By Shayndi Raice
CHICAGO -- The site of a former steel mill on the city's prosperous North Side has become a battleground over an economic development tool critics say is reinforcing the city's economic divide and robbing the treasury of hundreds of millions of dollars a year.
Activists are suing the city to stop developer Sterling Bay from proceeding with its Lincoln Yards development, one of the largest urban mixed-use projects in the country. They argue the city improperly handed out $1.3 billion in tax incentives as part of the deal.
The lawsuit is playing out amid increased scrutiny of tax-incentive packages for businesses, such as the billions offered to Amazon.com Inc. in its second- headquarters search and a giant planned development for Apple Inc. supplier Foxconn Technology Group in Wisconsin. The Chicago dispute highlights problems with a popular economic development tool known as tax increment financing, or TIF. It allows cities to use future property tax revenue -- generated by increased assessments as the area improves -- to help developers finance a project.
Critics argue TIF diverts municipal dollars to private developers that could otherwise be used for schools, parks or other city expenses. The lawsuit says that in Chicago, TIFs have aggravated economic segregation, with most TIF revenue flowing to wealthier, whiter parts of the city at the expense of poorer, black neighborhoods.
Illinois state law requires that TIFs be used in blighted areas that wouldn't have developed without the city providing a financial boost to lure developers. At the crux of the lawsuit is a debate over what qualifies as blighted.
The project poses a test for Chicago's new mayor, Lori Lightfoot, who campaigned on ending the city's economic segregation but, aside from asking for a few changes, supports the controversial project. A spokesman for the city said it doesn't comment on active litigation.
Historically, Chicago has relied almost exclusively on TIF as its primary economic incentive tool. Chicago had 140 such districts as of 2018, according to the city. In a study of TIFs in the top 10 U.S. cities, Chicago had more than the other nine largest U.S. cities combined, according to David Merriman, a professor at the University of Illinois at Chicago. In 2017, Chicago brought in a record $660 million in TIF revenue, representing 30% of the city's total property tax revenue. The districts ran a surplus of $176 million in 2017, according to the city.
In April, Chicago's City Council approved $1.3 billion in TIF money to Sterling Bay, the developer of the $6 billion Lincoln Yards mega development connecting the city's tony Lincoln Park and trendy Bucktown neighborhoods. The future property taxes will reimburse the developer largely for infrastructure improvements, such as several new bridges, a relocated Metra station and the realignment of a congested intersection.
Shortly after the deal's approval, the activists filed a lawsuit against the city over the project. In June, they asked the court to stop the city from allowing any development to move forward that would require TIF funds. A hearing is planned for next week.
Although the city wouldn't comment on the lawsuit, the mayor's new deputy for economic development, Samir Mayekar, said the administration views TIF as a vital tool. Still, he said, "TIF is not a panacea for all economic development if you don't have a broader ecosystem."
The administration plans to reveal a "Marshall Plan-like" initiative for poorer Chicago neighborhoods that will partner with philanthropic organizations to help spur economic development in underdeveloped areas, he said. He declined to provide more details.
In Chicago, TIFs have been used in what appear to be bustling and vibrant areas including for office buildings for United Airlines, Navteq Corp. and MillerCoors in the heart of downtown and along the Chicago River that some argue could have done fine on their own.
Finkl Steel had operated on the Lincoln Yards site along a bend in the Chicago River for more than 100 years before being torn down in 2015 after the company moved to the city's South Side. Passing motorists, bicyclists and pedestrians could sometimes see the glow of the blast furnace through the large doors of the sturdy brick and steel buildings.
The now-vacant site has long been seen as a prime area for development, because of its location between the two neighborhoods.
The activists -- Grassroots Collaborative and Raise Your Hand for Illinois Public Education -- representing communities including Chicago's poorer and largely African-American South and West sides, argue the Lincoln Yards area doesn't qualify as blighted.
"We want the money invested where it is most needed and it is needed where there is desolation and devastation," said Adeline Bracey, 69 years old, who lives in Auburn Gresham on Chicago's South Side. Her neighborhood is full of vacant and abandoned buildings, she said, with the only a cellphone store nearby.
Andy Gloor, the chief executive of Sterling Bay, said he is confident Lincoln Yards qualifies as a TIF since most of the public infrastructure is decaying or nonexistent. "The TIF is essential to completing public infrastructure improvements to the site," he said.
Broadly, academic research hasn't found that TIFs create additional economic development, leading to concern that they simply siphon money away from other city services.
Rachel Weber, a professor at the University of Illinois at Chicago, said it isn't always clear that there is a direct connection between Chicago's underfunded school system or other budgetary challenges the city is facing, like an expected budget shortfall for 2020 of more than $700 million. "TIF is probably No. 3 on the list of reasons why," she said.
Joe Barrett contributed to this article.
Write to Shayndi Raice at email@example.com
(END) Dow Jones Newswires
July 11, 2019 17:34 ET (21:34 GMT)
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