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This story is published in partnership with the Illinois Answers Project.
As candidates compete to serve on the Chicago Board of Education, the newly elected group will soon face a $1 billion question: how to deal with a controversial city of Chicago financing program that is both a cash cow for the district and a curse.
In the short term, Chicago’s controversial tax-increment district financing program is increasingly lucrative and serves as a much needed lifeline for the school system’s financial crisis.
But in the long term, it muddies Chicago Public Schools’ budgeting process and hardens its financial dependence on the city. Many of those taxing districts are set to expire by law over the next decade — along with the extra cash they provide.
Chicago has for decades used tax-increment financing, or TIF, to create geographic districts that divert property tax growth away from local governments — especially Chicago Public Schools — and channel the money into special funds that can be tapped to help pay for construction and public works.
But in recent years, the money raised by TIF districts has eclipsed spending on local projects. Chicago mayors have declared larger and larger “surpluses,” one-time measures reaching into TIF reserves and spreading the money back over local governments. The biggest beneficiary has been the school system, which is by far the largest local collector of property taxes.
TIF districts expire each year, automatically sending millions back to the school district and other taxing bodies. But as some of the highest-earning districts near downtown Chicago remain in place, CPS has had to rely on surpluses to reap their share of property taxes. The surpluses also float cash to the district without triggering the state law that limits how much the district can raise its property tax levy.
As recently as 2019, the amount CPS raised by the TIF surplus barely accounted for 1% of the district’s total budget. But this year, when the school district received more than half of the record $1 billion surplus declared by Mayor Brandon Johnson, its share represented more than 6% of its spending plan.
That’s a problem when the school district is legally required to pass its budget months before its leaders know how much they’ll get from the mayoral-declared surplus, said Justin Marlowe, director of the Center for Municipal Finance at the University of Chicago’s Harris School of Public Policy.
“It’s bad on multiple levels,” Marlowe said. “It would be one thing if it was a relatively small share of … CPS’s overall budget, but it’s not. It makes a material difference how much TIF surplus there is, and we’ve seen that play out in some very direct ways.”
The timing of the cash infusion is one major unknown in the school district’s budget process. Another unknown is the amount of money coming in. During the past five years, TIF surplus has buffed the schools’ approximately $10 billion spending plan by as little as $141 million and as much as $523 million.
The stakes have been raised on the district’s annual TIF guessing game as CPS and city leaders argue over who’s responsible for a $175 million annual pension payment. Last year, Johnson was able to resolve the issue by declaring a much larger surplus than the school district budgeted for, floating CPS a cash infusion big enough to cover the cost.
“The whole point of having a calendar is that you make certain decisions — sometimes tough decisions — at certain moments in time, and you make compromises and you make trade-offs,” Marlowe said. “If the process just stretches on endlessly, waiting for new information from the city or from Springfield or whatever, that violates some really core principles at a very high level.”
This year, the school board — for now split between elected members and mayoral appointees — passed a controversial plan to assume $285 million in TIF surplus plus an additional $150 million in money from the state, aiming to prevent painful cuts.
State leaders have insisted Springfield does not have the money. District leaders will get an indication of how much surplus to expect when Johnson releases his budget proposal later this month, but they won’t know for sure until the City Council approves a final spending plan later in the year.
How do TIFs work?
Chicago’s TIF districts have steadily declined in number from their 2011 peak as the bonanza of districts created under Mayor Richard M. Daley reached the end of their 23-year life cycle. The 160 districts when Daley left office shrank to 101 active districts this year. Another 13 are scheduled to expire this year with an additional 15 due for expiration by 2030, including the juggernaut LaSalle Central district, which on its own raised more than $200 million last year.
When a TIF district expires, the money in its account is distributed back to taxing bodies, and local governments can raise their levies to absorb its annual collections moving forward.
However, even as the number of TIF districts has dwindled, their combined collections have skyrocketed, taking in more than $1 billion last year, according to city data. That’s because a half-dozen fast-growing districts near downtown claim an outsize share of the TIF revenues.
