THE STRATEGIC VALUE OF TIFs

A recent disagreement between mayoral candidates Keith Pekau and Jim Dodge shows how differently people can view public investments. Pekau claims a local Triangle TIF project has failed because it lost $47 million when comparing direct revenue to costs. Dodge, however, sees success in how the project has prepared the area for future growth, considering both immediate and long-term benefits. This difference of opinion highlights a common misunderstanding about how we should measure the success of public investments.

Think about public transit systems as an example. If we only cared about making money by comparing ticket revenue to operating costs, transit agencies would only run trains and buses during rush hour on busy routes. But public transit has many important goals: making sure everyone can get around regardless of age or income, reducing pollution, saving energy, helping people reach jobs and businesses, and reducing traffic congestion. Success in these areas can't be measured by just looking at profit and loss.

Tax Increment Financing (TIF) districts are tools that cities use to fund major projects. When cities use TIFs, we need to look beyond simple profit calculations to understand their true value.

Although the Triangle TIF included more than just a train station, to keep it simple let’s explore why train stations in particular would not make money directly but can still bring important benefits that make them worth building.

UNDERSTANDING THE REVENUE CHALLENGE

Train station TIFs face a basic challenge in generating immediate revenue. While new shopping centers or business parks typically cause nearby property values to rise quickly, train stations often have a smaller direct effect on surrounding property values. This is especially true when the station is surrounded by parking lots, public land, or areas that can't be developed easily. Also, most people who use the train station often live outside the TIF district, which means their increased property values don't contribute to the TIF's revenue.

THE BROADER ECONOMIC IMPACT

Even if train station TIFs don't generate enough direct tax revenue to cover their costs, they can create widespread economic benefits throughout the community. Property values tend to rise across the wider area as better transit makes locations more desirable. While this increased value isn't captured within the TIF district itself, it strengthens the city's overall tax base and increases residents' wealth.

The economic benefits go beyond property values. Better transit often attracts new businesses, boosts local shopping, and makes it easier for people to reach jobs. These changes bring in more money for the city through sales taxes, income taxes, and business fees. Moreover, new transit stations often encourage private developers to build nearby, creating a cycle of growth and renewal.

QUALITY OF LIFE AND SUSTAINABILITY BENEFITS

Train station TIFs also provide benefits that aren't measured in dollars and cents. Better public transit typically means less traffic, shorter commute times, and less pollution. These improvements make the community a better place to live and attract both new residents and businesses. While it's hard to put a price tag on these quality of life improvements, they make the community stronger and more desirable in the long run.

STRATEGIC INFRASTRUCTURE INVESTMENT PERSPECTIVE

Looking at train station TIFs as long-term investments helps explain why they're valuable even when they don't make money right away. Rather than expecting quick profits, these projects invest in the community's future by creating the foundation for growth and development. The initial cost, while significant, helps create conditions that lead to future prosperity and better quality of life.

CONCLUSION

TIFs including projects like train stations, retention ponds, and university health centers do not generate enough direct tax and lease revenue to cover their costs. But, in the case of Orland Park’s Triangle TIF, their wider economic and social benefits make them worthwhile investments.

For example, the retention pond prevents serious flooding and its consequences, and the University of Chicago Medical Facility offers area residents high quality care from one of the nation’s best medical schools. They all show how cities can use financing tools to create long-term value for the community, even when traditional business measurements suggest otherwise.

Success comes from looking beyond direct financial returns to consider how these projects improve community development, economic growth, and quality of life. These too have economic value, but it is indirect and difficult to measure.

POSTSCRIPT: A CASE STUDY IN MUNICIPAL GOVERNANCE

The different views of Pekau and Dodge on the Triangle TIF project show us something important about running a city: leaders need to understand both numbers and community benefits. Running a city well requires understanding how money, social benefits, and environmental factors work together to create lasting value for residents. As Orland Park grows, its success will depend on leaders who understand these connections and plan carefully for the community's future.

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Written by Darold Barnum, PhD, MBA (Wharton School); Emeritus Professor of Management and of Decision Sciences, University of Illinois at Chicago; Founding Co-Director, University of Illinois Center for Human Resource Management; Associate Director, Indiana University Institute for Urban Transportation; researcher and consultant on local government performance. Ably assisted in research and writing by ChatGPT 4o and Claude 3.5 Sonnet.