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This article examines the specific mechanisms that

have allowed global financial markets to penetrate

deeply into the activities of U.S. cities. A flood of
yield-seeking capital poured into municipal debt
instruments in the late 1990s, but not all cities or
instruments were equally successful in attracting it.
Capital gravitated toward those local governments
that could readily convert the income streams of
public assets into new financial instruments and that
could minimize the risk of nonpayment due to the 251
actions of nonfinancial claimants. This article follows
the case of Chicago from 1996 through 2007 as the
city government subsidized development projects
with borrowed money using a once-obscure instrument called Tax Increment Financing (TIF). TIF
allows municipalities to bundle and sell off the rights
to future property tax revenues from designated parts
of the city. The City of Chicago improved the appearance of these speculative instruments by segmenting
and sequencing TIF debt instruments in ways that
made them look less idiosyncratic and by exerting
strong political control over the processes of development and property tax assessment. In doing so,
Chicago not only attracted billions of dollars in global
capital but also contributed to a dangerous oversupply
of commercial real estate.


86(3):251274. 2010 Clark University.

Key words:
public finance
real estate
Tax Increment Financing
capital switching


Rachel Weber
Urban Planning and Policy
University of Illinois at
412 South Peoria MC 348
Chicago, IL 60607


Selling City Futures:The Financialization of

Urban Redevelopment Policy


The author would like to
thank her interview subjects
for their cooperation and
Andrew Greenlee, Jeremy
Thompson, and Joanne Miller
for their assistance with this
article. Philip Ashton, Nik
Theodore, three anonymous
reviewers, and the editors of
Economic Geography provided
deep insight and sage advice.


One of the central organizing principles of contemporary capitalism is its dependence on the short-term
flows of global finance, the infrastructure of the
infrastructure (Cerny 1993, 18). In this phase of
capitalist development, accumulation occurs more
often through financial channels than through commodity production and trade (Boyer 2000a; Froud,
Johal, Leaver, and Williams 2006; Dumnil and Lvy
2004; Krippner 2005). Income streams from a wide
range of assets are converted into new investment
products for dispersed investors through techniques
that disaggregate and continually reassign ownership
to allow for more and faster-paced exchanges. Financialization is the term used to describe both this institutional form and the processes that lead to it.
Financialization is also evident in public policy
from international governance down to the sublocal
scale. In this article, I focus on the financialization of
urban development policy in the United States. The
degree of financial market penetration is reflected in
the increase in municipal debt, the privatization and
securitization of public assets, the size and scope of
the financial services available to city governments,
and the investor-orientation of critical collective consumption decisions. Local governments have come to
rely heavily on financial markets, and not just through
traditional forms of municipal indebtedness, for the
provision of standard public services.
Unfortunately, the means through which financial
integration has occurred in this sector have been
poorly understood. Finance capital is often depicted
as perpetually dynamic and naturally expansionary,
while the institutions and instruments that connect it
to place remain abstract and unexamined. Those who
study how finance capital operatesfor example,
through the shareholder-orientation of corporations
(Froud, Johal, Leaver, and Williams 2006; Weber
2000) and market-monitoring institutions, such as
bond rating and credit scoring agencies (Hackworth
2007; Leyshon and Thrift 1999; Sinclair 2005)
imply that it thoroughly imposes its will from
above, leaving little space for variation or agency on
the ground.
But a generalized pressure to attract capital does
not mean that local governments have been equally
financialized across space. Some entrepreneurial
cities have been able to convert their wealth into
freedom from financial market dependence, while
others have used it as leverage for more borrowing.
Some cash-strapped municipalities have been ignored

Vol. 86 No. 3 2010


by financial markets altogether, while others have paid to play, becoming encumbered
by high-interest debt on usurious terms.
Thus, I start from the assumption that financial integration is both variegated and
locally embedded. But I also move beyond the truism of local embeddedness by examining the actual mechanisms through which local governments construct a nexus between
global financial circuits and local property markets. In contrast to the characterizations of
money as disembedding and alienating and of local governments as passive recipients of
directives from markets, I direct my attention to three aspects of urban governance that
influence the distinctively local character of finance.
First, local governments have the capacity to participate actively in the construction of
financial markets by manufacturing new investment instruments and the underlying assets
that form their collateral. Like Leyshon and Thrift (2007), I demonstrate how the ability
to create and monetize new asset classes is one of the most valuable functions in a
financialized economy. Unlike these authors, however, I argue that political power, not just
the computer software to aggregate these new income streams, is needed to establish their
legitimacy. Cities control some of the most opaque and idiosyncratic assets, in particular
private and publicly owned real estate (Clark and OConnor 1997). The local state must 253
make these assets legible to distant investors and rating agencies if it is to attract financial
Second, local governments have varied abilities to protect the income streams of the
assets underlying these instruments. The growing interdependency, complexity, and
uncertainty of global economic activity not only creates more opportunities for speculation but also raises the premium paid for demonstrable control over the factors that might
threaten repayment and cause owners to default on their obligations. Cities that exhibit
more local controlfor example, over the timeframe for issuing debt or debt-based
securities, the real estate development process, or their political opponentsare often
rewarded with relatively fast and easy access to global capital. In this sense, it is not just
the assets themselves or, contra Clark and OConnor (1997), the degree of information
available about the asset that is commodified. I argue that the local states ability to control
development and hold claimants other than investors at bay is also being priced and
Third, despite financial market integration, local governments have the capacity to
preserve a realm of provision of public goods although the nature of these goods and
services are often themselves transformed by the manner in which they are financed. Here
I depart from Leyshon and Thrift (2007, 100), who argued that long-term investments in
public goods become subordinated to international financial imperatives, and Hackworth
(2007, 25), who asserted that the forced retirement of Fordist social welfare policies is a
de facto requirement of increasing a citys exposure to capital markets. Although it is
certainly harder to justify public investments that are not fiscally productive, some cities
have used their access to global financial markets as leverage to pressure other private
actors and public agencies into providing public goods, such as infrastructure and
This article examines one major city, Chicago, whose approach to financialization
represents an extreme, but illustrative, case study. The city has been called paradigmatic
for many reasons. It was the U.S. industrial metropolis, and then it was the postindustrial
city whose movement toward financial services, real estate, and tourism was lauded by the
popular press despite its association with a new and disturbing form of wage polarization
(A Success Story 2006; for a critique, see Doussard, Peck, and Theodore 2009).
Overseeing the transition has been Mayor Richard M. Daley, in office since 1989, who has
embraced a model of public partnership with the private sector that closely resembles

