Tax burden shifting from homeowners to businesses
Across south suburbs, ‘incredibly high stakes’ with reassessments
Cook County Assessor Fritz Kaegi’s attempts to fix a property tax assessment system widely viewed as unfair continue to shift the tax burden away from homeowners and toward businesses.
Late last year, the first-term politician completed his second round of reassessments, this time setting the value of individual properties for taxing purposes in the south and southwest suburbs.
The median home assessment rose about 4%, while business and industrial properties saw a median increase of about 44%. Apartment buildings with seven or more units, which analysts say are significantly undervalued in Cook County, went up by a median of about 80%.
The practical effect of that? Many homeowners could see a break when property tax bills arrive later this year — and
businesses could end up paying more. Many south suburban officials say that could thwart decadeslong efforts to promote economic development in a region plagued by disinvestment.
“Our concern is we’re going to have more stagnation in investment and potentially further divestment if businesses find it too onerous to come back within our communities, and that’s a downward spiral,” said Kristi DeLaurentiis, executive director of the South Suburban Mayors and Managers Association.
Kaegi said he understands “the incredibly high stakes” involved in reassessing the south suburbs, given the struggles that started decades ago when industries moved out of the region and worsened during the Great Recession. He said his job is not to pick winners and losers, but to assess properties as close to their actual fair market value as possible.
“My principle is don’t inject my politics or preferences,” Kaegi said. “Be a mirror to the market, because that’s how we’re accountable.”
Kaegi contended that his predecessors did not always follow that objective principle and instead manipulated the system to achieve their desired outcomes, whether it was favoring certain property owners or shifting the burden from one type of property to another.
“The way I can do my job faithfully is to use market values to assess everyone, and that may be new, but that’s how it was always supposed to be done,” he said.
Further complicating this year’s assessments was Kaegi’s decision to revise assessments as the COVID-19 pandemic swept the country. He made those adjustments based on economic conditions in April 2020, when data showed declining housing prices. But that changed as the pandemic wore on.
As a result, homeowners received assessment reductions ranging from about 8% to 12%, even though home sales later in the year showed prices rising significantly.
Many, but not all, businesses also received COVID adjustments. They varied from region to region, but in general, businesses hit hard by the pandemic — like hotels, offices, stores and entertainment venues — received even bigger reductions than homeowners.
The reassessment
Assessments matter because they determine how much in taxes property owners pay. In general, the higher the assessment, the bigger the tax bill.
Kaegi’s south and southwest suburban assessments mean that homeowners saw their total share of all assessed value drop by nearly 7.5% — an amount that businesses, including larger apartment buildings, would end up shouldering if the reassessments hold.
That, however, doesn’t mean businesses will end up picking up the entire 7.5% of the burden when tax bills based on those assessments are sent out this year.
Many business owners are appealing Kaegi’s reassessments. If his 2019 assessments of north and northwest suburban properties are any indication, that could reduce the shift in property tax burden, with homeowners not getting as much of a break.
The north suburban shift
was 10% after assessments came out. But the Board of Review, an elected property tax assessment appeals panel, scaled back Kaegi’s work significantly. When it was done, the shift from residential to commercial was around 2.3%, according to an analysis by Kaegi’s office.
The 2020 reassessments varied depending on which part of the south and southwest suburbs a property was located. The shift was 10% in Rich Township, which includes Olympia Fields, and in Stickney Township, which includes Burbank. In Berwyn Township, the shift was only 1%.
The disparity in Rich Township concerns Jon Felix, the owner of Sell It Again, Sam, a used furniture business in Richton Park. The initial assessment went up by nearly 49%, putting a market value of nearly $652,000 on a building he bought for $406,000 in 2012, according to public records.
Felix appealed and won a reduction from the appeals board, which set the building’s market value at a little less than $556,000, still a 27.5% increase that portends a likely tax increase this year. Last year, Felix paid about $23,000 in property taxes on his building, already a steep hit for his small business.
And a local tax incentive he was granted by the village and county to open his store is set to expire in a couple of years, meaning it’s possible his tax tab could more than double — an increase he’s not sure his
store could survive. He’s already moved to a home in Indiana, where property taxes are much lower, and has contemplated the same for his business, but isn’t even sure he could sell it given the tax burden.
“This used to be a thriving community,” said Felix, who grew up in the area. “They ran everybody out of here with the taxes.”
COVID-19 adjustments
Kaegi started reassessing south and southwest suburban properties last February. That was before the pandemic arrived and government restrictions went into effect, leading to rising unemployment, significant downturns in retail and restaurant sales, and nearabandonment of many offices.
