Chicago progressives build momentum for transfer tax hike, plan fall vote

Chicago’s real estate community could be in for a fight this fall with not only some of the city’s aldermen, but its progressive voters, too.

The industry’s lobbyists have work cut out for them to beat back a proposal they say would be costly for their clients by fattening a city tax derived mostly from commercial property transactions, as the legislation got its first day in the sun with a packed three-hour hearing Thursday.

The proposal being drafted by Mayor Brandon Johnson would increase the transfer taxes charged at the time of a sale on deals priced at $1 million or more in order to dedicate a revenue stream toward combating homelessness. This week’s hearing came months after the City Council failed to get a quorum to consider the measure during former mayor Lori Lightfoot’s tenure.

Johnson’s administration, the group Chicago Coalition for the Homeless and progressives on the City Council are pushing for legislation to authorize a ballot initiative that would ask voters to authorize the increase on $1 million-plus deals.

Advocates of the idea want to boost the tax rate by 1.9 percentage points for deals that meet the threshold, which would bring the rate to more than triple the 0.75 percent the city charges now on all deals regardless of their price. Johnson’s office is still finalizing the ordinance it will introduce, his policy director Mayumi Grigsby said. Ald. Maria Hadden of the 49th Ward said proponents would have legislation for the City Council to vote on in the fall.

The proposal’s progressive supporters are riding a wave of momentum from Johnson’s election in the spring, and while Hadden said there’s still a lot of work to be done, some view it as a done deal.

“This issue was decided in April when the voters elected Mayor Brandon Johnson, who committed to Bring Chicago Home,” said 35th Ward Ald. Carlos Ramirez-Rosa, a supporter of the proposal who added that it was “no longer a question of if but how.”

The Committee on Housing heard from leadership of Chicago’s Coalition for the Homeless and from outgoing Housing Commissioner Marisa Novara.

“Our current funding is insufficient, period, but it is also insufficiently flexible. We really need more funding sources that are flexible that allow us to reach the very lowest incomes,” Novara said. 

Proponents of the measure are contemplating changing the tax structure to make it a marginal tax instead of a flat tax, meaning the new tax rate would apply to the amount of the sales price over $1 million — for instance, the higher rate would be applied to $200,000-worth of a $1.2 million sale.

Novara said that would make the tax less vulnerable to legal challenges and takes away incentive to lower prices to just below the $1 million threshold, and added that it would reduce the burden on owners of two- to six-unit apartment buildings, which are often considered naturally occurring affordable housing.

That tweak would do little to spare the biggest commercial real estate deals from having their values impacted by the charge — it would have saved Blackstone a mere $19,000 from the $34 million in transfer taxes it would have had to have paid for its $1.3 billion purchase of the Willis Tower in 2015, if the proposed tax were in effect then. Under the current transfer tax structure, that deal’s transfer charge came out to $9.75 million for the city.

Just one opponent of the tax hike, Amy Masters of the Chicago chapter of the Building Owners and Managers Association, was among the more than a dozen members of the public who testified, though other industry groups submitted written testimony against the measure.

“While our office buildings don’t contribute to homelessness, our buildings house workers and support jobs. Many are union with good wages and benefits,” Masters said. “Office buildings would be hit exceptionally hard if this measure were to pass.”