the entrepreneurial mode of urban governance described by Harvey (1989) and Jessop
(1998). For Daley, this model has included charter schools, corporate sponsorship of
public amenities, and the new Chicago Model of privatization, whereby the citys
infrastructure has been leased to private investment consortia for periods ranging from 75
to 99 years, in exchange for up-front cash to fill short-term budget deficits (Koval et al.
Like other cities in the United States, Chicago has created new opportunities for policy
financialization through its use of a powerful redevelopment incentive, Tax Increment
Financing (TIF). TIF is an increasingly popular local redevelopment policy that allows
municipalities to designate a blighted area for redevelopment and use the expected
increase in property (and occasionally sales) taxes there to pay for initial and ongoing
redevelopment expenditures, such as land acquisition, demolition, construction, and
project financing. Because developers require cash up-front, cities transform promises of
future tax revenues into securities that far-flung buyers and sellers exchange through
global markets.
TIF is used by municipalities in all but one state and has funded everything from major
254 downtown entertainment centers to industrial expansions to public housing redevelopment. In Chicago, the value of new property taxes generated within TIF districts constituted over half a billion dollars ($555 million) in 2007, or a tenth of the $5.5-billion budget
that year. Fiscal crises and interest in neoliberal policy fixes around the world have spurred
an interest in TIF, which is in the process of being exported to countries such as the United
Kingdom and Australia (see, for example, British Property Federation 2008 and Morrison
2008). In an article about the mayor of London entitled Boris Johnson favours tax
increment financing method. Eh? the Guardian singles out Chicago as a seasoned user
of this novel, but still unfamiliar, financing tool (Hill 2009).
The article proceeds as follows: in the first section, I provide a brief overview of the
financialization literature, pointing out its oversights and overstatements particularly
where the role of local government is concerned. In the second section, I unpack one of
the most important mechanisms knitting the interests of global financial markets and local
policy together: TIF. In particular, I discuss the ways in which TIF represents financialized
urban policy as well as the kinds of risks that emerge when cities embrace such tools. In
the third section, I focus on how Chicago used TIF to convert political control into fiscal
strength and to participate in the debt-fueled Millennial property boom (roughly 1996
through 2007). My analysis is based on an in-depth reading of the contractual agreements
governing the allocation of city TIF funds to developers, which detail the sources and uses
of funds as well as the complex financial arrangements devised to monetize the tax base.
I supplement this exercise in forensic accounting with interview data from key policy and
financial market actors. The case material is used to develop new and to engage existing
theoretical propositions about how the integration of finance with city politics occurs.

The Financialization of Urban Development Policy

In the build up to and aftermath of the 2007 meltdown, scholarly attention to financialization increased and took root in disciplines heretofore indifferent to the role played
by financial capital in the economy (Lee, Clark, Pollard, and Leyshon 2009). The literature
consists primarily of accounts of the structural changes that have transformed capitalism
in the last four decades (Arrighi 1994; Ashton 2009; Boyer 2000b; Brenner 2002;
Dumnil and Lvy 2004; Krippner 2005). In the 1970s, sharp declines in corporate output
and profit rates created a flood of restless capital seeking returns in an environment
profoundly changed by the collapse of the international monetary management system.

Vol. 86 No. 3 2010


The task of guiding this capital through turbulent markets and switching it between
investment circuits increasingly fell to the private financial sector. This sector, which
encompasses everything from diversified global investment banks to pension funds to
lone day traders, grew in size and influence in the years following the profit crisis of the
1970s. By the late 1990s, the value of financial corporations and funds dwarfed the net
worth of nonfinancial corporations (Dumnil and Lvy 2004; Krippner 2005), and the
period from 2001 through 2007 only intensified financial expansion (Crotty 2008). The
value of all financial assets in the United States grew from four times gross domestic
product (GDP) in 1980 to ten times GDP in 2007 (Crotty 2009).
More volatility in asset prices and interest rates also created new opportunities for
short-term speculation, and the financial sector began to shift away from its previous
mission of transferring capital between those who save it and those who use it for
productive purposes (e.g., to purchase equipment) (Orhangazi 2008). Instead, it began to
finance itself effectively through a plethora of increasingly complex instruments (LiPuma
and Lee 2004; Bryan and Rafferty 2006). These instruments are intended to hedge or
disperse risks and to increase the liquidity of assets by pooling and repackaging their
income streams. The ability of instruments such as securities and derivatives to connect 255
global and local space, deterritorialize embedded assets, and absorb the savings of
households (through pensions and other funds) energized the study of financial geographies (see, e.g., Clark and OConnor 1997; French and Leyshon 2004; Martin 1999;
Pryke and Allen 2000; Tickell 2000).
Accounts of the expanding role of finance have differed considerably, particularly in the
normative weight they assign to these changes. Heterodox economists and geographers see
a playing out of Marxs over-accumulation crisis whereby financialization manages the
structural crises of capitalism, that is, the fact that capital surpluses cannot find sufficiently
profitable real investment outlets and that this demand inflates the prices of financial assets
(Amin 2003; Harvey 2003). Some offer an explicitly class-based analysis, whereby
financialization represents the latest assertion of power by the owners of the means of
production. Dumnil and Lvy (2004, 16), for example, suggest that finance took
advantage of the crisis of the 1970s to shift the course of history in its own interests. The
pursuit of shareholder or financial value imposes an imperative to suppress wages and
social spending, justifying the massive wealth transfer and polarization that results.
In contrast, mainstream economists and advocates, such as former Federal Reserve
Chairman Alan Greenspan, tend to read the wild growth of the financial sector as the key
to liberating capital so that it can more efficiently move around the globe in search of those
places where it can generate its highest returns (see also Fama 1990). The financial
sectors extraction of profits from the productive economy is expected to discipline
managers, who must compete for shareholder attention, and disperse risks internationally
to those best able to manage them.
The literature also varies in terms of its scale and point of entry to the vast financial
system. Many scholars make broad sweeps of the financial landscape, assuming a global
perspective and focusing on the macroeconomics of these system-wide shifts (Brenner
2002; Dumnil and Lvy 2004; Boyer 2000b). For them, financialization is a process that
has occurred in all realms of the economy, as well as in remote places far from trading
centers. Their temporal horizons also tend to be broad, focused on the longue dure of
capitalist crisis and transformation (Arrighi 1994).
Others narrow in on the operation of the financial sector itself, examining particular
financial institutions (pension funds, bond rating agencies, and banks) in depth and at
particular points in time. In some accounts, these institutions are still driven by the
needs of capital to move between different circuits of accumulation and to rout out the

