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Monday, November 22, 2010

Can We Afford the 49th Ward RIF: Financing Chicago in the Post-Peak Oil Era

Mega-cities such as Chicago will confront major challenges in the Post Peak Oil era. The core problem facing our largest and most densely populated cities will be economic: we will have to meet rapidly increasing costs in day-to-day operation of our critical systems for transportation, water treatment, emergency response, sewage and waste treatment and disposal, law enforcement, and the maintenance of critical infrastructure necessary to deliver these services, in a climate of rapid and geometric increases in costs due to the draw-down of liquid fuels, production of which is projected to drop 5% a year or more from 2012 forward. 

Is it wise to divert future tax revenues to subsidies for private purposes, no matter what their merits may be, when Chicago currently is struggling financially and is unprepared for the post-Peak Oil era? At this time, the city's systems and infrastructure are in need of substantial repair and upgrading, and any further diversion, present or future, of public money to private purposes could further impair our ability to maintain a safe, orderly civil environment.

TIF and RIF financing mean the diversion of future tax increases (the "increment") from general revenues to private purposes, in this case the rehabilitation and winterization of rental properties in the 49th Ward. The amount of money involved is often substantial; in the case of the proposed 49th Ward RIF, up to $54 M will be diverted from general revenues in an era of steeply increased costs of operating the city in an era of steep reduction in available energy and vastly increased operating costs.

Additionally, other wards will also demand RIFs for similar purposes, which means that the amount of future property tax revenues diverted could be multiplied by 50, since many of the the south side and west side wards are burdened with much more rental housing stock in much worse physical condition than that of the 49th Ward. This could mean that, ultimately, up to $2.5 Billion could be diverted from general revenues to the purpose of rehabilitating rental properties, over the next 25 years,in addition to other subsidies for other private purposes, to the detriment of the City's ability to fund daily operations and make necessary investment in the upgrading and expansion of critical infrastructure to keep the city minimally safe and sanitary in an era of crippling shortages and rapidly escalating cost s for nearly all services and goods.

Given that Chicago's water and sewer infrastructure is decrepit and outdated, and will need substantial repair and upgrading to continue to meet current needs, and that its public transportation system is also in poor condition and ill-equipped to handle a steep and rapid increase in ridership that could occur if the cost of auto ownership were to become too expensive for low and medium income residents due to rapid escalation in fuel costs. Considering all of the foregoing, Chicago and the surrounding Cook County suburbs are currently ill prepared for the vicissitudes of Peak Oil and the terminal decline in oil and other fossil fuel production.

While the costs of running our city in such a manner as to ensure basic safety and sanitation will rise steeply and rapidly, tax revenues could well be in free fall due to declining incomes of residents and in business activity, as declines in fuel supplies will raise the costs of all business activities in proportion. Many businesses will fail and nearly all will face major challenges, while employment opportunities will wither. Property taxes, sales taxes, and all other taxes and fees will most likely have to be increased steeply to meet daily operational expenses and perform "patch" repairs in critical transportation, water, and sewer infrastructure, and expansion and improvement of these systems will quickly become prohibitive. The capital necessary for expansion simply will not be there because of the debt overhang from the early 2000s that has absorbed all the capital that otherwise might be available to invest in replacing aged infrastructure and expanding our utilities and public transportation. Yet this investment will be necessary if the city is to maintain services at their current level for the current population of approximately 2.9 million and surrounding suburbs that rely upon our water treatment and sewer systems. Additionally, massive investment in the regional public transportation system will be necessary for the system to accommodate new riders as driving becomes prohibitively expensive for tens of thousands more local residents than currently use the system.

Chicago will therefore have to find a way to finance vastly more expensive daily operations and maintain and expand as needed the utility and transportation infrastructure needed to ensure that the city will remain safe and livable with steeply reduced energy imputs from that point forward. There is at this time no substitute for oil and other fossil fuels that will meet all energy needs,, and plans for alternative energy, such as expanded nuclear capacity, will take at least a decade and most likely two decades to be fully implemented. Expansion of our power generating capacity will also be problematic because of the shortage of capital.

In short, the city will have great difficulty in funding its daily operations and in finding the capital to invest in necessary infrastructure repairs and upgrades, with the revenues that will be available for the purpose. It will most likely be necessary to raise taxes substantially just to maintain services at their current levels and make emergency repairs on critical infrastructure. Investment in expansion and upgrades of that infrastructure to meet the needs of an expanding population of ex-suburbanites and immigrants from other cities and towns, in an economy that is shrinking in response to steeply higher fuel costs, will require massive capital outlays that will be possible only if tax revenues increase steeply.

Any further diversion of tax revenues from public purposes to private purposes, by means of a TIF, RIF, tax abatement, or any other direct or indirect public subsidy, will mean that less money is available to prepare the City of Chicago's systems and infrastructure, which are already somewhat underfunded and have critical deficiencies, and that the city could end up in a financial bind impossible to negotiate as costs increase 25% or more and it becomes impossible to operate on the revenues available. This could mean steep reduction of necessary services, such as sanitation, emergency response, and law enforcement; and cascading failures in critical systems such as water and sewage treatment, and transportation infrastructure, greatly endangering the health and lives of 2.9 million (and possibly many more) city residents; and rendering the city much less attractive as a place to do business.

