Property tax appeals among commercial owners in Cook County shifted $2 billion to homeowners’ tax bills over the past assessment cycle, a new study from Cook County Treasurer Maria Pappas shows.
Illinois requires local government bodies such as city councils and school districts to set their budgets before property values are assessed. That means rather than the tax assessor giving budget makers a target of available property tax revenue to aim for, local agencies give property owners a total dollar amount they’ll need to generate via taxation, and the assessor determines how to distribute the bill.
As a result, when some property values are lowered via the appeals process, the lost revenue needs to be made up elsewhere.
Tax Assessor Fritz Kaegi determines buildings values, and property owners can appeal their assessments with his office and then appeal to a separate Board of Review if unsatisfied with the assessor’s response.
The process has spawned a lucrative, and at times politically corrupt, property tax appeals business that is more accessible to home and business owners with the time and resources to hire lawyers.
Pappas’ study aims to quantify the cumulative impact of successful appeals on other property owners over the past three years. The tax assessor revalues one third of the county per year, meaning Pappas’ data covers the latest assessments for the entire county.
Among the treasurer’s findings:
- Appeals won by businesses caused their collective tax bills to drop by $3.3 billion or 12.5 percent, while residential tax bills increased by 6.9 percent, equating to $1.9 billion
- Business owners appealed their assessments about 64 percent of the time, while homeowners appealed 27 percent of the time
The data also found that among homeowners, neighborhoods with higher concentrations of white, affluent residents were more likely to appeal their tax bills and have them lowered.
Homeowners shouldered more of the tax burden after factoring in business owners’ appeals, but the burden was not applied evenly across residences. Bills increased by about 5 percent in high-income areas and about 10 percent in low-income areas with predominantly minority populations, the study found.
The study joins a years-long saga of finger pointing among the treasurer, the assessor, the Cook County Board of Review and industry groups all looking to place blame for dissatisfaction with the county’s complex tax system.
The past three years have been the first assessment periods that fully reflect the impact of the pandemic. Many office buildings have faced foreclosure or sold for a fraction of their prior price. In some cases, that market reset is reflected in building values. Industry groups argue the tax assessor has not gone far to adjust building values in the face of pandemic-induced disruptions to the market.
“The fact that the assessments of office buildings are continuing to increase with no acknowledgment of the impact of the pandemic doesn’t seem objective. It’s not consistent with what’s happening in other markets or what’s happening in our market,” Farzin Parang, executive director of the Building Owners and Managers Association of Chicago, said when downtown assessments were released in November.
Cumulative commercial values increased more than residential values in the core of Cook County under Kaegi’s latest assessment. But Pappas’ study found that the same discrepancy was not found in actual tax bills because of the prevalence of appeals granted among commercial property owners.
Separately, a recent study from Kaegi’s office claimed that private appraisers who provide independent property value analysis for commercial owners to use when marketing a property or in filing an appeal systemically undervalue properties undergoing appeals and overvalue them when owners want to sell.
The back-and-forth between county officials and industry groups spawned a reform effort led by Cook County Board President Toni Preckwinkle’s office. It has also caused a chilling effect among investors who consider the tax system too unpredictable to navigate confidently.
A report commissioned by the board president and released in December called for a number of changes to the system including reforming the appeals process.
“I’m heartened that the Assessor and Board of Review are already addressing some of the underlying issues that cause this unequal shift in the tax burden, because the Cook County residents earning the least shouldn’t be shouldering the most, when it comes to taxes,” Pappas said.
The independent report commissioned by Preckwinkle’s office identified poor collaboration between the assessor’s office and the Board of Review as a root cause. Differing approaches to valuation, such as capitalization rates used to calculate property income, have led to confusion and inaccuracies. Both offices have also failed to share critical data with each other, including property income and expenses, leading to a reliance on appeals to correct valuations.