highest profits (Beitel 2000). In others, finance does not just act on social and spatial
relations but is also constituted by them. The culture of finance tradition, for one,
underscores how elements of the financial system have their own intrinsic social dynamics
that are shaped not only by the force of capital but also by the power of ideas and actors
(Pryke and du Gay 2007; Thrift 2001). Whether analyzing social differentiation on the
trading floor (Zaloom 2006) or the assumptions behind asset pricing models (MacKenzie
2007), these scholars have focused on the ways in which market participants come to
some socially grounded consensus about the meaning of different financial instruments
and abstractions, such as the concept of risk, that are involved in their exchange.
Still other studies, including the present one, analyze the penetration of finance into
particular sectors of the economy. Commercial real estate, for example, is a sector in
which financial and property markets are highly integrated, as this so-called secondary
sector provides an outlet for surplus reserves of money capital fleeing the primary sector
of production (Beauregard 1994; Beitel 2000; Charney 2001; Coakley 1994; Gotham
2006; Harvey 1985; Leitner 1994; Smart and Lee 2003). Capital is switched to the
development and acquisition of property, as real estate experiences erratic bursts of
256 hyperactivity when rates of profit from other investments are relatively low and falling.
With all the attention on the geographic and social embeddedness of financial market
behavior and the integration of finance with real estate, it is therefore surprising to see
scholars ignore the important role played by local governments in shaping and being
shaped by financial markets. If the public sector is evoked, it is mostly a nod to those
national level policy shifts that have pushed households and corporations toward more
debt and helped pave the way for financial hegemony (Gotham 2006). With the exception
of Hackworth (2007), few geographers have analyzed recent processes of financialization
from the perspective of city governments.
This absence is unfortunate given that local governments have long been entwined in
loops of codetermination and coevolution with financial markets (Taylor 2004, 2; see
Fuchs 1992; Monkkonen 1984; Sbragia 1996 for histories of urban public finance in the
United States). In the last quarter of the twentieth century, certain changes stand out as
marking a new era of increasing integration between financial markets and the day-to-day
operations of local governments. Local governments moved beyond simply financing
collective infrastructure and doing so with general obligation bonds, backed by their full
faith and credit. Instead, cities and, increasingly, special authorities extended credit to
privately owned development projects with nonguaranteed debt, such as revenue bonds
(Cropf and Wendel 1998; Hackworth 2007). Municipalities added new, risk-laden instruments to their debt portfolios, including variable rate debt, interest rate swaps, auction
bonds, and derivativesoften with disastrous effects (see, e.g., the discussions by Tickell
2000 and Pryke and Allen 2000 of the foray by Orange County, California, into swaps).
They also added the personnel necessary to execute these complex transactions, increasing the size of their comptrollers offices, hiring graduates of MBA (Master of Business
Administration) programs, and contracting out to specialized financial advisors (Fainstein
The growing integration over the last four decades occurred for several reasons. As
federal aid contracted and caretaking responsibilities were devolved to lower scales of
government, the federal government encouraged the adoption of more entrepreneurial
approaches to local economic development (Harvey 1989). It loosened eligible use
restrictions on the remaining federal programs, such as Community Development Block
Grants, and encouraged these monies to be used to leverage matching funds in the private
sector (Clarke and Gaile 1998). Municipalities found themselves no longer wards of the
federal government but rather in a position to take on more risks and extend their reach to

Vol. 86 No. 3 2010


new areas of activity, such as equity participation in market-rate real estate development.
Moreover, state-wide property tax revolts resulted in legislation to cap taxes, such as
Californias Proposition 13, which limited the revenues available to municipalities. In the
face of a dwindling supply of federal block grants and voter-enacted caps on taxes and
spending, municipalities looked simultaneously to the credit markets and to their property
holdings for funding.
When municipalities sought assistance from the financial markets, they encountered
purveyors of private capital with a new taste for public debt. Municipal debt instruments
previously had been viewed as marginal and low yield. But in the late 1990s, investment
banks were flush with cash from global capital surpluses (mainly from Asia, the United
States, and Europe), with relaxed underwriting criteria and low interest rates adding to the
volume of money. Institutional investors developed a penchant for urban real estate
investments as a way to balance their portfolios of corporate equities and bonds
(Hagerman, Clark, and Hebb 2007), even though their share of municipal debt had started
to increase as early as the late 1980s (Hackworth 2007). Moreover, downtown
property values, the basis for the bulk of municipal revenue streams, rapidly appreciated
during the late 1990s due to growing interest by finance capital and massive amounts of 257
new construction in those international gateway cities (e.g., New York City,
Boston, Dallas, Chicago, and Atlanta). After a temporary decline following September 11
in 2001, the ascent of real estate prices reached historic levels in 2005 (Standard & Poors
Municipal debt tracked this rise in capital volume and real estate values. After holding
steady and even declining for most of the 1990s, outstanding state and local debt in the
United States increased by 55 percent between 2000 and 2005 to $1.85 trillion, of which
approximately $1.13 trillion was local debt (Federal Reserve 2006). Between 2001 and
2005, municipalities raised an average of $230 billion annually in new funds (up from an
annual average of $152 billion between 1996 and 2000).
During this period, local governments were not only the beneficiaries of capital
switching, but they were also active agents of financial liberalization and integration. In
this sense, they performed the work of knitting together the global and the local. Through
zoning, permitting, and subsidies, local governments facilitated capital switching into
commercial real estate and created the conditions under which this property could be
financialized. Liquid markets and local policy liberalization were mutually reinforcing;
public subsidies and lax zoning regulations, for example, allowed the private sector to
build increasingly larger and riskier projects (which commanded price premiums in hot
markets), while inflated sale prices kept tax assessments high, minimizing the risk of
nonrepayment for property tax-secured debt.
Municipalities extended the power of financial markets throughout the economy by
issuing and purchasing vast amounts of debt. They also developed new domains of
governance (e.g., special districts), new instruments, and new asset classes that
could be bought, sold, and securitized. They financed and lent their legitimacy
to the creation of new secondary markets where assets once thought to be valued only for
their uses (infrastructure, pensions, and tax revenues) were converted into securities and
traded at a distance. Under conservative central administrations in the 1980s and early
1990s, for example, local governments built markets for off-budget tax expenditure
programs such as the federal 1986 Low Income Housing Tax Credits in the United States
and the 1992 Private Finance Initiative in the United Kingdom (Leyshon and Thrift 2007).
And, with the blessing of state governments, they created instruments through which
anticipated revenue streams could be sold off to investors, such as public asset leases and


