In 2009, Alvin Varnado’s single family home with a two-car garage in Hazel Crest, Ill. was worth $132,350. The next year, it shot up to $191,410—a 45 percent increase.
“From the beginning, I noticed everything was out of whack,” Varnado said. “I noticed it was a large jump from one year to the next.”
Property taxes are a beast, especially in Cook County. Knowing higher value means higher taxes Varnado has appealed his assessments most every year since 2002.
“That’s crazy,” Varnado said. “Something is definitely wrong,”
While ‘wrong’ may not describe the system as a whole, it’s murky. And a 2008 ordinance that was supposed to make things clearer may have only added to the inky nature of the property tax system.
The tax trail begins at the Cook County Assessor’s Office. It determines each property’s worth. Almost everywhere in Illinois, property is assessed at one-third of its market value, meaning owners pay 33 percent of their property’s value to the government. Cook County is the exception with a more complicated tax law.
Property is divided into classes and each class pays a different percentage of its value to the county. For years, residential property was assessed at 16 percent while commercial property was assessed at 38 percent.
However, experts say it was common practice for the assessor’s office to purposely undervalue property—some say for political reasons. Meaning that though the law said assessment rates were at 16 percent for residential owners and 38 percent for commercial properties, owners often paid taxes off lower rates.
In 2008, Cook County’s then-assessor James Houlihan pushed for the 10-25 Ordinance, an amendment that changed assessment ratios from 16 and 38 percent to 10 and 25 percent, respectively—hence the title. The law now reflected what was actually happening, eased the burden on homeowners and brought some clarity the puzzling tax system.
“Nominally, on paper, it looks like this is a switch in favor of the residential property owners,” said Art Lyons, director of the Center for Economic Policy Analysis in Chicago. “What actually happens in practice is a bit different.”
But some experts said then, and still say now, the ordinance was a hasty move.
When the bottom drops out
Paying property taxes is a little like splitting the bill at a restaurant with a friend. Each person is responsible for a portion of the bill. But if one person pays less than he owes, the other has to make up the difference. The restaurant requires its customers to pay the bill no matter how it’s divvied up.
“It’s all completely relative,” Lyons said. “The property tax is the only tax we have where what one person pays depends on what everybody else pays.”
And it seems the 10-25 Ordinance may have tipped the scales in favor of commercial owners.
In 2008 before it passed, then-Cook County Board President Todd Stroger put a task force together to examine the 10-25 Ordinance. The task force agreed the residential change would work just fine.
Don Haider, professor of management and strategy, and social enterprise at Northwestern University’s Kellogg School of Management, chaired the task force. He said the assessor’s office never gave the group data about the commercial properties. It only had the Illinois Department of Revenue’s data that showed commercial properties were already being assessed at less than 25 percent.
“Looking at state’s data alone left us thinking there would be a shift [in tax burden],” Haider said.
But he never got the chance to find out. The county approved the ordinance Sept. 17, 2008 and the study was never completed.
“It was just inconclusive,” Haider said. “We didn’t have adequate enough data to make major public policy changes that affects billions of dollars of property taxes.”
Shortly after the ordinance passed, the bottom dropped out on the housing market. So while it may look like the law change is responsible for a shift, it’s impossible to tell for sure.
“To have such a dramatic change go on when everything else is in flux makes it appear to be one big happy mess,” Haider said.
Bearing the burden
There are other reasons why this shift may be occurring. Like politics.
“You’re opening up a tax system to politicization when you have a class system,” Haider said.
Lyons said the Assessor’s Office could be motivated to underassess homeowners for the votes and commercial owners for the financial backing, especially when it’s time to run for re-election. The Board of Review, which decides on appeals, might do the same by offering reductions to voters who file for appeal.
Other experts say changing burdens demonstrate an uneven balance between these two classes of property. Recently, the number of residential properties is higher than that of commercial properties.
Tax attorney Mike Elliott of Elliott and Associates said it could be due to any number of reasons, such as unfavorable business climates or a sudden cropping up of residential properties. When times were good, Elliott said, a lot of commercial properties were converted to lofts.
Elliott said after the bubble burst and property values dropped, owners began abandoning their businesses. Many commercial properties are becoming vacant land, like car lots for example. It costs less to own a vacant lot than a commercial building.
Also, Elliott said that a law passed several years ago that reclassified apartment buildings from commercial to residential properties.
“The biggest tax burden is shifted onto those areas and townships where residential properties make up largest part of the tax base,” said Andrea Raila, a real estate tax and public policy consultant in Chicago. “[South Cook County doesn’t] have a lot of industry out there and their rates are 200 percent higher than the city of Chicago.”
Raila said though commercial properties are taxed at a higher rate than residential properties, the county subjects residential properties to higher assessments, creating an uneven burden.
In a study released April 5, 2010, the Civic Federation—a nonprofit accountability initiative—showed assessed values in Cook County for residential properties increased 130 percent from 1999 to 2008. Commercial properties went up 51 percent in that time period.
But Cook County Commissioner Larry Sufferdin said the county is closer to a fair tax than it has been in a while. Since it’s easier to do the math, residents are better educated about their share of the burden, he said. “With changes we’ve made at the county board with 10-25, it’s easier for the average citizen to understand fair market value.”
Businesses have been more aggressive about their taxes but it’s important for residents to challenge their assessments, Sufferdin said. “You’re the only person who can determine that you’re paying your fair share.”
The bottom line
Regardless of what caused the property tax burden shift, the ultimate goal is stability.
It’s hard to understand big year-to-year changes in taxes that don’t seem related to assessments, Lyons said. But a stable system would allow residents to forecast their taxes from one year to the next and the government doesn’t have to impose big changes.
“It makes for my definition of a fair system,” Lyons said.
But to people like Alvin Varnado, it’s a long way to fairness.
“I just get the feeling that they do what they want to do,” he said. “It’s enough to lose your hair over.”