News

07.14.20
Real property tax relief must come from Springfield

As seen Crain’s Chicago Business

A body blow to north suburban commercial landlords, the property tax bills now landing in mailboxes should be a wake-up call to Gov. J.B. Pritzker and state legislators.

My colleague Alby Gallun reports that commercial and industrial property tax bills in northern Cook County rose 15.8 percent on average, an alarming figure underscoring the need to end Illinois’ overreliance on property taxes before it suffocates our economy. Northern Cook was the first section reassessed by County Assessor Fritz Kaegi, and property owners in that area are the first to receive bills based on higher assessments resulting from his new valuation methods. Similar increases likely are coming for commercial properties elsewhere in Cook County as Kaegi completes triennial reassessments over the next couple of years.

The tax hikes will devastate Cook County businesses, which already stagger under unsustainable property tax loads. Soaring property taxes will push some commercial landlords into the red, which in turn will drive down property values and discourage investment in Cook County real estate. Owners of apartments and office buildings will pass along at least some of the rising tax tab to tenants through rent hikes, driving the steep costs of living and doing business here even higher. More residents and business owners will have more reason to flee Illinois.

Commercial property owners blame Kaegi for going too far in shifting the property tax burden from homeowners to businesses. Kaegi, who succeeded Joe Berrios in 2018, argues that he’s correcting historic inequities that undervalued commercial properties and bringing more accuracy and transparency to assessments. There’s some merit to both arguments. Kaegi’s initial assessment increase of 77 percent for commercial and industrial properties in northern Cook was reduced to 25 percent by the county’s Board of Review, which hears assessment appeals. Berrios, meanwhile, was criticized for assessments that appeared to favor wealthier neighborhoods and prime office buildings at the expense of homes and business properties in less affluent areas.

Lost in the back-and-forth over assessments is a basic problem illustrated by something that didn’t happen: residential property taxes in northern Cook didn’t go down. In fact, they edged up 1.1 percent on average.

While that might come as good news to homeowners accustomed to larger hikes, it does nothing to reduce their already-heavy property tax burdens. Illinoisans pay the second-highest property taxes in the country.

And you can’t blame assessments for that. Assessments determine how the property tax burden is allocated among property owners, not the overall burden. The real driver of property taxes is the levy, or the total dollar amount local governments need to pay for public services ranging from education to police and fire protection.

That number continues to rise. Total property taxes billed in the area reassessed last year rose 5.2 percent to $4.8 billion. With residential properties representing most of the tax base, homeowners won’t get a real break as long as municipalities need to generate that kind of money from property taxes. On the contrary, residential bills could well start climbing at higher rates again after the one-time impact of Kaegi’s assessment shift plays out.

Only state lawmakers can change a system that forces local governments to fund such a large share of basic public services through property taxes. And they’d better get to work on it now, if they hope to rescue Illinois’ battered economy.

Even before COVID-19 triggered a steep recession, high property taxes were dragging down Illinois property values and souring investors on local real estate. Kaegi, to his credit, has reduced assessed valuations to reflect the impact of the downturn. But that won’t help homeowners or businesses if tax levies keep rising. Tax bills that property owners strained to cover in the past can become unaffordable during a recession. With nearly a million unemployed in Illinois, and businesses fighting for survival across the state, property taxes could trigger foreclosures and bankruptcies.

Yet Illinois policymakers continue to ignore the long-term economic effects of excessive property taxes. A legislative task force appointed late last year to study alternative funding sources for local government services accomplished nothing, lending credence to skepticism that the group was mere window-dressing for Pritzker’s graduated income tax proposal.

Sure, it’s hard to undertake fundamental fiscal reforms amid unprecedented health and economic crises. But short-term survival strategies will count for little if the property tax virus continues ravaging Illinois.

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