Tax Increment Financing

As mentioned earlier, TIF is a local economic development policy that allows municipalities to designate a blighted area for redevelopment and securitize the expected
increase in property taxes from the area to pay for initial and ongoing redevelopment
expenditures there (for more details about the mechanics of TIF, see Weber 2003). Once
designated, taxpayers in that area pay real estate taxes on the value of their property prior
to the creation of the TIF district, as well as on any increase in its value. However, for the
life span of the district (which in most states is about 20 years), all taxes on any new value
in the district are directed into a fund to pay for public redevelopment expenditures, such
as debt service on bonds floated for infrastructure or private acquisition costs.
This urban redevelopment policy can be viewed as financialized in several senses. First,
TIF is the governance mechanism (or the system according to Leyshon and Thrift 2007)
that allows the income stream (property tax revenues) generated from locally embedded
assets (property) to be converted into financial instruments and exchanged in the global
marketplace. Before the use of TIF, municipalities had three options to stimulate investment. They could abate or defer property taxes to encourage private investment; they
258 could fund projects out of their own general funds, special assessments, or user fees; or
they could commit their full faith and credit to paying back a general obligation
bond. With TIF, municipalities instead repackage the rights to a stream of future
property tax revenues into fungible bundles and sell these rights to investors as debt
instruments. Municipalities perform like other secondary market transformers, such as
Fannie Mae, but in the case of TIF, they are selling off slices of their tax bases instead of
More specifically, a developer who wants to undertake a project in a designated TIF
district will apply for funding from the local government or redevelopment agency. If the
city is supportive of the project, it will grant a portion of the projects development costs
as a TIF allocation, a commitment of future property taxes generated within the district.
However, developers require the funds to start construction immediately, so municipalities fund projects upfront by pledging future property tax revenues as security for current
borrowing. To pay for these development expenditures, municipalities often float revenue
bonds, which are secured by a dedicated stream of property taxes generated by and around
the new development instead of by the sponsoring governments full faith and credit.
These bonds are sold through negotiated sales and allow municipalities to avoid stateimposed constitutional and statutory debt limitations and voter referenda (Sbragia 1996).
In this way, cities obtain capital by turning the rights to their own heterogeneous property
tax base into standardized, tradable assetsoften without the knowledge of the individual
property owners paying their tax bills.
Second, the timing of TIF coincides with the dramatic expansion of capital markets and
the global savings glut of the late 1990s and early 2000s. Even though the mechanism had
been in existence since 1955, its early use was restricted to a handful of states on the west
coast. Interest in TIF spread east only after the federal government cut its urban renewal
assistance to cities in the 1970s (Clarke and Gaile 1998). Even then, TIF was used
sparingly, as municipalities were slow to develop the legal and accounting infrastructure
necessary to bundle the revenue streams (see Leyshon and Thrift 2007 for their account
of the technological innovations required to pool and capitalize income streams). Even
during the commercial construction boom of the 1980s, the municipal market remained
a backwater ignored by most investors. On the asset side, developers had easy access to
bank financing as lenders were more than willing to absorb the risks of dangerously
overleveraged projects (Beitel 2000). As such, from 1960 through approximately 1995,

Vol. 86 No. 3 2010

1996 (Total num ber of public ratings = 158)
Other 4%
BBB- 5%

2006 (Total num ber of public ratings = 351)

Other 3%

A 10%

BBB- 5%

A - 26%

BBB 37%

A 16%

BBB 18%
A- 37%
BBB + 20%

BBB+ 18%

Figure 1. Comparison of Standard & Poors distribution of public TIF ratings in the United States
for 1996 and 2006. Source: Hitchcock 2006.


TIF debt comprised a small and unrated segment of the tax-backed bond market in the 259
United States (Johnson 1999).
The uptick in TIF use was tied primarily to capital supply as investors sought out more
exotic instruments and opportunities to release the value that lay embedded in the urban
property base. Returns in competing private securities markets had been driven down by
the volume of capital from Europe, the United States, East Asia, and the Middle East
seeking above-average returns (Ashton 2009). Restless, yield-seeking capital switched
from other investment opportunities to the property sector and to riskier, nonguaranteed
municipal debt as property values started their wild ascent in the late 1990s (Charney
2001). The growing interest of pension funds, banks, and life insurance companies gave
municipalities the confidence to float more TIF debt, and this once-obscure policy
instrument grew in size and repute.
Figure 1 shows that between 1996 and 2006 (arguably the beginning and peak of the
last cycle), the number of Standard & Poors-rated TIF issuances increased, as did the
credit worthiness of the bonded debt. The average issue size also increased (Hitchcock
2006). Coupled with incentives to buy on the capital supply side, the increasing amount
of bonded debt secured by TIF was also fueled by incentives to build on the development
or asset side and to take some credit for the local articulations of the global property boom
on the municipal side.
Third, TIF places local governments and their ability to control the value of the
underlying assets of these securitiesthat is, rateablesat the center of a fragile architecture of interlinked financial arrangements that is beset by a variety of risks. One of the
key attributes of financializationalong with the attendant global economic integration,
deregulation, and liberalizationis a system-wide increase in the number and magnitude
of risks (Ashton 2009; Vogel 1996), and TIF is fundamentally a risky instrument.
With TIF, municipalities are gambling on future appreciation in the value of the land and
buildings within a small geographic area; it is the incremental taxes on properties within the
district that are securitized and pledged as repayment for whatever debt has been issued.
Indeed, the process of risk production begins when municipalities designate TIF districts.
The local state is, in effect, constructing stigma by labeling the area as blighted and difficult
to develop. However, the primary credit risk presented by TIF is that the future appreciation
in the project area will not materialize at the pace required by investors, causing the
municipality to default on its debt service obligations. The fact that the main drivers of
property value appreciation lie mostly outside the control of the municipality issuing the

debt, and hence outside the terms of the individual TIF deal, makes the instrument even
more risky. In particular, appreciation may not occur because of three sets of unanticipated
factors: those associated with completion, valuation, and taxation.

