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State of the State: Cook County's Property Tax System is Unique and is Likely to Stay That Way

Bethany Jaeger
WUIS/Illinois Issues

Despite paying for such essential services as ambulances, libraries, pensions for police and firefighters and, most of all, public schools, the property tax is often described as the tax most homeowners love to hate. 

But if Illinoisans believe the debate in Springfield over property tax relief affects everyone equally, they would be wrong. Other than standardizing assessments of wind farms statewide, legislation approved by lawmakers to continue capping assessments will help residents of Cook County only. Further, critics charge the program is unfair to residents of the rest of the state. This is because the Cook County property tax system is unique.

First, political pressure is more direct in Cook County. The assessor is elected. Some township assessors and supervisors of assessments in other counties also are elected, but most are appointed by county boards, according to the Illinois Department of Revenue. And Charlie Wheeler, the director of the Public Affairs Reporting Program at the University of Illinois at Springfield, says because Cook County assessors have always been elected, "It became common practice to give homeowners breaks in terms of evaluating their property."

Wheeler was a reporter for the Chicago Sun-Times at the time of the 1969-1970 constitutional convention when Chicago got its unique local tax system. Chicago Mayor Richard J. Daley won an amendment to the state charter allowing Cook County to tax commercial and industrial properties at higher rates than residential properties. The system employs more than a dozen classes. 

No other counties use classification. Instead, they assess all taxable property at about 33 and one-third percent of fair market value, which is the amount it would sell for on the open market.

Now Chicago-area homeowners stand to gain another advantage. Lawmakers agreed to allow Cook County to continue offering exemptions to homeowners. This so-called 7 percent solution, first approved three years ago, was designed to combat rapidly rising assessments on residential properties in that region.

In a Senate committee last month, Democratic Sen. Iris Martinez said the property taxes for her Chicago condo have shot up so high that her taxes are almost as much as her mortgage.

But property taxes are a zero-sum game, says Tom Johnson, executive director of the Taxpayers' Federation of Illinois. Local governments request a set amount of revenue they'll need to cover public services then levy that amount against the total value of property within the county. When one type of property gets a break, the rates have to be adjusted on others to make up the difference.

Property tax decisions made in Cook County since the 1970s have favored homeowners, read voters, leaving businesses to foot the rest of the bill. Exemptions exacerbate that inequity.

"The de facto classification evolved over time as local elected lawmakers were trying to curry favor with their residential voters," Wheeler says. "And the 7 percent [assessment cap] is a reflection of the same desire to help individual voters who are faced with the prospect of rapidly escalating property values."

He adds that it's the same mentality that led to "tax caps," a version of property tax limits enacted in 1991. Tax caps now are required in Cook County and its five neighboring counties. About half of the other counties across Illinois also use them. They limit the rates set by schools or other local taxing districts by capping the annual increase at 5 percent or the rate of inflation, whichever is less, unless voters approve a higher amount.

Johnson says the law is "the best thing we did in the property tax system in the last 15 years" because it engenders accountability. 

Regardless of intent or effect, once a county establishes tax policy, it's difficult to change for the simple reason that homeowners who once got tax breaks can turn into angry voters if they no longer do. 

In Cook County, the policy is to assess residential land at 16 percent of fair market value, while commercial parcels are assessed at 38 percent. The county is split into three regions for tax purposes: the city of Chicago, the north suburbs and the south suburbs. Each region is reassessed in a three-year cycle.

Starting around 2000, assessments of residential properties began shooting through the roof. County data show that they increased between 35 percent in the city and more than 70 percent in the south and west townships. Political pressure to do something trickled down from the Chicago area to Springfield, where lawmakers were convinced to cap the taxable amount of homeowners' assessed valuations. The solution, designed by Cook County Assessor James Houlihan, offered property tax exemptions to homeowners in that county for three years.

