This week it was announced that the City of Chicago would raise property taxes in order to generate $600 million to help pay police and fire pension costs, as well as address its other budgetary needs.
The mayor is touting a list of moves the administration has made to shore up its fiscal health, while stating that the property tax hike is necessary to right the city’s fiscal ship.
No doubt, a property tax increase was inevitable due to the years of mismanagement, inefficiency and corruption in government. However, there are some implications of the proposed increase that must be considered before City Council votes on the issue.
Many people will be surprised to learn that residential homeowners are disproportionately bearing the cost of property tax increases. Residential property owners are actually paying an increased share of property taxes while business owners’ share has dropped over the last 20 years.
Residential owners pay 62.7 percent of property taxes (an increase from 44 percent in 1981), while businesses pay 37 percent (a drop from 55 percent in 1981). This means the tax burden is shifting to homeowners.
This shift is largely because large businesses and commercial real estate owners are able to hire expensive law firms to submit property tax appeals that undervalue commercial property — essentially granting them significant property tax reductions. It’s no coincidence that some of the most notorious political insiders — Ald. Ed Burke (14th) and Illinois House Speaker Mike Madigan have lucrative law practices focused on property tax appeals for large business clientele.
The City of Chicago — in spite of its financial bind — does almost nothing to recoup millions upon millions of dollars in potential property tax revenue that is lost because of this practice. This is due, in part, to 2002 legislation pushed by Ald. Burke and supported unanimously in City Council. This legislation barred the city from intervening in property tax appeals of under $1 million.
As long as an appeal is for up to $999,999, the city cannot intervene. There are massive consequences to this legislation. According to a Civic Federation report, from 2000 to 2008, the assessor’s office and the Board of Review reduced residential assessments by $4.85 billion and commercial assessments by $32.5 billion — almost seven times more.
The mayor proposed an exemption to the property tax increase that seeks to cushion the shock of an increase and it’s based on residents whose homes are valued at $250,0000 and under. However, residential home values are not a good indicator of a homeowners’ ability to pay. Wages and salaries have been stagnant for years, so an increase in home values does not predicate an increase in one’s ability to pay. Moreover, in gentrifying areas, home value increases may negatively affect homeowners on fixed incomes (such as seniors). A property tax abatement should be based on income level — not home value.
The administration must pursue commercial property and other mechanisms that “game” the system much more aggressively. And it must implement a system that takes into account income level by way of a series of rebates and/or exemptions. If this is not done, this property tax increase — both for this year and in subsequent years — will have a disastrous effect on residents already looking for a reason to leave the city, the region and the state.