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Why Discuss the Property Tax System in a
TIF Almanac?
TIFs generate money through
creating more property tax revenue, so to really understand how TIFs
work it’s helpful to understand something about the property tax system. Understanding
more about property taxes also helps in understanding how TIFs
do and do not affect your personal property tax bill. Reading the following
information should help you next time a City official insists that TIFs
don’t increase taxes even when you’re holding a tax bill that says something
very different.
Step One: The Assessment Process
The assessment process is where the County determines
how much your property is worth. Each year, one-third of the County is reassessed
– known as the “triennial reassessment” – alternating among the City of Chicago,
the Northwest suburbs, and the Southwest Suburbs. During the other two years,
the assessed value of your home or business will stay the same unless you make
improvements to your property. There are two major stages in the assessment
process:
- Determining the Market Value of Your Property: The Cook County Assessor’s
office estimates the market value of your property by analyzing the sale price
of other, similar properties in your neighborhood. The goal of this stage
of the assessment process is to ensure that properties with similar characteristics
in the same neighborhood are assessed at the same level.
- Determining the Assessed Value of Your Property: Property owners do
not pay taxes on the full market value of their property. Instead, they pay
taxes on a percentage of that value (called the assessment rate). This rate
varies based on the type of property – single family homes, for example, pay
taxes on just 16 percent of their market value, while commercial properties
pay taxes on 38 percent of their market value. By varying the assessment rate
among property classes, the County determines how the tax burden is distributed
among various taxpayers. Note: This does not mean that you pay 16 to
38 percent of the market value of your property in taxes. Your final
tax bill will include a tax rate (see below) that usually ranges from 8 to
10 percent of your property value.
| Class |
Type
of Property |
Assessment
Rate |
| 1 |
Vacant |
22% |
| 2 |
Single
Family Residential |
16% |
| 3 |
Multi-Family
Residential |
33% |
| 4 |
Non-Profit |
30% |
| 5a |
Commercial |
38% |
| 5b |
Industrial |
36% |
The last step of this process is to multiply the assessed
value of the property by the “equalizer” – a number calculated by the State
and applied to each County. The equalizer is intended to ensure that the assessed
value of all the property in the county is equal to 331/3
percent of the total market value of the property, as required by State law.
For 1999, the Cook County equalization factor was 2.2505. This final calculation
results in the “Equalized Assessed Value” of your property – or “EAV” – which
is for all practical purposes the value of your property in the eyes of the
County.
Step Two: Tax Exemptions
Homeowners and senior citizens may be eligible for
certain tax exemptions or other special programs that reduce their overall tax
bill, or at least make it easier to pay their taxes. These exemptions are not
automatic – taxpayers must apply for them, in some cases every year.
| Program |
Eligibility |
Description |
| Homeowner Exemption |
Owners
of single-family homes, townhomes, condominiums,
co-ops, or apartment buildings with up to six units. Must have owned property
since at least January 1 of the previous year. |
Eliminates
up to $4,500 of the increase in property value since 1977. Allows the
property owner to save up to $450 on his or her tax bill. For more information,
call the Assessor’s office at 312-443-7500 |
| Senior Citizen Exemption |
Individuals
over the age of 65 who own their property or have a lease that makes them
liable for property taxes. Property must be the primary residence. |
Reduces
the EAV of the property by up to $2,500, which would reduce the tax bill
by up to $250. Together with the homeowner exemption, seniors can save
up to $700 on their tax bill. For more information, call the Assessor’s
office at 312-443-6151 |
| Senior Citizen Assessment Freeze Exemption |
In
addition to the criteria for the Senior Citizen exemption, individuals
must have a household income of no more than $40,000. |
Freezes
EAV at the previous year’s level. For details, call the Assessor at 312-603-6600 |
| Home Improvement Exemption |
Owners
of single-family homes, townhomes, condominiums,
co-ops, or apartment buildings with up to six units. Must have owned property
since at least January 1 of the previous year. |
Allows
you to increase the value of your home by up to $45,000 without increasing
the assessed value of your home for four years. For a $45,000 improvement,
the homeowner would save about $1,440 per year. |
| Senior Citizen Real Estate Tax Deferral Program |
Property
owners at least 65 years of age with an annual household income no greater
than $25,000. The property must be the applicants
primary residence for at least three years. |
Senior
citizens may defer part or all of their property taxes until the property
is sold, at which point they must repay the amount
of deferred taxes plus 6 percent interest. The program is administered
through the Cook County Treasurer’s office. For information, call the
Treasurer at 312-443-5100. |
| Circuit Breaker Program |
The
program is available to individuals 65 or over,
or disabled individuals at least 16 years old, who pay property or mobile
home taxes. Income maximums range from $21,218 for a single person to
$35,740 if filing for yourself, your spouse, and one other individual. |
Qualified
taxpayers can receive direct grants of up to $700 to offset the cost of
property taxes. For more information, call the Circuit Breaker Section
of the Illinois Dept. of Revenue at 1-800-624-2459. |
| Chicago
Homeowner Assistance Program (CHAP) |
Residents
must have lived in the property for at least five years, have a household
income no more than 80 percent of the area median and, have experienced
an increase in their property’s assessment level that is at least twice
the City's average increase. |
This
is not really a tax exemption, but a tax deferment. Designed
for areas that are experiencing large increases in property taxes, the
CHAP program allows residents to defer paying a portion of the increase
in their property taxes until they sell their property. When they sell
their property (or any time before), they repay the amount of the deferred
taxes plus 3 percent interest per year. For
information, call the City of Chicago’s CHAP hotline 312-745-CHAP(2427). |
For more information on property tax exemptions, visit the Cook County Assessor’s
web site – www.assessor.co.cook.il.us/exemption.html
- or call the Assessor's office at 312-603-2300.