Completion risk. A TIF district will not generate the expected property tax revenues
if the development projects planned for the area are never built. Real estate is a notoriously conflict-ridden enterprise, and adding layers of public management to a deal will
increase the risk of noncompletion rather than speed it along. Moreover, in theory, the
magnitude and number of development risks are greater in TIF districts by virtue of the
fact that these areas are purported to be more difficult to develop.
Valuation risk. Incremental tax revenues, the security for any debt issued
within the TIF district, are based on two elements: the assessed values of all parcels
within the district and the tax rates (discussed later) that are applied to those values. Even
if the publicly assisted project meant to catalyze appreciation in the TIF district is
completed, assessed property values may still not increase at the rate expected. Appre260 ciation depends on underlying relationships in the local real estate market, such as
absorption rates, most of which the city cannot fully control. Municipalities may overestimate property value growth, other developers interest, or revenues from land sales.
Cash flows may be highly irregular, and underlying economic conditions may unexpectedly change for the worse.
Taxation risk. Even though cities are obligated to repay the debt issued in TIF
districts, they are passive tax revenue receivers because, in most states, tax rates are
controlled by other taxing jurisdictions (e.g., state and county governments and school
districts) and not by the municipality or the TIF district itself. Each of these jurisdictions
has some degree of autonomy to set its rates according to its own budget needs and the
value of the properties within its legal boundaries. Similarly, the behavior of the state
government, if it decides to alter the TIF-enabling law or pass other legislation related to
property taxes (e.g., tax extension limitations) or property tax-backed debt, can impinge
on these revenue streams in an unanticipated manner. Therefore, the risk exists that these
other governments will alter their rates in ways that will diminish the increment promised
to investors by the municipality.
The consequences of these three set of risks can be dire. If property values in the TIF
district fail to increase or do not appreciate at a fast enough rate, the financial obligations
will fall back on the municipality, which will then have to increase tax rates or reduce
services.Although only a few TIF bonds defaulted during the construction boom of the late
1990s and 2000s, several high-profile fiascos in locations as varied as Arvada, Colorado,
and Battle Creek, Michigan, revealed the downside associated with monetizing both time
and space (Ward 1999). In these cases, municipalities were unable to cover their outstanding debt service and were looking to tap their general funds to make payments, edging out
other kinds of public expenditure. When cities accept the risks associated with financialized
policy instruments, their ability to stay solvent and fund basic government operations, such
as public safety, basic sanitation, and education, are potentially compromised.

Commodifying Political Control:The Case of Chicago

Chicagos use of TIF began during a transitional period in urban policy, the early 1980s,
when federal and state support for urban development was waning and when this

Vol. 86 No. 3 2010

The Sequencing and Segmenting of TIF-Backed Notes

Initially, the City of Chicago shouldered the risks associated with relying solely on
revenue growth internal to the TIF by floating general obligation bonds (often taken out
by nonrated bond issuances) to front fund the first TIF districts (Shields 1998a).2 It also

RDAs are 100-plus page contracts approved by the city council and signed by the project developer. The
bulk of RDAs are standard legal provisions governing the conduct of parties doing business with Chicago,
but they also contain individualized terms for project financing as well as performance standards to which
the City and the developer can be held. The RDAs that I reviewed were approved between 1996 and 2007
and represent about 12 percent of the total RDAs signed during this period.
These TIF districts tended to be initiated by the City (as opposed to developers), including the Stockyards,
Reed Dunning, Goose Island, and the Sanitary and Ship Canal districts. The 15 bonded TIF districts (for
which the City had issued $346.6 million of debt) generated 94 percent of the incremental tax revenues
collected in all of Chicagos TIF districts in 1998 (Neighborhood Capital Budget Group 1998).


increasingly postindustrial city was engaged in fierce battles with its neighboring
suburbs to pin down commercial investment, particularly in the central business
district (the Loop). Its roots lay in the urban renewal statutes that allowed municipalities
to clear sites and develop areas that were dragging down property values, as well as in the
decline of Fordist modes of production that had made Chicago the manufacturer to the
The first TIF district, the Central Loop TIF, was designated in 1984. Shortly after Mayor
Richard M. Daley came to office in 1989, he saw TIF as a way of encouraging development in the central area despite the loss of federal funds and general displeasure with
property tax hikes. In concert with local industrial councils and their aldermanic representatives, he encouraged the designation of several large-scale commercial and industrial
TIF districts in areas with severe infrastructure needs. Another wave of TIF districts were
designated in 1998, many of which were anchored by residential or mixed-use projects
and initiated by private developers. During both waves, TIF was used to pay for infrastructure, land acquisition, land assembly and preparation, and subsidized financing. TIF
has provided public subsidies for hundreds of high-profile real estate deals. By the end of
2008 (see Figure 2), Chicago was home to 160 TIF districts that covered more than 30 261
percent of the area of the City (City of Chicago 2008).
In the remainder of this article, I identify several of the key strategies used by the City
of Chicago to manage the TIF process in the interests of financial markets. I base my
analysis on a close reading of approximately 20 individual TIF redevelopment agreements
(RDAs) that govern allocations of incremental property taxes and formalize the financial
obligations of all parties to the contract.1 I also conducted a series of interviews with city
finance officials and private consultants (e.g., bond counsel and financial advisors)
between 2005 and 2007 to determine the extent to which the commonalities in financial
structure that I identified in the RDAs were generalizable across projects in Chicago.
Additional interviews with journalists, representatives of professional associations, and
watchdog organizations confirmed that Chicago was out ahead of the curve in terms of its
dependence on TIF and creativity in front-funding real estate projects. Because Chicago
represents an extreme but very possible trajectory for other U.S. cities, the single-city case
study method is appropriate. I posit that the strategies Chicago adopted allowed the City
to facilitate capital switching into local real estate, but to test this hypothesis empirically,
a study of multiple cities that varied in both the extent of their political control and their
financial integration would be in order.



Figure 2. Map of Chicago TIF districts by use, 2008. Source: City of Chicago (2008).

Vol. 86 No. 3 2010


issued TIF revenue bonds, which often carried with them secondary pledges of both the
local governments credit and insurance.3
In the mid-1990s, as the pace of TIF designations quickened and property markets
recuperated from the commercial real estate crash earlier that decade, then chief financial
officer Walter Knorr declared that the City would use its bonding authority, particularly its
ability to pledge its general obligation, more sparingly. The City did not want the risks
associated with TIF to tarnish its bond ratings. Starting in 1996, Chicago began testing a
new instrument: developer notes (also called tax anticipation notes). Notes are higherrisk debt; they are not typically rated and are provided to developers as short-term (about
five years), higher-interest instruments secured by the incremental property taxes from the
project or larger project area. I found that Chicago front-funded TIF projects using notes
in approximately 63 of the 171 deals that it undertook between January 1997 and June
In practice, notes allow the City to engage in riskier, more idiosyncratic deals and to
externalize these risks to other playersnamely to developers and investors. The project
developer becomes the legal owner of the notes and is then responsible for the expense of
hiring counsel and underwriters. Developers can choose to hold the notes and be repaid
over time with interest from the City, obtain a loan against the notes from a bank, or
monetize the notes by selling them in larger denominations to investors through
third-party intermediaries (see Figure 3). Proceeds from the loan or sale provide an
immediate infusion of cash into the project that can be used for the acquisition and hard

Almost all of Chicagos early TIF bonds sold uninsured and unrated. However, it became easier for the City
to secure insurance and hence lower interest rates as it relied more on notes and resisted additional bond
issuances. A TIF bond issuance in 1998, for example, carried the A-rated backing of ACA Financial
Guaranty Corporation, which analysts agreed boosted the TIF bonds to investment grade (Shields 1998b).
Insurance expands the universe of investors because some of the stigma of the unrated issuance is lifted.
This figure does not include projects financed by the Small Business Investment and Neighborhood
Improvement Funds.


