Property tax reform will bring some measure of wealth to minority communities
Academic and government studies often make media waves, then end up collecting dust. That’s not the case when it comes to my research team’s two major studies from 2022.
Both studies — one on the failure of the scavenger sale to return decaying and abandoned properties to productive use, the other on how wealthy investors exploit property tax loopholes to drain millions of dollars a year from minority communities — led to my property tax equity legislation.
The legislation, now a collaboration between the treasurer’s office and the Chicago Community Trust, was approved by the General Assembly, where it was originally sponsored by Rep. Kam Buckner and Sen. Ram Villivalam, both Chicago Democrats.
If signed into law, the bill would:
Close loopholes that have allowed tax buyers — mostly hedge funds and private equity firms — to drain about $40 million each year from governments serving mostly Black and Latino residents.
Cut in half the interest rate charged by Cook County on delinquent property tax bills, from 18% annually to 9% annually. That will save late taxpayers between $25 million and $35 million a year, with most of those savings occurring in Black and Latino households.
Permit Cook County to stop holding scavenger sales and use new tools to put chronically tax delinquent properties more efficiently into the hands of municipalities, local developers and nonprofit organizations so the properties may be rehabilitated.
My office recommended closing several property tax loopholes in “How Wealthy Investors are Making Millions Exploiting Illinois’ Property Tax Law,” which I published in October 2022.
Those loopholes exist in an esoteric section of the state’s property tax code, known as sales in error. Current law allows tax buyers to back out of deals and get all of their money back — frequently with government-paid interest. The study noted tax buyers over the years helped craft the sales-in-error statute to favor themselves over property owners.
As a result, tax buyers in Cook County have received refunds totaling about $277.6 million, including at least $27.7 million in interest, during a seven-year period ending in September 2022. Of the money refunded, about 87% was siphoned from local governments serving predominantly Black and Latino residents — making it even tougher for fiscally challenged communities to deliver basic services such as education and public safety.
Tax buyers received refunds that would not be allowed in other states because the errors were so minor, the study found. For example, refunds were issued for a suburban shopping mall because the assessor listed it as having zero square feet; properties listed as not having air conditioning when they did; and a legal notice that misstated how much was owed by
a mere 3 cents.
The legislation would make it more difficult for tax buyers to get sales in error for such insignificant reasons. It also would change procedures to ensure property owners are notified of their rights within the required period, eliminate the interest paid to tax buyers in most sale-in-error cases and create rules to prevent repeat sales in error on the same property.
Meanwhile, my office and others involved in the Cook County property tax system have made internal changes to curtail errors caused by government. Those changes also are expected to prevent the draining of money from cash-strapped government agencies.
The proposed interest rate reduction and shift away from scavenger sales were recommended in “Maps of Inequality: From Redlining to Urban Decay and the Black Exodus,” which I published in July 2022.
The report noted the scavenger sale was created not long after the federal government sanctioned redlining in the late 1930s and found a correlation between redlining — the practice of discouraging mortgage lending in minority areas — and large swathes of vacant and abandoned land on Chicago’s South and West sides and in the south suburbs.
The study found that the decades-old scavenger sale — a last-ditch auction of chronically delinquent properties so they could be restored to productive use — was failing at its mission.
The legislation would allow the county to take vacant and abandoned properties, clear them of municipal and mechanics liens and put them in the hands of people and organizations that agree to develop them.
The goals of my property tax equity legislation are to help struggling taxpayers across the county, restore some measure of wealth to minority communities, aid struggling governments that serve Black and Latino residents and start to reverse the urban decay that plagues so many areas of the county.