Property tax cap fails; supporters to try  again

By Sarah Severson

The new year will have many homeowners feeling the sting of sharply increased property assessments if the Illinois General Assembly once more fails to extend the property tax relief bill, which has been in place for the last three years but is set to expire if it is not renewed.

The Alternative General Homestead Exemption, a bill known as the “7% cap,” did not pass in the fall veto session, but supporters will address it again in the 2007 spring session.

The Civic Federation of Chicago, a non-partisan group that analyzes local government, recently released results of a study that tracked and evaluated the impact of the 7% cap. The study showed the average homeowner could expect a 36% increase if the law is not extended.

“The Civic Federation is hopeful that the legislators and other policymakers will consider the implications of not extending the 7% exemption this year,” said President Laurence Msall. “We are very concerned about the shock effect of the rather dramatic tax increases that the average taxpayer would see.”

The federation also hopes legislators will pass more comprehensive property tax reform but said the cap would help soften the blow for homeowners in the meantime.

Those opposing the bill object to its implications for commercial properties, but the study found limited impact on commercial, industrial, and apartment properties, which actually could see lower tax bills this year.

“Industry and commercial property owners will see a reduction in property taxes regardless if the cap is extended—it’s a question of how big the reduction will be,” Msall said. “With the 7% homestead exemption continuing, the average commercial owner in Chicago would expect a 4% reduction in property taxes, as opposed to 8.9%.”

Supporters said the cap is necessary to help shield homeowners from the brunt of high property assessments by limiting increases to 20% over the next three years.

Dick Simpson, professor of political science at the University of Illinois at Chicago (UIC), said the property tax cap does not change the eventual tax level but does spread it out over a longer time to prevent immediate sticker shock.

“It’s a legitimate raise in the value,” Simpson pointed out. “The property values in the last decade have gone up 100% to 200%, depending on the neighborhood. The 7% cap is the best alternative for the general homeowner. Ideally, though, you would begin to raise the state income tax and lower the property tax that funds schools, which would be a fairer way to assess taxes.”

Governor Rod Blagojevich has promised not to raise taxes, however, so Simpson is not optimistic this measured approach will happen in the near future. As a result, higher property taxes will strain those with limited income in the working and lower class.

“The only real solution lies with the state legislature,” Simpson said. “They can cap or change the formula by which the property tax is determined, but to do so they would have to replace the money from somewhere, most likely with an income tax increase. They’re afraid to do it, the governor won’t do it, which means the state will be in a very bad fiscal bind these next four years.”

Simpson said there is a fine line between decreasing the homeowners’ portion of property taxes and increasing business and commercial taxes.

“When you raise it too much, businesses leave and relocate to nearby states,” he said. “It’s a juggling act to define the point you can raise the business taxes and still keep them here.”

Cook County Assessor James Houlihan strongly advocates the tax cap “to stabilize and buffer the growth,” said assessor spokesperson Lucio Guerrero. “We base the assessment on market value. If there are ten similar bungalows on the same block, there is uniformity in the values.”

Houlihan’s office found the value of homeowners’ properties in the City of Chicago have increased an average of 41%.

Mayor Richard M. Daley also favors the tax cap, which he said will help keep Chicago’s neighborhoods affordable. The tax cap would not affect the City’s budget in any way, but it would lessen the burden on residential owners and shift the load slightly to commercial and business owners. In the reassessment, residential is increasing at a much faster rate than commercial, according to a Daley spokesperson.

Not everyone wants an extended tax cap. Andrea Raila, a tax consultant, lives in a 13-unit condominium building. Before the reassessment, her taxes were $4,000. They are projected to soar to $9,700 this year, and she said the tax cap would save her only $600.

“If I’m denied that tax break and my taxes increase $5,200, I’m not concerned with the tax cap,” she said. “I’m concerned about the tri-annual assessment increases. How am I going to be able to pay a 95% increase on my condo unit?”

Raila said homeowners assume the tax cap is a saving grace that limits the increase to 7% but that it represents a drop in the bucket.

“I work with citizens to get fair assessments in taxes, and there is no law or legislation being promoted that caps the three-year reassessment increases,” she said. “These should be indexed to the cost of living and capped at realistic levels. For now, the sky is the limit.”

Barbara Head, president of the Tax Reform Action Coalition (TRAC), said she favors the tax cap, although it serves only as a Band-Aid on a major problem.

“Real reform is to change the way we assess all properties, assessed on the sale price when you buy the property,” she said. “After that, it would only go up 2% each year until the property is sold, at which the new owner repeats the process, assessed at the price he paid—that’s called acquisition-based assessing. We think that will mean taxes for all properties are fair and predictable.”

Head’s two-flat has gone up more than 900% in value since she purchased the dwelling in 1993.
“I’m trying to hang on to my property,” she said. “But I’m not a rich person.”