Figure 3. Typical flow of funds using TIF notes.

or soft costs of development. When the notes are monetized, the risk that the tax
increments will not materialize is passed on to investors in exchange for promises of
higher yields.
During the development boom, the City of Chicago arranged the sequencing of notes
and TIF payouts in such a way as to force developers to assume the bulk of the completion
risks. Chicago held the notes in escrow or did not even issue them until an individual
project was complete and occupied, at which time it released them to the developerwho
had already made arrangements to sell them or obtain a loan against their value. As such,
the process of financial intermediation did not start until the project was completed. By
that time, however, the developer had already spent millions of dollars in construction and
soft costs. In order to be reimbursed for a portion of its development costs from the TIF,
the developer had to complete the agreed-upon project and adhere to any city-imposed
To both accommodate the investment market and control the developer, the City took
the unusual step of segmenting the developer notes and issuing them as two discrete
products. The first category of notes resembled a standard financial instrument with few
264 quirks; Chicago was committed to paying a certain amount of principal and interest from
the property tax increment upon completion of the project. These notes, which were often
taxable and had recourse to the developers assets, were typically purchased by institutional investors.
The second category of notes was weighed down with more locally specific obligations
placed on the asset owner: the developer. These included public benefit types of
requirements related to aesthetics (e.g., design guidelines that stipulated the use of
wrought-iron fencing, for which Mayor Daley had a proclivity), environmental sustainability (e.g., the construction of green roofs or vegetated building cover), job creation
(e.g., numbers of construction and full-time employees), contracting practices (e.g.,
bidding out rather than sole sourcing), and job opportunities for women and minorities.
These obligations were not generic but rather were the result of protracted negotiations
between the City and individual developers.5 The purchasers of this second category of
notes tended to be the developers themselves (who held on to them as a kind of IOU) or
local banks angling for more city business.
Both categories of notes are what Clark and OConnor (1997) would consider highly
opaque financial instruments in that they are built around idiosyncratic investment
opportunities and require specialized, local information. But this second category of note,
in particular, reflects an earlier, almost-Keynesian form of welfare-oriented fiscal governance that was not especially fast and fluid. It is also a reminder of how financialization
is always partial (Boyer 2000a); despite the neoliberal rollback of the local state, some
U.S. cities have found ways to provide public goodsalthough, as in this case, they are
relatively small in magnitude and must be negotiated on a project-by-project basis as
opposed to being provided as a right across the board.
The Citys desire to control both the financial and development markets came at a price.
Not only did the City risk alienating property developers by making them jump through
public benefit hoops, but it also paid for the privilege of using notes. I found that the City

While laudable, city administration resisted additional public benefit obligations such as when, in 2006, the
mayor vetoed what became known as the Big Box Ordinance. This law would have required large-scale
chain retailers to pay living wages (a minimum hourly wage of $10 and fringe benefits of $3 an hour). At
the time, the retailer Target was the anchor tenant in several TIF-funded projects that were not yet complete,
and it threatened to pull out of these deals if the ordinance became law. The mayors veto placated Target
and allowed the TIF projects to continue, albeit off schedule.

Vol. 86 No. 3 2010


committed to pay, on average, an interest rate of 8.3 percent for its notes, which is
noticeably higher than the rates of bonds during the same time (which averaged 6.7
percent between 1991 and 2006).6 Moreover, the City refinanced several of the developer
notes with longer-term tax-exempt bonds once the projects had stabilized after three to
five years. This process relieved the developer of some responsibility, but it riled the note
purchasers because prepayment deprived them of expected interest income. The practice
of refinancing also involved significant transaction costs. Although the City reduced its
interest payments, any restructuring of the debt, according to one source, cost 4 to 6
percent of the original face value of the note.

Spatial Strategies
TIF offers local government new ways to switch capital into local real estate assets,
which inflates the value of properties whose tax streams have already been securitized and
sold off to investors. The dependence of the system on this tautological loopinvestment,
securitization, appreciation, investmentleads to certain spatial planning practices,
including increasing the number of TIF districts and developing areas that would maximize the incremental property tax return and minimize valuation risk. Figure 4 demonstrates that the number of new TIF district designations mirrored general trends in
appreciation and that the greatest wave of designations occurred around 1998, before the

These figures are based on data provided by the Neighborhood Capital Budget Group (2006). On the other
hand, bonds also come with significant coverage and debt service requirements, and the issuance costs can
be higher than those for notes.


Figure 4. Annual percent change in median sale price for residential properties and new TIF
district designations in Chicago, 1987 to 2005. Source: City of Chicago and the Cook County

property value spikes occurred following the 2003 assessments. The ability to designate
TIF districts when values were low allowed Chicago to capture subsequent revenue
growth from the building boom.
Chicago planning officials tightly controlled the size and location of each TIF district to
provide some assurance that future revenue streams would be sufficient to pay off note and
bond holders. In general, TIF districts that were diversified and large in area and value were
more attractive to investors because revenues spun off by parcels outside of the pledged
income stream could be tapped if a developers individual project was not fiscally
The City also minimized the risks of nonrepayment by targeting previously disinvested
districts in the citys growth zones, that is, areas where rent gaps were widening but had
not yet peaked (Smith 1996). In this sense, TIF revealed the local state as an active agent
in the citys gentrification, a relationship that has been documented in Chicago (see
Weber, Bhatta, and Merriman 2007) and elsewhere (Hackworth 2007). The most fiscally
productive TIF districts were originally in and around the Loop, where property values
had been depressed since the 1970s, and around the north, south, and western perimeters
266 of the central area. These areas had previously been devalorized due to industrial uses and
physical impediments like rail lines, rivers, and highways. A value moat had separated
the rest of the City from the Loop and was gradually filled in with TIF-subsidized office
and residential towers.
Increasing the number of TIF districts that bordered an existing district was
another way in which Chicago tried to exercise some control over the repayment
streams. The City was legally enabled to transfer increments generated in one TIF
district to a directly adjacent district (the City calls this porting). Between
2000 and 2005, Chicago transferred over $35 million between districts, while
in many of these cases, the borders between the two districts were miniscule (e.g.,
only 400 feet in the case of one pair of districts) (Thompson, Liechty, and Quigley
2007). The City approved larger-sized development projects because, it argued,
soft costs could be less painfully spread over them. It also favored site plans that would
appeal to the private marketthose with more market-rate, owner-occupied units (as
opposed to affordable rentals), more retail space (as opposed to residential), and more
revenue-generating uses (as opposed to green space) and ownership structures. Publicly
owned property and public uses that would have required operating costs paid from the
TIF were less desirable, with the exception of the high-profile case of covering cost
overruns associated with the development of the Loops Millennium Park (Shields

