Tick-Tock Goes the Property Tax Clock
By Michael Cornicelli, Executive Vice President, BOMA/Chicago
One of the more eye-catching headlines I have seen in the last month or so came from Joe Cahill at Crain’s Chicago Business, and it read, “Defuse the property tax bomb.” How appropriate given the extensive sparks flying around the issue of increasing property taxes.
Expressing the sentiment that the current state of property taxes in our City, County and State is getting out of hand would be an understatement. This situation, coupled with the new assessments we’re seeing from the Cook County Assessor’s office and the likelihood that Mayor Lightfoot will be looking for new tax and fee revenue to plug her $1 billion budget hole, paint a very clear picture that the property tax burden is likely to once again fall on the shoulders of commercial properties.
I have no doubt I speak for everyone who is a part of BOMA/Chicago in saying this all-too-common theme of ‘added tax burden’ is becoming harder and harder to stomach. In Cook County, commercial buildings already pay more than their fair share of property taxes. While all other commercial and residential properties in Illinois are assessed at an equal rate of 33 1/3 percent, the assessment rate for commercial properties in Cook County (25 percent) is 250 percent of the rate paid by residential properties (10 percent). This discrepancy is only worsened once the equalizer is applied – increasing the overall assessment for our buildings to 62 percent of their market value. Those numbers are astounding, especially when you take in to account that our member buildings alone already paid over $1 billion in property taxes in 2018.
Beyond the stats, rising property taxes are creating a real sense of disruption and uncertainty in the marketplace, especially as it relates to the new assessment policies. Property owners and businesses are rightfully ringing the alarm bell as total assessed value of commercial and industrial properties is skyrocketing in the current assessment cycle. Shifts in assessment policies – specifically in the determination of building valuations and cap rates – are raising concerns about transparency and the long-term impact on the market. And it’s not just property owners expressing concerns. Investors, banks and tenants are now shying away from Chicago as property taxes become unpredictable, and the marketplace itself is feeling the effect. If you look at downtown, the market is flooded with commercial properties for sale but few are closing, and the sales volume for the first half of 2019 was the lowest in 20 years.
This issue, however, is much bigger than just our buildings. The continuous increase of property taxes kills jobs and harms the economy, businesses and residents, alike. As our members already know, businesses ultimately pay for property taxes, as commercial properties usually pass property taxes down to tenants through their leases. This increases expenses for companies, and as employers feel the added financial burden, they may consider reducing employee benefits, delaying hires and expansions, slashing jobs or even moving out of Chicago to more affordable locations. Keep in mind Illinois has already lost $4.8 billion of adjusted gross income from high-wage earners moving out of state. Can we really afford to lose more people or businesses?
Put bluntly, the relentless, continuous onslaught of increasing property taxes is a problem of epic proportion. What makes matters worse is the problem isn’t going away. Chicago and Illinois need a long-term solution – now. At BOMA/Chicago, the trend of increasing property taxes is the single most pressing issue we are facing. Our collective team of leaders, industry experts and lobbyists are doing everything within our power to advocate for our members, our industry and our communities impacted by this issue. Whether that be sitting down with key politicians at City Hall and in Springfield; working with media to provide further property tax insights and education; or exploring the creation of industry coalitions to aggressively combat this issue on all fronts, we’re fighting for all of our voices to be heard.
It is no secret that one of the key driving forces behind the countless decisions to increase property taxes is the unfortunate pension crisis. Yet at the end of the day, all taxpayers – businesses and residents – expect the government to address the crisis head-on instead of imposing more and more taxes that could destroy our flourishing downtown, local workforce and economy.
As the voice of the office building industry, we will continue to loudly raise our voice on this critical issue not only for the sake of commercial real estate, but for the sake of Chicago’s long-term viability.