Setting the Record Straight on Rumored Property Tax Increases
No one should be surprised about the current fiscal crisis Chicago is facing, but the abundance of recent news articles claiming our taxes are about to explode can be unnerving. And while the increases seem to be coming at us from all levels, hitting us from every possible angle, one of the most alarming pieces I’ve read is from Crain’s Chicago Business suggesting property taxes will increase by 30 percent.
So it’s important to understand that what we’re reading and hearing right now about property taxes is highly speculative. Press accounts are based on assumptions of what will or will not be proposed, what our legislators will or will not approve, and what our governor will or will not sign. There’s really no way to calculate the city’s total liabilities until Springfield passes a budget and resolves the many issues log-jammed with it.
Some of those issues that will impact our taxes include pension reform, workers’ compensation and tort reform. In fact, the Chicago Sun-Times today reported that reforms recently proposed by Governor Rauner would lift the state-mandated $550 million police and fire pension fund payment and provide Chicago with 15 more years to reach 90 percent funding levels – saving the city $843 million over the next five years. Additional proposals include a city-owned Chicago casino with revenues dedicated to the police and fire pensions and the state assisting with teacher pension payments and health insurance contributions. All of these measures would provide significant and much needed relief to the city and taxpayers.
There’s no question that there must be shared sacrifice across the board to resolve these major fiscal challenges. But let’s not forget the burden our commercial real estate industry already shoulders. Commercial real estate property taxes in Chicago account for over 75% of a large building’s total operating expenses, the highest percentage compared with similar cities across the country. Our commercial buildings are assessed at 2.5 times the rate applied to residential buildings and BOMA/Chicago buildings alone paid nearly $750 million in property taxes this past year. And every time another high-rise sells, the city is behind the scenes collecting its transfer tax. The Willis Tower sale alone generated about $10 million for the city.
And the value our industry brings to the city is substantial. BOMA/Chicago’s Economic Impact Study revealed that BOMA/Chicago buildings house over 353,000 employees throughout the Loop, River North, Gold Coast and O’Hare submarkets, and are responsible for nearly 80% of total consumer spending in the Loop alone. These same employees contribute $3.5 billion to Illinois and add over $1 billion in new taxable personal earnings annually.
Solving this dilemma by over-burdening commercial real estate with excessive taxes is in nobody’s best interest. It will cause the economic engine to sputter, and in another year or so, there will be a new financial crisis confronting the City.
In the weeks to come, BOMA/Chicago will be analyzing specific proposals and our legislative team will be working diligently in Chicago and Springfield to protect the interests of commercial real estate. We promise you we’ll be critical and thorough and continue to keep you updated along the way.