Dive Brief:
- The city of Chicago unveiled plans on Feb. 21 to borrow $1.25 billion to pay for affordable housing and neighborhood development projects. The city plans to pay off the bond by redirecting money it currently uses for its Tax Increment Financing program, which has faced criticism for benefiting more affluent areas while taking money away from public services such as schools.
- If approved by the City Council, the plan would provide $250 million per year from 2024 through 2028 for community improvements, the city said. Half the bond proceeds would be used to construct and preserve affordable rental units and support homeownership; the remainder would support community development, small businesses and jobs and wealth-building initiatives.
- The plan won’t completely solve Chicago residents’ housing challenges, said Paul Williams, executive director at the Center for Public Enterprise, but “the city has found a financially sustainable way to significantly expand what they are currently able to do,” he said.
Dive Insight:
U.S. cities facing rising rents and home values are looking for innovative ways to grow the supply of affordable housing. With this plan, Chicago would join cities including Raleigh, North Carolina; Dallas; San Francisco; and Atlanta that have passed or pushed for new bonds to pay for affordable housing, either through a referendum or other funding measures.
Chicago’s affordable housing production has been constrained by the availability of federal subsidies known as low-income housing tax credits, Williams said. The plan would “create a whole new pie” of funding for the city to use for developing additional mixed-income affordable housing, he said.
One part of the proposal would establish a revolving loan fund to distribute low-cost loans that finance mixed-income housing production. Leaders in Montgomery County, Maryland, and Atlanta have recently pursued similar measures.
Chicago’s plan would pay off the affordable housing bond by allowing one-third of its 121 TIF districts to expire. The TIF program was designed to pay for projects such as infrastructure or road repair work in blighted areas by capturing the increased property tax revenue an area is expected to generate as a result of the improvements. But the program, established in 1984, has received pushback due to TIF districts being created in non-blighted areas and diverting that property tax revenue to pay for projects in those more affluent areas, Chicago Policy Review reported last year. Allowing some of those TIFs to expire would make those incremental increases in property tax revenue available to repay the bond in the new proposal.
What differentiates Chicago from other cities issuing bonds for affordable housing, Williams said, is the plan to retire TIF districts to find the money to repay the bond.
Whereas the TIFs limited the use of some property tax revenue to within the bounds of the TIF district, “Now the city wants to use this tool to redistribute those investments across the city and not be geographically constrained in the same way,” Williams said.
Chicago’s Department of Planning and Development Commissioner Ciere Boatright said in a statement that the plan would provide a more flexible form of financing and “support a broader range of projects and better meet the unique needs of Chicago neighborhoods.”
According to WBEZ Chicago, the city is grappling with numerous financial challenges, including large amounts of debt and increasing pension obligations.
The Chicago news station reported that several city alderpersons have backed the plan. Alderman Andre Vasquez said he supports reforms to TIF, but he had questions about how projects would be prioritized under the plan and wants to see some of the funds that previously went to TIFs used to pay off pensions, WBEZ reported.
The revenue the city would generate by retiring the TIF districts is projected to be much greater than the debt service on the proposed bond, Williams said. The additional revenues can be placed in the city’s general fund — which can be used to fund other priorities, such as pension contributions, he said.
The bond issue “is an additional debt load, but it is deficit reducing in that revenue is increasing by significantly more than debt is,” Williams said.
Chicago is separately pursuing a referendum vote this month that would implement a real estate transfer tax on buildings sold for more than $1 million to pursue a housing-first strategy that provides permanent affordable housing with wraparound services to address homelessness. A Cook County judge ruled the ballot question was invalid, but the city is fighting back against the ruling with an appeal.