The TIF program has come under criticism for siphoning money to wealthy neighborhoods that could otherwise have gone to school districts. The Chicago Teachers Union has long called for the city to wind down its TIF programs.
“The overwhelming history around TIF has been that it has not been used for areas that are ‘blighted,’” as they are intended under state law, said Pavlyn Jankov, research director for the Chicago Teachers Union. “The way it is structured takes money that would go to schools and otherwise diverts it because of the way it disallows new property from being taxed by school districts, parks, libraries, et cetera.”
But since longtime CTU organizer Brandon Johnson was elected mayor in 2023, the union has not objected to his administration’s decision to extend the lives of some districts while declaring growing surpluses.
How do school board candidates want to use TIF money?
Hilario Dominguez, who is running for school board president with the backing of the teachers union, expressed a similar sentiment, calling TIF a “stopgap for the funding our state owes.”
“Past mayors may have used TIFs as a slush fund for downtown developers,” Dominguez wrote in an emailed statement. “But we have an administration now who sees we can resource our schools, create jobs, and invest in neighborhoods with projects for the public good at the same time.”
Dominguez’s statement did not propose changes to the TIF system, instead pointing to money owed to districts around the state through the evidence-based funding formula approved by Illinois lawmakers in 2017.
“Ultimately, TIF is a stopgap for the funding our state owes,” the statement said. “Uncommitted funds in a TIF surplus help our students on a rainy day but the two billion dollars being denied to our district has it raining so hard that our schools started the year literally molding.”
Union leaders have stopped short of calling for an accelerated wind-down of Chicago’s TIFs, even though that would mean a steadier stream of revenue to the district without having to raise taxes or rely on fickle annual surpluses.
A 2024 report from the research and advocacy group Kids First Chicago estimated that the wholesale elimination of TIFs could mean hundreds of millions of additional dollars coming to the district each year — even after accounting for surpluses from the city.
“TIF surplus is the opposite … of sustainable, predictable revenue,” said Hal Woods, director of policy for Kids First Chicago. “It is a very unreliable source for a school district, particularly the size of CPS.”
It also creates a “huge sequencing problem” for the school district to pass its annual budget before leaders know how big a surplus to expect, he said. Chicago Public Schools’ fiscal year runs from July 1 to June 30 while Chicago plans its spending in calendar years, so budgets are finalized at different times.
“CPS, they’ve got to tell schools how much they can spend, how many people they’re allowed to hire, [negotiate] contracts with vendors, and they’ve got to pass a balanced budget before one of its most significant local revenue sources is actually known,” Woods said.
Jessica Biggs, another candidate for board president, said having to predict the size of TIF surpluses “makes a challenging process all that much more challenging” when trying to craft a budget for the school district.
Biggs advocated for more transparency in the way TIF is used and closer communication between city, school district, and state leaders. She added that modeling more TIF districts off the two special transit TIFs, which reimburse CPS for their share of tax dollars collected, could be one possible reform path.
Victor Henderson, who is also running for CPS board president, declined to take a definitive stance on whether TIF should be reformed or wound down, saying he would take a “civic-minded” approach that considers the needs of the city budget and ward-level development.
In the meantime, Henderson said, the district should budget conservatively, possibly by approving multiple spending options that anticipate different sizes of TIF surplus.
“You do have to make some assumptions, but they should be either A, be reasonable, or B, trend towards conservative,” Henderson said.
An independent school board could exercise its newfound power to pressure city leaders for more consistent treatment of programs like TIF that have profound fiscal consequences for the school district, Marlowe said. Or, it could break down into yet another political turf war.
“The optimist in me wants to look at this and say that this is a really good opportunity to disentangle the city and CPS’s finances, to create some very clear rules of the game of the way that the TIF surplus is going to work,” Marlowe said. “I think it’s entirely possible to have a different kind of working relationship that’s much more transparent and much better for not just the financial health of both the city and CPS, but for creating more stability and more predictability.”
“But … politically, I don’t know how much appetite there is for that,” Marlowe said.