Step Three: Appealing Your Assessment
In some cases, taxpayers may think the assessment
on their property was too high. In those instances, the taxpayer may file an
appeal with the Taxpayers Services Department of the Assessor’s office. The
object of the appeal is to prove that other similar properties in your neighborhood
were assessed at a lower level than your property. You can find data on other
homes in your area either through the newspaper (the date and publication in
which the information was printed is included in your reassessment notice),
or directly from the Assessor’s office. Information about the assessed values
of other properties is also available on a searchable on-line database at http://www.assessor.co.cook.il.us/startsearch.html.
If you aren’t satisfied with the results of your appeal with
the Assessor’s office, you may contact the Taxpayer Advocate’s office at 312-603-7530
for a more detailed review of your case. The next option available to the taxpayer
is to contact the Cook County Board of Review – an elected body of three commissioners
whose job it is to review property tax assessments. The Board of Review can
be reached at 312-603-5542. If the Board of Review does not rule in your favor,
you may file a petition directly with the Illinois Property Tax Appeal Board,
a State agency that handles the next step of the process. Appeal forms and more
information may be found at http://www.state.il.us/agency/ptab/,
or by calling the board at (847)294-4360. In extreme cases, taxpayers may file
complaints with the State Appellate Court and then, in the most serious cases,
with the Illinois Supreme Court.
Step Four: Tax Rates
Once the assessment levels have been set, it’s time
for the final step in the process: calculating the property tax rate for each
taxing body. If you look at a tax bill, you will see several different governmental
bodies that get a piece of your property taxes, including: the City of Chicago,
the Chicago Public Schools, the Chicago Park District, and the Metropolitan
Water Reclamation District, just to name a few (see chart below for complete
list). Each of those bodies goes through the following process:
- Determine How Much Money It Needs To Operate: This is the result
of the agency’s budget process. At the end of that process – once State, Federal,
and other revenues have been taken into account – the agency will know how
much it must raise through property taxes. This amount is known as the tax
levy.
- Look at the EAV for the Area: Once the appeals process is complete
and the County Assessor surrenders all the assessed values to the County Clerk.
the Clerk’s office makes available the final, certified EAV for each taxing
district. The EAV is the “base” from which the agency can draw taxes.
- Calculate the Tax Rate: The tax rate is the last thing to be determined.
It depends entirely on the size of the levy requested by the agency and the
size of the tax base for the area. The tax rate is determined by County Clerk’s
office using the following formula:
Tax Levy (Budget) =Tax Rate
EAV (Property Value)
For Example: Let’s say the Tiffville
Public Schools needed to raise $5million (the levy) in property taxes to balance
its budget. The County Clerk would figure the tax
rate of the school district by the following:
$15 million = 5.000 or 5% (theTax
Rate)
$100 million
The County Clerk then notifies the school superintendent of the EAV and tax
rate for the school district.
