersegregation” in cities); John F. Kain, Housing Segregation, Negro Employment, an d

Metropolitan Decentralization, 82 Q.J. ECON. 175, 176–77 (1968) (“The means by which racial

segregation in housing has been maintained are amply documented. They are both legal and

extra-legal; for example: racial covenants; racial zoning; violence or threats of violence;

preemptive purchase; various petty harassments; implicit or explicit collusion by realtors, banks,

mortgage lenders, and other lending agencies; and . . . the Federal Housing Administration

(FHA) and other Federal agencies.” (footnote omitted)); Jay Readey, The Coming Integration, 7

DEPAUL J. SOC. JUST. 15, 27 (2013) (“[A]s black and brown people would move into a

neighborhood, white people would move out—quickly in the 60s and 70s and perhaps more

slowly in recent memory but always with inevitability.”); Leah Platt Boustan, Was Postwar

Suburbanization “White Flight”? Evidence from the Black Migration 21 ( Nat ’l Bu rea u of E con. Res earc h,

Working Paper No. 13543, 2009) (finding a causal connection between white out-migration to

suburbs and black in-migration, controlling for other proposed causes).

6. Boustan, supra note 5, at 19; see also William H. Frey, Central City White Flight: Racial and

Nonracial Causes, 44 AM. SOC. REV. 425, 426 (1979).