By Don DeBat
With Chicago homeowners reeling from the largest property tax increase in the city’s history, it may be time to consider an overhaul of Cook County’s antiquated property tax assessment system, real estate experts say.
Even Mayor Richard M. Daley admits property tax reform is needed, and recently he urged the creation of a panel of experts to overhaul the assessment system that penalizes long-term homeowners when a new neighbor buys a home for an inflated price.
With home prices declining in some city neighborhoods because of the real estate recession and high foreclosure rates, Daley also demanded the Cook County Assessor James Houlihan begin an “immediate correction” of property assessments in areas hardest hit by the 2006 reassessment.
How should the current triennial property tax assessment system be changed? According to the Tax Reform Action Coalition (TRAC), a consumer tax watchdog group, one solution could be acquisition-based assessing – a method of assessing property taxes tied directly to the actual purchase price of a property.
Acquisition-based assessing puts a limit on assessments increases until a property is sold. While you own your property, your assessment cannot go up more than 2 percent a year. So homeowners will never be slapped with assessment increases of 30 percent to 120 percent while they own the property.
TRAC predicts that if an acquisition-based assessing system is adopted, an established homeowner’s assessment will stabilize because it is not tied to the price a neighbor receives when he or she sells their property.
The assessment increases are limited to 2 percent per year. Acquisition-based assessing applies to all types of properties – commercial, industrial, residential, owner occupied or not.
When a property is sold under an acquisition-based assessment, it will be reassessed based on the actual sale price: a clear and understandable number.
In the following year the new property owner’s assessment increase will be limited to 2 percent just like everyone else. There will be some adjustments for commercial and industrial properties like the Sears Tower because they don’t come up for sale very often.
TRAC outlined the following benefits of acquisition-based assessing:
- Your real estate taxes will be predictable, allowing for long-term planning for you and your family.
- You won’t be taxed on so-called increases in your property value – or unrealized capital gains – that are based on your neighbors’ sale price.
- Communities become more stable. Long-term owners will be protected. Even if new comers begin to drive up prices, current residents will not be forced from their homes by huge increases in their property taxes that are beyond their control.
- New buyers will know what their future taxes will be before they buy the property. Fairness is maintained between neighbors with similar properties because the new purchasers will have chosen to buy with full knowledge and acceptance of the tax differences.
How will this new assessment plan affect the amount of money going to city and county government from property taxes? According to TRAC, it will have no effect whatsoever.
Chicago and the Cook County Board are both “home rule” bodies, meaning that they have the power today to raise your property tax rates by a simple majority vote in the City Council or County Board.
TRAC says politically raising property tax rates has been the “third rail” of local political reality, and the two bodies have chosen to raise user fees – parking ticket fees, amusement, sales tax, hotel tax and lease taxes.
These taxing bodies have also benefited from huge increases in assessments every triennial, which gives them a windfall of new cash until the next reassessment.
For more information on the Tax Reform Action Coalition, call 312-458-9202, or visit www.trac-il.org.
Real estate columnist and media consultant Don DeBat has written about Chicago-area housing and mortgage markets since 1968. He is chief executive officer of DeBat Media, Inc.