Small Networks, Closed Systems

Another critical component of the local states ability to make markets and financialize
its property tax base has been in place for more than a century: the municipal practice of
establishing close ties with an inner circle of developers and financial intermediaries
(Miller 1996). The City of Chicago worked only with those developers that it could trust
to build quickly and to its specifications, claiming that the need to complete projects and
generate increments within TIF districts as soon as possible placed pressure on them to do
so. On the developers side as well, uncertainty about the amount of their individual TIF
allocation, combined with an involved and politicized application process, discouraged
all but the most connected from participating in TIF deals. One developer in Chicago
estimated that it took up to four years to negotiate the terms of a single redevelopment
agreement. Because the City relied so heavily on entrenched networks of relationships, it
created barriers to entry for new developers who were hoping to break into the local real

Vol. 86 No. 3 2010


estate market and reinforced older systems of patronage and crony capitalism. This
dependence revealed itself when, in order to ensure completion, developers extracted
additional monies from the City beyond those specified in their individual TIF
Just as Chicagos need for a rarefied skill set and its confidence in the performance of
a small group of developers created a tight-knit community with access to TIF dollars so
too did the Citys need for success in financial intermediation tie it to a small group of
advisors. As the TIF notes and bonds were initially very hard to sell, specialized underwriting boutiques such as Kane McKenna and William Blair & Company became
important agents in the networks of urban fiscal governance, assuring dispersed investors
of the security of locally embedded assets. They promoted themselves as objective
beacons in a stormy sea of financial volatility (Green 2000, 86), turning abstract risk
relationships into feasibility reports, forecasts, coverage ratios, and cash flow projections,
which made risks more legible to investors and therefore seemingly more surmountable.
A handful of financial intermediaries were responsible for the bulk of the bond and note
sales in Chicago between 1996 and 2006, although the volume of TIF debt grew
substantially during this time. Some intermediaries purchased the notes themselves (at an 267
amount lower than their face value), others sold them to consortia of local banks, and still
others sold them to larger and spatially dispersed institutional investors seeking more
standardized assets. Intermediaries profited from interest-rate spreads, that is, the difference between what the municipality pays and what they have promised their investors, as
well as various underwriting fees. They also charged for monitoring the project over the
instruments term. These charges partly explain the explosion in soft costs that one finds
in the TIF budgets. Again, control, or the illusion thereof, is expensive to maintain, and the
public sector, and indirectly all city taxpayers, pay for the privilege of accessing easy
The market-making work of these financial intermediaries was particularly important
in the early years of Chicagos TIF use. Every TIF deal was experimental, although
financial intermediaries had to make them appear as ordinary and as nonlocally specific
as possible in order to raise funds from investors. During the 1990s, local banks in
Chicago were wary of participating in TIF deals because they doubted the Citys ability
to pay them back on the basis of the promises of increased tax revenues. As such, the
financial intermediaries hired by the City went further afield, primarily to states that had
more experience with TIF, such as California and Minnesota, to find banks and institutional investors willing to purchase Chicagos TIF notes. They were helped along both by
the passage of the Interstate Banking and Branching Efficiency Act of 1994, which
allowed nonlocal banks to purchase local assets, and by Chicagos solid reputation as a
long-time financial trading center.
In the late 1990s, however, the attitude of local banks shifted as their inability to
compete in the areas of mortgage lending and consumer services forced them to seek out
new means of keeping their capital circulating. Local banks became active partners in the
TIF apparatus as they aggressively sought to capture more City of Chicago business, even
going so far as to purchase the less fungible notes loaded down with City obligations. In
the deeply entrenched network of rent-seeking known as Chicago development politics
(Miller 1996), these banks hoped that their participation in the mayors favored develop-

For example, the City increased its commitment from $41.6 million to $52 million in a $150.9-million
mixed-use project on Chicagos North Side, called WilsonYards, after the project experienced costly design
changes, higher construction prices, and the loss of initial investors and retail tenants (Roeder 2008).

ment program would lead to more business with Chicago. The Citys ability to control the
TIF process and switch its own capital around at whim kept local banks on a short leash.

The New Old Machine

Because they rarely control the property tax assessment process, cities must exercise
political power to enroll other potentially oppositional government agencies and private
actors. Municipalities may pressure tax assessors to increase the value of parcels in TIF
districts; indeed, there is some (albeit weak) empirical evidence that assessors, especially
in more rural counties, bias their valuations upward to promote the growth of increments
within TIF districts (Ritter and Oldfield 1990). Or cities may sign minimum assessment
agreements with the local tax assessors that attest to the likelihood that values will not
fall below a certain amount based on a review of the project appraisal, construction
timetable, site plans, and leases. Some municipalities prohibit the developers within TIF
districts from appealing their property value below a certain threshold.
The City of Chicago, however, followed a ruling that held that if debt instruments were
tax exempt, such behavior was prohibited. Moreover, for the last decade, the Cook County
268 Assessor has retained a modicum of independence from Chicagos long-standing and
powerful Mayor Daley. Nonetheless, the City worked with the Cook County Clerk to
create separate tax codes for parcels in TIF districts that declined in value, such as those
where improvements were demolished or where property was purchased by tax-exempt
entities like universities. In quarantining low-value segments of the TIF district,
Chicago guarded against the possibility that changes in the built environment would
reduce the total increment available in the TIF and jeopardize the cash flows promised to
Taxing jurisdictions, such as school districts or counties, can also threaten payback
schemes by lowering their property tax rates or (re)claiming portions of the increment
stream through lawsuits, contracts, or legislation. The City of Chicago prevented challenges from these entities by enrolling them in the project of increment maximization,
cutting deals with them and pressuring them into concessions. Both tactics require civic
capacity, which the City of Chicago exercised through a strong, development-oriented
mayor and a compliant and TIF-supporting city council. The Chicago Board of Education,
as the jurisdiction with potentially the most to lose from TIF, has been run effectively by
City Hall since Mayor Daleys takeover in 1995 and was allowed to borrow from the
future windfall of tax dollars that would occur when the lucrative Central Loop TIF
expired in 2009 (Shields 2006b). In exchange for the school districts support, the mayor
authorized $800 million (most of which would come from TIF) to pay for the construction
of new public school buildings, against the wishes of many elected council members
(Spielman 2008). The City also used TIF to finance the redevelopment of high-rise public
housing and transportation infrastructure.
Local officials controlled opposition by compromising some of the democratic principles to which citizens hold their representatives. Officials actively discouraged public
participation in the TIF designation process. And, for the most part, project planning
decisions were made without transparency or disclosure. Critical decisions about TIF
allocations became public only when the consultants, developers, and financial intermediaries were already lined up.