Our most important task in preparing for the post-peak era is rendering our community more resilient and self-reliant in a context where government subsidies and services may be steeply reduced, or non-existent. In the future that is almost upon us, our governments will be increasingly unable to function as they have for the past century, and will be unable to provide funding and assistance for any but the basic functions of a local government, and surely will not have the means to provide subsidies to individuals for private purposes, no matter how worthy.

For these reasons, any further diversions of tax revenues, present or future, for private purposes, would mean putting our basic services at risk and would endanger the health and lives of Chicago's 2.9 Million residents, and possibly many more in Cook County that are dependent upon the same systems for essential services. As it is, large diversions of revenues from the public till to private purposes have crippled Chicago financially, and retarded the city's progress in upgrading its critical infrastructure and funding daily operations.Therefore, the proposed 49th Ward RIF,  should be tabled, and no future TIF or RIF financing should be considered. 

Additionally, extant TIFs and other subsidies to business entities should be reviewed and re-considered in light of their true benefits, if any, and the negative offsets to those benefits, with the aim of reducing as much as possible the drain on public finances, and building reserves for the expenditures we will need to make to keep our city and its environs livable and economically viable.

7 comments:

FGFM said...

What the CappleRIF!

shapeshifter said...

North Coast I completely agree with you and I commend your eloquence in explaining this. I am recent home owner on Morse Ave, and although I care about low income housing I certainly dont think it should be subsidized. What I am most concerned about is the Alderman and his opponents. It appears they both support this and I would like to work quell before it gets passed.

The North Coast said...

We have a lot of work to do here. I'm hoping to get another public meeting going, with much more advance notice and publicity.

Two meetings have been held, but there was no publicity and only one day's advance notice. That was deliberate, I'm sure. You will notice that actions and events that have major impact on taxpayers are downplayed as much as possible.

Another issue is the extraordinary influence that local non-profits have in these matters. A Just Harvest and other Rogers Park non-profits are lobbying frantically for this RIF, and the task force that Moore assemble to study it is made up mostly of non-taxpaying non-profits. There are very few independent taxpayers sitting on the task force.

At the moment, Joe Moore says he only wants to "study" the RIF. I believe he is merely "playing possum" until the election is over, and then he will come in behind it like he has every diversion of public money. Brian White, head of non-profit Lakeside CDC, is the biggest promoter and will benefit since he is a local landlord.

The only aldermanic candidate for the 49th Ward who might oppose it has been struck from the ballot, so we are going to have to find a way to get the public behind us in our fight in the next two months.

Anonymous said...

This seems very un-democratic with an almost extremist view point to help the poor and low incomed residents of Rogers Park. I used to be poor and was a recipient of donations when I was growing up. But sometimes giving too much help makes it so people don't help themselves at all. Many times this is the case. I have been an opponent of Joe Moore from the beginning but Brian White seems to have an agenda that is even more sinister and one sided. Do you have any ideas beyond your amazing blogging?

The North Coast said...

I'm not clear on just what you consider "undemocratic"- reserving public money for urgent public purposes that benefit us all but that the poor need the most, like good city tap water, sanitary services, and police and fire protection- or handing our tax money to a few select cronies, in this case RP landlords, to create subsidized "affordable" housing for a relative handful of poor people?

The people who are hurt first and the worst when cities reduce services while hiking property taxes are the poor. Most of the poor will not get the benefit of the subsidized apartments but they WILL pay for it in elevated sales taxes on common items and in property taxes on the little shanties they own in neighborhoods like Englewood and Grand Crossing and Garfield Park. Do you know that people in these areas are getting hit with tax bills of $2000-$3000 for houses that are barely worth $35K?

When peak oil begins to gain traction, trust me it is the poor and near poor that will be hit first and the worst, and who will be the most endangered by the shrinkage and possible loss of essential city services such as police and fire protection, and elevated prices for city water along with accelerated infrastructure deterioration. And there will be more and more poor and near-poor, and fewer people who can afford to pay for this stuff every day. Probably, most of us will be impoverished by the rapidly escalating fuel prices, and the middle class will shrink drastically.

We are all going to take a lot of steep losses, and that's why it is crucially important, most of all to us who are not rich, to make sure our city can be run properly and safely at a time when we might not even be able to easily afford fuel for fire trucks and ambulances. The rich will retreat to their pristine, well-guarded villages far from trouble, while the rest of us will have to cope with the crumbling of every city structure we rely on to make life decent and safe here. Don't take your clean, safe city water and instant emergency response for granted- these things have to be built and paid for- they are not products of nature. We won't make it if we continue to allow hundreds of millions of dollars to be diverted to private purposes, including a relative handful of "affordable" apartments owned by crony landlords.

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