Saying state and county emergency declarations gave him the authority to start over, Kaegi did just that in the south and southwest suburbs. He also gave adjustments to all homeowners and many businesses in the city and north and northwest suburbs, areas that were not slated for reassessment last year.
So, instead of reassessing property based on its value as of Jan. 1, 2020 — as directed under state law — he based his decisions on economic conditions as of April, the latest he could pull the trigger without delaying tax collections this year.
Homeowners and businesses in the north and northwest suburbs, as well as the city, received notices
if their assessments were revised as a result. Property owners in the south and southwest suburbs were reassessed from scratch, with the COVID-19 adjustments baked into their new values.
For businesses, the changes were based on what are called capitalization rates, which are a way to measure earnings. That also makes it tougher for businesses to discern how the COVID-19 reductions affected the final reassessment.
To get a sense of a homeowner’s or apartment building owner’s precise COVID-19 reduction, one can look at data generated by Kaegi’s office. Kaegi also released the underlying computer code used to calculate business reductions, but critics say it’s tough to decipher, even for computer geeks.
“It’s not transparent,” argued DeLaurentiis, who said businesses are having a tough time determining whether they got a COVID-19 reduction or not.
DeLaurentiis and others also questioned Kaegi’s judgment on lowering home assessments by 8% to 12% across the county, noting real estate trends in the opposite direction. That, they say, inappropriately transferred a portion of the overall tax burden to businesses.
Pushback
Kaegi was elected in 2018, defeating incumbent Joe Berrios in the Democratic primary on a pledge to reform a system that “The
Tax Divide,” a series published by the Tribune and ProPublica Illinois, found to be riddled with errors. The system tended to shift the tax burden from wealthier homeowners and large building owners to lessaffluent homeowners and smaller commercial properties, the series found.
Studies by the Civic Consulting Alliance and the International Association of Assessing Officers backed up those conclusions, although a recent study commissioned by the Taxpayers’ Federation of Illinois suggested the problem lies mainly with undervalued apartment complexes, not other businesses.
In the south suburbs, mayors and village presidents say steps to adjust assessments and other aspects of the tax system have only once again compounded their financial woes.
In 2017, the state expanded exemptions for all homeowners and sweetened the tax breaks given to senior citizens. Thousands of south suburban homes fell completely off the tax rolls because the values of their homes were less than their exemptions. That shifted their tax burden to both businesses and owners of more expensive homes.
Now leaders are concerned that Kaegi’s recent adjustments will cause more homes to fall off the tax rolls and drive more businesses away, hiking taxes for everyone else who stays put.
“The biggest impediment to economic development in the Southland is the property tax burden ” Richton Park Village President Rick Reinbold said. “We have a workforce. We have transportation — the highway systems, the rail. We check all of the other boxes, except that property tax.”
But the severest criticism is coming from groups representing businesses, including the Building Owners and Managers Organization, or BOMA, and the Chicagoland Chamber of Commerce. Both are concerned not just with Kaegi’s first rounds of reassessments in the suburbs, but also what the shifts will mean for the city of Chicago, which will be reassessed for the first time by Kaegi this year.
“What we’re concerned about is our investors are starting to look at Cook County and say, ‘Why
should we do it there when we can go to DuPage County or Will County, where they don’t have those kinds of concerns? … Or Indiana,’ ” said Michael Mulcrone, executive director of BOMA Suburban Chicago.
“We want reform, and we want better government, but is his system the best way? I don’t think so,” Mulcrone added. “I think there’s a big question about it.”
Perhaps the strongest criticism comes from Farzin Parang, executive director of BOMA Chicago, which is concerned about what will happen with assessments in downtown Chicago this year.
“We’re concerned about this us-versus-them rhetoric that we constantly see from him, that he’s trying to pit residential taxpayers against commercial,” Parang said. “He kind of likes to invoke this fantasy that office buildings downtown are cheating everybody else and taking these huge piles of cash out the back door. … The politics of it work out great for him, and the policy is just bad for everybody.”
Kaegi maintains that his critics want him to use his authority to right the wrongs of the county’s complex and hard-to-understand property tax system. That, he added, is not his role under the state constitution, which requires him to value property at “fair market value.”
One aspect of the system Kaegi does not control is Cook County’s dual system of taxation. Business and industry is assessed for tax purposes at 25% of fair market value, while homes and apartment complexes are assessed at 10%.
So, if all properties are properly assessed, a business that has the exact same market value as a home would pay two-and-a-half times as much in property taxes. And, if the homeowners are receiving exemptions — which most do — the disparity is even greater.
“It distorts economic development, job creation — and you only have to look at the Cook south suburbs to see what’s happening,” said Jack Lavin, president and CEO of the Chicagoland Chamber. “And it’s only been exacerbated worse by the shift to the commercial and then with COVID.”