As a result of these different strategies, financial advisors and ratings agencies cheered
on Mayor Daleys control of the TIF process in Chicago. One financial consultant noted,
The majority of TIF bonds are not rated because they are highly speculative. But market

Vol. 86 No. 3 2010


interest is increasing because of the successes, especially in urban areas like Chicago
(Shields 1998a). In its use of two-tiered TIF notes, reliance on an inner circle of
developers and financial intermediaries, and bare-knuckled control over the politics of
property valuation, the City found ways to harness the power of financial markets and
facilitate capital switching into local real estate. As a result, TIF coffers overflowed with
cash during the boom. Even including three heavily debt-laden downtown districts, the
citys TIF districts had net assets of $271 million in 2005, which was both more than
the City spent on capital improvements that year and more than the average budget of the
entire Department of Streets and Sanitation (Hinz 2005). Tapping TIF revenues, and not
the general fund, as a source of repayment also helped the City to avoid defaults on its
obligations, maintain healthy general-fund reserves (4 percent of expenditures in 2005),
and avoid dipping into those reserves (Shields 2006a). The ratings agencies rewarded the
City for its financial savvy and control over the TIF process, improving its credit rating to
mid-double A in 2006 (Shields 2006b).
However, such strategies were also the source of new costs and risks. Control is
expensive in regimes where value in the built environment depends on the circulation of
fast, fictitious money and an unruly web of politicized and marketized relationships 269
(Weber 2002, 539). The Citys efforts to harness the power of financial markets while
simultaneously exerting power over the intermediation process caused carrying costs to
balloon. The private investment market also capitalized on the perception of added risks
by charging a risk premium for its capital, reflected in the higher interest rates for TIF
bonds. Dependence on a small number of financial intermediaries allowed them to extract
near monopsony rents for their services, and enrolling potential opponents placed expensive, competing demands on the Citys TIF accounts.
Some of these costs were ultimately passed on to taxpayers and residents. Between
1997 and 2005, property tax rates declined at a slower rate than that at which the
underlying property values grew (Thompson, Liechty, and Quigley 2007), and in 2007,
the City suddenly instituted a property tax rate hike to try to close a $217-million budget
deficit. Although the City insisted that the rate hike and subsequent personnel and service
cuts were unrelated to TIF, popular opinion was that public funds had been overcommitted
to paying off TIF expenses (Joravsky 2007). Outrage about the mechanism and the Citys
strategy of keeping the public out of TIF decision making began to surface. As the case of
TIF in Chicago reveals, managing a process of capital accumulation that is sizeable,
deal-driven, and secretiveeven in an autocratically run large city where the mayors
power is often described as hegemonicmay call the legitimacy of the local state into
question (OConnor 1973).
Lending its good ratings to less-tested TIF debt allowed Chicago to improve the
appearance of what were essentially speculative instruments and, in doing so, made
investors overconfident about the future. To satisfy the appetite of these investors for new
assets, developers continued to bring new product to market, even as appreciation was
slowing and vacancy rates were rising. As such, TIF contributed to a dangerous oversupply of space, the implications of which no amount of political strong-arming could
By 2007, the property bubble in Chicago, and elsewhere across the United States, had
burst. Falling assessed values and tighter credit for development and building acquisitions
reduced the increment that was available to pay back existing bond and note holders. With
investors more wary, the amount of credit available to cities constricted, and interest rates
increased. And yet the flaws inherent in the local states financialization practices have not
been confronted or rectified. Despite high commercial vacancies, fiscally strained agencies, and embittered residents, the City of Chicago is reluctant to give up its favorite urban

development tool. Several more TIF districts were designated even after the recession
began, and ambitious development plans for them continued to be discussed.

Since the 1970s, a growing surge of global capital has sought out new instruments,
impatiently switching between sectors and locations as risk-return ratios changed. Cities
were not just arbitrarily selected for investment as a result of a game played far above their
heads; their local government representatives played a critical role in constructing the
conditions under which capital could be channeled into locally embedded assets, namely
real estate. Not all succeeded, but some municipalities were able to steer capital toward
what was formerly a backwater of the financial markets: government revenue-backed
This research supports the notion that, at the local scale as well as at the national one
(Gotham 2006), the capitalist state plays a critical role in temporarily resolving overaccumulation crises. Real estate cycles are historically accompanied by innovations in
270 securitized equity and debt instruments that channel savings into commercial real estate
investments (Beitel 2000). During the Millennial boom of the late 1990s and the first
decade of the 2000s, many U.S. municipal governments acted as the kind of innovators
that we associate with private market actors. They assisted capital in finding profitable
investment outlets by devising new ways to monetize their own assets and create new
securities. They turned income streams from their existing and future tax bases, infrastructure, and pension funds into fungible securities and helped build secondary markets
for their exchange, both of which momentarily took some pressure off of the global capital
But not all assets and income streams were equally attractive to finance capital. The sale
of instruments secured by public assets depends on the perceptions of distant investors
and rating agencies who seek some security in uncertain, volatile environments. Structural or political impediments to the real estate development process, rigid revenue
structures, and fiscal policymaking institutions that involve multiple agencies with
diverse interests can lower ratings and threaten repayment schemes. This research demonstrates how converting deeply embedded and otherwise opaque real estate assets into
more standardized and less locally contingent financial instruments requires that city
governments exercise more than a modicum of control over the processes of asset
creation, valuation, and securitization. In the context of initially less-tested instruments
such as TIF, selling the rights to a speculative income stream therefore required a large
dose of political control to ensure that market actors accepted these virtual commodities
as legitimate and the promises of the issuer as credible.
Not all cities have to go as far as the City of Chicago in suppressing or
co-opting interest group activity, but I am suggesting that there is a correlation between
centralized political authority and the financialization of local policy, particularly when
the political administration is unabashedly entrepreneurial. As this study focused only on
a single case, further research is needed to determine whether city administrations that
have the political power to structure the financial instruments, control the development
process, and protect the value of their underlying assets have easier access to global
With the exception of a few recent analyses (Hackworth 2007; Ranney 2002), we know
little about the politics of financialization at the local level. The deliberate policy choices
that encouraged financialization at the global and national scales have been better
documented (Ashton 2009; Gotham 2006), such as the Federal Reserves sudden raising

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