The Chicagoland Chamber of Commerce says businesses absorbed a higher tax burden as a result and gained one more reason to move elsewhere. Joan Parker, a consultant for the chamber, told a Senate committee last month, "Over $300 million has been shifted onto the business community. We believe that continuing this law will continue [the] shift to businesses."

Whether capping assessments works for homeowners, however, depends on whom you ask. 

Houlihan says yes. A 2005 report by his office concludes that 95 percent of eligible residents in the city of Chicago received an exemption of more than $4,500 for 2003, and nearly 80 percent of homeowners received a lower tax bill overall. In the second year of the program, the median tax bill rose by 1 percent. And about three-fourths of the city's homeowners received exemptions worth more than $5,000. In Chicago's northern suburbs, more than half of the residents also had lower property tax bills when their exemptions started for 2004.

On the other hand, a 2006 study by the University of Illinois' Institute of Government and Public Affairs concludes that while some homeowners saw significant benefits ranging from $227 per taxable year in the south suburbs to $415 in the north suburbs after the first year, other homeowners got higher bills because their tax rates were increased to compensate for total exemptions. In 2005, 65 percent of homeowners paid lower property tax bills, while 35 percent paid more than they would have without the assessment cap.

The effect on individual taxpayers and businesses varies. Homeowners in the city of Chicago whose properties lost value didn't qualify for the tax break. They paid a total of $30 million more in 2003, according to the report. Apartment owners paid $14 million more. Commercial properties paid $60 million more.

Johnson of the Taxpayers' Federation says the system is unfair, was enacted at the wrong time and is difficult to correct. 

"Certain people are winners, and others are losers," he says. For instance, someone who lives in a home for years could get the full exemption. A neighbor who just bought a house next door with the same value could get nothing.

He adds that the prime time to make significant changes to property tax policy is during a stable real estate market for homes and for businesses. That's not the case now and wasn't when the measure was enacted in 2004, he says. "It was just the opposite."

The current real estate market, however, is starting to stabilize, which just fuels the argument against extending the assessment cap when it would have expired in some areas of the county this year. 

But Chicago-area residents found out last month that they would be protected under the extension for three more years. After months of negotiations, the General Assembly approved extending the 7 percent solution, overriding Gov. Rod Blagojevich's amendatory veto, which would have increased the exemptions and made the assessment cap permanent.

As it stands, the measure increases homeowners' exemptions from a high of $20,000 to up to $33,000, phasing it out over the three years. The intent is to transition from the broad homeowners' exemptions to a more targeted, long-term exemption for residents who need it most, says David Eldridge, legislative director of the Taxpayers' Federation. 

Blagojevich wants a homeowner's exemption of up to $40,000, which he says would cover at least 76 percent of Cook County residents. 

That concerns the federation. "The fundamental question is, is it a good idea for 76 percent of Cook County to get this greater relief than the rest of the state gets, when there are other parts of the state that are paying higher taxes than Cook County is?" Eldridge asks.

Some Chicago Democrats agree with the governor's intent to make the exemption permanentbut question the constitutionality of using an amendatory veto to make the change. In order to prevent the program from ending just before primary election season in February, the House and Senate agreed to override the governor's veto.

The governor is not accepting defeat, however. He said in a statement that if the General Assembly doesn't come back to Springfield to raise the exemption and make it permanent, he'll require lawmakers to return in a special session next month. Sen. Terry Link, a Waukegan Democrat who sponsored the approved measure, also said on the last day of the fall session that he will seek to make the 7 percent solution permanent through legislation. 

Cook County likely will remain unique. Though the law allows any county in the state to adopt the assessment cap, Johnson says none will. Downstate counties, he says, don't have enough of a business tax base to absorb the burden of tax breaks granted homeowners.

Property tax decisions made in Cook County since the 1970s have favored homeowners, read voters, leaving businesses to foot the rest of the bill.


Bethany Jaeger can be reached at capitolbureau@aol.com.

Illinois Issues, November 20072

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