06/29/2010 06:03 pm ET | Updated May 25, 2011

Audit: Chicago Lost Over $1 Million Through Mishandled TIFs

According to an audit by the city's Inspector General, Chicago lost well over $1 million dollars through poor oversight of its tax-increment financing districts.

The audit revealed that in one instance, the city let $1.2 million sit untouched for nearly three years, according to a new report from the Chicago Sun-Times. When it was discovered by auditors, the money was returned to taxpayers, but was paid to Cook County instead of Chicago because of city mismanagement.

Inspector General Joe Ferguson's findings cast a pall over the TIF program, Mayor Richard M. Daley's favorite vehicle for economic development in the city. In his 20 years in office, Daley has expanded the program enormously; it has grown from seven districts in 1989 to 159 districts today.

Tax-increment financing is a system for parsing out tax dollars from valuable property and spending it on development projects. Generally speaking, when a TIF district is created, the city fixes the amount that area will contribute to Chicago's budget at current levels. If property values rise in the area, and it generates more property tax dollars than it had, that extra money goes to the TIF program.

In an ideal world, this might be an effective, even powerful tool to address unequal distributions of wealth, siphoning off tax dollars from high-value properties to eradicate blight and bring development to parts of the city that might otherwise not see it.

But, as Mick Dumke and Ben Joravsky at the Chicago Reader have relentlessly exposed over the years, TIFs don't work that way. Instead, the money goes to subsidize big business, fund glitzy and often misguided development projects and move poor people out of gentrifying areas.

And TIF funds, which take in roughly $500 million per year in property tax dollars, fall under very little public oversight. The funds are essentially spent at the discretion of the mayor's office.

This, Inspector General Ferguson reported, has led to money disappearing -- tens or hundreds of thousands of dollars at a time -- due to poor management of the funds.

A few examples from the Sun-Times:

• The PBC [Public Building Commission] improperly paid the city's Department of Cultural Affairs $329,000 for "public art" at public buildings located within the Central Loop TIF, in violation of state law, which does not allow such expenditures. Ferguson recommended that the money be returned.

• $85,000 worth of liquidated damages generated by PBC-managed construction projects within the Central Loop TIF were used to fund an ineligible job training program outside TIF boundaries.

• More than $54,000 in penalties against contractors who failed to meet city requirements to hire city residents and employ minorities and women as journeymen and apprentices had not been collected two years after the contractors were paid with TIF dollars to renovate the police academy.

In recent years, with the city's budget faltering and coverage of the issue growing, TIF reform has been gaining followers on the City Council. It remains to be seen how many new converts will be won by Ferguson's report.