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Quarterly: Spring 2020 - Talia Peckerman

Following Up on Another Entity’s Recommendations: The Tax Increment Financing (TIF) Inquiry

By Talia Peckerman

There’s no reason to reinvent the wheel, particularly when the inventors are a group of esteemed subject matter experts who have developed thorough recommendations on a complex and controversial topic. Here’s the story of our decision to save taxpayer dollars by following up on someone else’s recommendations rather than conducting a Yellow Book audit.

The Reform

Illinois State law empowers municipalities to establish Tax Increment Financing (TIF) districts. TIFs finance public and private projects designed to improve infrastructure, expand the tax base, or foster economic development, using real estate taxes generated from property value above a baseline amount. In Illinois, an eligible TIF district must (1) meet the statute’s definition of “blighted” or “conservation” (at risk for becoming blighted), and (2) pass the “but-for” test, meaning that the area would not be developed if not for the TIF program.

Transparency in Chicago’s TIF program has long been a subject of contention. Although TIF was originally intended to support economic development in struggling neighborhoods, TIF districts have been established in prosperous neighborhoods as well. In May 2011, then newly-elected Mayor Emanuel convened a TIF Reform panel tasked with making recommendations to bring transparency, accountability, and efficiency to the TIF program. Three months later, the panel issued a report of its findings and recommendations. In January 2012, the mayor responded by committing his administration to a series of TIF reforms.

But in the seven years that followed, the TIF program kept operating and Chicagoans kept seeking answers.

The Report

While researching potential TIF audit objectives in 2018, we rediscovered the panel’s report and wondered how many reforms had actually been implemented. Rather than expend our resources on a full-blown audit, we decided to add value by holding the City accountable for its promised reforms. We needed to act fast because Mayor Emanuel was leaving office in May 2019 and a new administration would need to make decisions about the contentious TIF program. So, we followed up on the panel’s recommendations in much the same way we do our own audit reports: we sent a detailed letter requesting description and documentation of corrective actions the City took in response to the panel’s report.

Sounds straightforward, right? We thought so, until we encountered several obstacles:

  • At times, we had difficulty ascertaining the link between the panel’s findings and recommendations. This made us question whether we understood the intent of each recommendation: if we didn't, we would be unable to properly assess whether the City had taken necessary steps to fulfill it. And since the panel had disbanded years ago, we couldn’t ask them what they meant.
  • The panel recommended that the City establish 42 specific metrics to evaluate TIF programming, which was much more detailed and prescriptive than our audit recommendations would be. When making recommendations, we attempt to be specific enough to guide the auditee in fixing the problem, but not so specific that we end up doing management’s job. That would also impair our independence and ability to audit the topic in the future. Nevertheless, in this case, we were following up on someone else’s recommendations and we did not alter them even though they felt a little too prescriptive. To summarize the City’s response, we settled on a high-level overview, illustrated in the figure below.

  • We didn’t know whether the City thought the panel’s recommendations were feasible. In an audit, we always know whether our recommendations will be easy or difficult for the auditee to implement. (Indeed, Yellow Book paragraph 9.28 says that, to be effective, recommendations should be feasible.) Therefore, we were concerned that we could be holding the City accountable for unrealistic expectations.
  • Our research uncovered certain items indicating that the City had already fulfilled, or partially fulfilled, recommendations at the time the panel’s report was released. Yet the panel’s report did not mention these items and why they were inadequate. For example, the panel recommended that the City develop a “Capital Budget”; however, the City already had the “Capital Improvement Program” (CIP) document which seemed to satisfy much of the recommendation’s intention. Although the City’s CIP was not mentioned in the panel’s report, we assumed that the panel members were aware of it and therefore must have been looking for something additional. The follow-up letter we sent to the Mayor’s Office said that the CIP would not satisfy this recommendation. Nonetheless, in its response, the City stated, “Each year, the City prepares a comprehensive Capital Improvement Program (CIP) with rolling 5-year projections of capital projects across departments. The City believes that this CIP process…satisfies the core of the TIF Reform panel's recommendation on this point.”

The panel’s recommendations were organized in a way that was not always obvious to us, which made it difficult to organize our follow-up report in a reader-friendly way. To make our report cohesive, we assumed connections between items and ideas; on the occasions where we could not, our report reads somewhat unevenly.

None of the above is meant to imply that the panel’s report was executed poorly, and we are certainly not saying that we could have done a better job. The panel was comprised of subject matter experts, guided by their own standards and a quick turnaround. We ourselves are generalists following the Yellow Book, and we usually take longer than three months to complete an audit.

The Results

It’s not uncommon for jurisdictions to convene working groups, task forces, commissions, etc., when charged with generating recommendations for improving a program. Often there’s much fanfare around the creation of these committees and a jurisdiction’s public pledge to improve programming. Just as often, the enthusiasm eventually dissipates and the government’s actions remain a mystery, especially since commissions are temporary and don’t last long enough to see their recommendations implemented. This can be a great opportunity for audit shops to add value by following up on recommendations we didn’t make, but still holding governments accountable for their reform commitments.

Following up on someone else’s recommendations may be challenging, but still well worth it. If you believe the experts’ recommendations are reasonable and based on sound evidence, you can help drive program improvement with far less investment of resources than conducting a full audit. We have no regrets and will look for opportunities to do similar follow-ups in the future.

About the Author

Talia Peckerman is a Chief Performance Analyst in the Public Safety section at the City of Chicago Office of the Inspector General. Talia is passionate about justice reform and bettering government, but also enjoys playing with Microsoft Excel and anything numbers. Talia is originally from New York, lived in Israel, worked in East Africa, and currently resides in Chicago with her husband and daughter.