Local governments use many types of incentives to encourage development. Incentives fall into two general categories: financial tools such as tax incentives, and non-financial tools like job training, streamlined development review, and entrepreneurial supports.

Tax incentives used regularly in northeastern Illinois include tax increment financing (TIF), sales tax rebates, business district tax rebates, property tax abatements, and Cook County property tax incentive classifications. A 2022 CMAP report found that over 75 percent of the region’s municipalities use some type of tax incentive.

There can be drawbacks to local development tax incentives, including high costs, diminishing returns, heightened intraregional competition, and inequitable outcomes. These limitations can make incentives less effective in achieving local and regional goals.

To enhance the economic and fiscal position of the region, ON TO 2050 calls for local governments to reform their use of development incentives within a larger program of smart, regional economic development.

CMAP supports incentive reform by developing policy recommendations that encourage equity, transparency, fiscal sustainability, and non-financial incentives. CMAP also analyzes the most common types of tax incentives used in northeastern Illinois.

In March 2022, CMAP published Local development tax incentives in northeastern Illinois, a report on the prevalence and distribution of local development tax incentives in the region.

This report looks at how communities use four types of incentives — tax increment financing, sales tax rebates, property tax abatements, and Cook County’s incentive classifications — and how they affect revenues. The report also recommends ways to reduce the need for incentives and improve incentive use where they prove necessary.

In September 2020, CMAP published Improving local development incentives, a guide for local governments in northeastern Illinois. This technical guide provides important background information about incentive use in the region and identifies clear principles, strategies, and practices to implement incentive reform in alignment with ON TO 2050.

In August 2021, CMAP published a companion piece to the guide, Are tax incentives the right tool for this development? This pamphlet helps local governments assess whether tax incentives are the most effective way to achieve their community’s goals and poses a series of questions to consider before approving any new tax incentive. The piece covers three common types: TIF districts, sales tax rebates, and property tax abatements.

CMAP’s work builds upon many years of prior research, including:

• Sales tax rebates remain prevalent in northeastern Illinois, a 2016 analysis on the location of rebate-receiving businesses relative to local government borders and other topics.

• Sales tax rebate database analysis highlights prevalence of rebate agreements in metropolitan Chicago, a 2014 analysis focusing on the quantity and distribution of sales tax rebates in the region.

• Examination of local economic development incentives, a 2013 report analyzing how local governments use incentives to attract or retain businesses and encourage redevelopment.