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2 External Market Risks

Macroeconomic Risks

Economic Recessions

Interest Rate Changes

Geopolitical Conflicts

Catastrophic Events

         

 

Example 1: TIFs across the country before and after the subprime mortgage crisis.

For example, TIF revenues in one Midwestern State increased by close to 382% between 2000 and 2007.

TIF revenues in the same State decreased more than 40% between 2009 and 2013.

Property tax rolls in other states across the country had large revenue swings as a result of the crisis.

Source: TIF Reform Task Force, Report of the TIF Reform Task Force, State of Illinois, 2018.

Example 2: Events of national or international scope that disrupt the balance between real estate demand and supply, with both short- and long-term effects.

Demand for new homes increases as a result of private- and public-sector responses to mitigate the consequences of the event (e.g., a sudden shift to work-from-home or low interest rates).

Housing supply tightens due to economic uncertainty or increased construction costs caused by the disruptive event.

Higher housing prices increases residential property tax appraisal rolls, potentially benefitting VC techniques that rely on real property taxes in some areas.

Example 2: Events of national or international scope that disrupt the balance between real estate demand and supply, with short- and long-term effects.

An event that causes increased vacancy rate for retail and office space, as well as hotel occupancy.

This could have a negative impact on revenues generated by VC techniques that rely on commercial property or sales taxes.

Mitigation: Local governments could choose to extend deadlines and facilitate property tax payment plans.

Real Estate Market Risks

Regional or local real estate bubbles and boom-and-bust cycles that disrupt real estate development and other economic activity within the community.

Example 3: Commercial risk caused by uncertainty associated with a new development approach to connect a blighted neighborhood and a thriving business district.

Photo Credit: Chicago Tribune

Mitigation: Sponsor and developer conducted commercial and legal feasibility studies to assess scenarios and potential outcomes.

 

Other Local Economic and Demographic Risks

Risks that are regional or local in nature, including shocks resulting from structural economic changes, natural disasters, or other causes.

Structural economic shift away from manufacturing to services, causing unemployment in sectors of the workforce.

Natural or environmental disasters impacting local businesses.

Example 4: Unemployment and migration at the Rust Belt

Outsourcing manufacturing jobs and automation has produced an industrial decline in the Rust Belt.

This translated into a decrease in economic activity in many communities, resulting in unemployment, out-migration, blight, and other signs of local economic contraction.

This can have a negative impact on revenues generated by VC techniques that rely on property or sales taxes.

Mitigation: Rigorous feasibility studies based on short/long term trends and local/national economic trends for a resilient project

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