In Chicago, for the 1999 tax year, the total tax rate was
8.536 percent, broken up as follows:
| Taxing Body |
Rate |
Taxing Body |
Rate |
| Chicago Board of Education |
4.104 |
Chicago Community Colleges |
0.347 |
| City of Chicago |
1.673 |
School Finance Authority |
0.255 |
| Cook County |
0.854 |
Chicago Library Fund |
0.187 |
| Chicago Park District |
0.627 |
Forest Preserve District of Cook County |
0.070 |
| Metropolitan Water Reclamation District |
0.419 |
Total |
8.536 |
Calculating Your Tax Bill: A Review
Here, from beginning to end, is an example of how a tax bill is calculated
for a $100,000 home.
| Step |
Explanation |
Value |
| Market
Value |
This is the total
value of your property, based on the value of other, similar homes in
your neighborhood. |
$100,000 |
| Assessment Level |
The percentage
of your home’s market value on which you pay taxes. For single-family
homes, the assessment level is 16 percent. |
16% |
| Assessed Value (AV) |
The unadjusted dollar value of
your home’s market value on which you pay taxes. Equal to the Market Value
multiplied by the Assessment Level. |
$16,000 |
| Equalization Factor |
A number calculated by the State
and applied to each County. The equalizer is intended to ensure that the
assessed value of all the property in the county is equal to 331/3
percent of the total market value of the property, as required by State
law. |
2.2505 |
| Equalized Assessed Value (EAV) |
The Assessed Value multiplied
by the Equalization Factor. This is the taxable value of your property
before you take any exemptions for which you are eligible. |
$36,008 |
| Homeowners Exemption |
The standard amount by which most
homeowners can reduce the Equalized Assessed Value of their property before
the final tax bill is calculated. Some homeowners, particularly senior
citizens, may be eligible for additional exemptions (see “Step Two,” above).
|
- $4,500 |
| Adjusted Equalized Assessed
Value |
The EAV of your property minus
any exemptions for which you are eligible. This is the final taxable value
of your property. |
$31,508 |
| Tax Rate |
This is the combined tax rate
of all the public agencies that are eligible to receive a portion of your
property taxes (see “Step Four,” above). |
8.536% |
| Your Tax Bill |
Your tax bill is the Adjusted
EAV multiplied by the Tax Rate. |
$2,689.52 |
How Do TIFs Affect Your Property Taxes?
There is an ongoing and often heated debate about the effect
that TIFs have on the tax bills of residents and businesses
inside the district. To sort out the misunderstandings, it is necessary to distinguish
between two different concepts: tax rates and property values:
- It is true that TIFs do not directly affect the tax rate
you pay. The tax rate is determined by the public agencies (the City,
the Chicago Public Schools, the Chicago Park District, etc.) based on how
much money they have to raise through property taxes (see “Step Four,” above).
The tax rate is the same across the City, regardless of whether your property
is located in a TIF district.
- TIFs may, however, increase the value of your property, which would
lead to a higher tax bill. TIFs work by raising property values in the
district, which leads to more tax revenue that can be used to pay for redevelopment
activities. Property values can rise in one of three ways: either new buildings
can be built on vacant land, improvements can be made to existing buildings,
or existing buildings without improvements can be assessed at a higher level.
This third category – what is often referred to as “gentrification” – is the
result of a neighborhood becoming a “hot” real estate market. Improvements
to the area (either new, upscale residential development or high-end commercial
development) make the area more “desirable” to potential homebuyers, and therefore
drive up prices. This increases the market value of similar properties, and
therefore drives up the assessed value of properties in your area. To the
extent that TIFs are responsible for that high-end development, they can have
a negative impact on your property tax bill.
- TIFs may also have a long term impact on tax rates. Keep in
mind that TIFs freeze the amount of new taxes that go to existing taxing bodies
(the City’s general operating fund, the Chicago Public Schools, etc.) for
23 years. Well over 10 percent of the City’s tax base is already tied up in
TIFs, meaning that all the new growth in those areas does not help to fund
basic City services. If the tax base “flattens out” while the costs of government
services escalate, that means that tax rates will have to go up to keep pace.
The possibility of this taking place is a cause for concern about the overuse
of TIFs in the long run.
Tax Incentives As A Tool For Redevelopment
In general, tax incentives work by reducing the percentage
at which a property is assessed. In other words, the property owner pays taxes
on a smaller portion of the market value of the property, resulting in a lower
overall tax bill. The following chart lists current property tax incentives
available in Cook County:
| Name |
Description |
Type of Area |
Contact |
| Class 6(b) Property Tax Incentive |
Incentive
for new or rehabilitated manufacturing. Reduces assessment rate from 36
percent to 16 percent for eight years, then gradually
increases the rate to 36 percent (23 percent in Year 9 and 30 percent
in Year 10). |
Industrial |
Cook
County Assessor312-603-2300DPD Finance Division312-744-CITY |
| Class 7(a)/7(b) Property Tax Incentive |
New
or rehabilitated commercial property in blighted areas, intended for projects
that would not go forward without the incentive. Reduces assessment rate
from 38 percent to 16 percent for 8 years, then raises
in to 23 percent in Year 9, 30 percent in Year 10, and the full assessment
thereafter. |
Commercial |
Cook
County Assessor312-603-2300DPD Finance Division312-744-CITY |
| Class 8 Property Tax Incentive |
New
or rehabilitated commercial property in blighted areas, intended for projects
that would not go forward without the incentive. Reduces assessment rate
from 38 percent to 16 percent for 10 years, then
raises it to 23 percent in Year 11, 30 percent in Year 12, then the full
assessment rate thereafter. |
Commercial,
Industrial |
Cook
County Assessor312-603-2300DPD Finance Division312-744-CITY |
| Class 9 Property Tax Incentive |
Multifamily
residential development in areas where at least 51 percent of residents
earn low to moderate incomes. At least half the units must have rent below
80 percent of HUD’s fair market rent. Reduces assessment level from 33
percent to 16 percent for 10 years, and can be extended for two more 10-year
periods. |
Residential |
Cook
County Assessor312-603-2300DPD Finance Division312-744-CITY |
| Landmark Program |
Incentive
for rehabilitation of commercial and industrial landmarks for cases where
project would not proceed without the incentive. Assessment levels are
same as for Class 7(a) and (b), though the length of the incentive was
recently extended from 10 to 12 years (see below). Other tax benefits (income
tax credits for commercial properties, assessment freeze for residential
rehabilitation, technical assistance) may be available through the City. |
Mixed-Use,
Commercial, Industrial |
DPD
Landmarks Division312-744-CITY |
Reforming the Cook County Property Tax System
Altering how we use tax incentives can be a powerful
way to shape the future growth and development of the City and make the tax
system more fair. The current tax incentives help to
accomplish some of these important goals – developing affordable housing, creating
jobs through industrial and commercial development in certain areas of the City,
preserving historic buildings – but there is a lot more that can be done. Cook
County Assessor James Houlihan has, for several years,
been putting together a package of property tax reforms that seek to reform
the tax system to help “mom-and-pop” retailers, provide more incentives for
the development of rental housing, and encourage job-producing industrial development.
The key aspects of the Assessor’s “Year 2000 Plan”
are:
| Reform |
Explanation |
Status |
| Make the Class L Landmark Incentive easier to use. |
Changes
to the administration of this incentive (see above) made filing dates
more flexible, made the incentive renewable, and extends the term of the
incentive from 10 to 12 years. |
Passed |
| Lower the assessment rate on mixed-used properties
with first-floor storefronts and second-floor apartments |
These
sorts of multi-use buildings typically provide opportunities for both
“mom and pop” retailers and affordable housing. By assessing them at the
lower residential rate (16 percent) rather than the higher commercial
rate (38 percent) this incentive can help preserve the traditional character
of many Chicago neighborhoods. |
Passed |
| South Suburban Tax Reactivation Program |
In
an effort to reduce high tax rates, reverse the overall decline in property
values, and reduce the amount of vacant land in certain South Suburban
townships, the Assessor’s Office initiated a pilot program to acquire
vacant, tax-delinquent properties and turn them into marketable development
sites that are automatically eligible for the Class 8 tax incentive (see
above). |
Passed |
| Lower the assessment level on industrial property from
36 percent to 33 percent. |
Encourage
new industrial development and expansion by reducing the tax burden on
industrial properties. |
Pending |
| Lower the assessment rate on multi-family housing from
33 percent to 30 percent in 2001 and 26 percent in 2002. |
Multi-family
rental properties are taxed at a much higher rate than single-family homes,
making the development of new rental units (an important component of
affordable housing) very unappealing for many private sector interests.
By reducing the assessment level on rental properties, the Assessor
hopes to encourage more rental development. |
Pending |
The Year 2000 Plan is only a first step in the process of
reforming the property tax system. Ultimately, the reform process will require
action by the Illinois General Assembly to accomplish big-picture goals such
as making the State’s school funding system more equitable and making Cook County
better able to compete with the suburban collar counties. Supporting the shorter-term
reforms at the County level is important for building momentum for the longer-term
reforms and a Statewide effort to make our tax system
more equitable.
For more information about the Year 2000 Plan, contact the Cook County Assessor’s
Office at 312-603-2300. To voice your support for these reforms, contact:
John Stroger
President, Cook County Board
118 N. Clark St., Room 567
Chicago, IL 60602
312-603-6393 or
jstroger@cookcountygov.com
And
Your Cook County Commissioner
Contact numbers for County Commissioners can be found at http://www.co.cook.il.us/commissioners.htm.
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