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Uneasy Money

State senator Miguel del Valle wants to let some of his constituents off the property-tax book. But is that fair to everyone else?



By Jordan Marsh

As property values in the city have soared in the past few years, property taxes have too, creating a hardship for many longtime home owners of modest means. To get them some relief, state senator Miguel del Valle is trying to place a referendum on the March 21 ballot that would generate support for exempting such home owners from paying at least a portion of any tax increase that's the result of the boom in property values. His district is part of West Township, which had a median assessment increase of 28 percent in the 1997 reassessment, the highest increase in the city; the city's median increase was 10.7 percent.

The relief del Valle wants to offer is already authorized by the Longtime Owner-Occupant Property Tax Relief Act, a state law passed in 1993 that allows counties to set up exemption programs. It originally contained a provision allowing Chicago, its Board of Education, and the City Colleges to continue to collect their full share of the assessments if Cook County implemented a program--and under those circumstances, home owners wouldn't be helped much, because the city and its schools and colleges claim most of the county property taxes. But then in 1998 del Valle and state senator Jesus Garcia sponsored an amendment preventing the city and its school districts from receiving special treatment. The amendment passed and was signed by Governor Jim Edgar.

But del Valle still has to persuade the county to implement a plan, which is why he's pushing to get the referendum on the ballot in as many wards as possible. He's concentrating on wards where he has volunteers--the 1st, 26th, and 35th--and he's counting on state senator Rickey Hendon to pass petitions in the 27th Ward.

Among those who oppose an exemption plan is Pemberton Shober, who has owned a home in Logan Square since 1985 and is a longtime active member of the Logan Square Neighborhood Association, which has agreed to help circulate del Valle's petitions. Shober might well qualify for an exemption if the county adopted a plan, but he doesn't care. "A tax break like this is counterproductive," he says. "It's going to reduce the liquidity of the housing market." He explains that an exemption would induce home owners to stay in their homes and take advantage of the tax relief when they might otherwise have sold their homes and moved on--driving up already-high home prices. He also says that an exemption plan would force people who didn't qualify to pay even higher taxes. "If a person's renting an apartment, he's going to be socked with higher taxes in the form of higher rents. The tax rates, in effect, are going to be increased for everybody except that elite group that's been in their house for more than ten years. When you have a tax break like this, everybody else has got to make up the money." And that might cause an increase in foreclosures among the people forced to pay higher rates. "It'll drive the people out that have only been here five years that did everything they could to buy a house in this neighborhood. As it is now, Logan Square neighborhood is being gentrified in such a way that you can't buy a house at a decent price anymore--and this is going to make it even tougher."

Asked why he thinks del Valle is championing the idea, Shober says, "I can't imagine why anybody with any sense would be supporting a bill like this. I just think that the reason anybody would do it would be to gain votes from people who haven't thought the problem through."

Cook County assessor James Houlihan says he's not philosophically opposed to exemptions, but that they would force ineligible home owners and renters to pay an extra burden: "Whenever you exempt out, someone else pays." He points to inequities in California's assessment system, in which homes aren't reassessed until they're sold. The result is that new home buyers often get hit with much bigger tax bills than their next-door neighbors. "That creates a real disconnect among voters in terms of equity, and I think that's a mistake," he says. "I think that any policy that we look to develop, we've got to be careful that we don't create a situation where we've given inappropriate kind of relief that is so selective that some people feel that they've been taken advantage of."

Yet Houlihan, who's received praise for his attempts to make the county's tax assessment system more fair, shares del Valle's concern about the effects of gentrification. Two years ago his office, along with the city's Department of Housing, created the Chicago Homeowners Assistance Program. Under this pilot program, eligible home owners in gentrifying neighborhoods were required to pay their full tax bill, but they then got a check from the city for the amount of taxes they'd paid above what they would have paid in a nongentrifying neighborhood. The check from the city was a loan, not a grant, and had to be repaid at 6 percent interest when the home was sold.

But only 56 households, or 0.2 percent of those that were eligible, participated in CHAP. Del Valle says many potential participants were afraid of having a lien placed on their homes and afraid that they would pile up a large debt. "The [low-income] population that they've targeted is a population that is leery in terms of taking on additional debt," he says. "Many of them are already maxed out on credit cards." He adds that the mounting debt could also serve as an incentive to move, which would speed up gentrification and reduce diversity in neighborhoods.

The interest rate on the loan has since been reduced to 4.5 percent, and home owners are no longer required to pay their entire bill up front. That has doubled participation, though it's still low.

In June 1998 Houlihan gathered a group of civic organizations, later known as the Tax Policy Forum, to examine the property-tax system in Illinois and recommend changes. In December the forum reported that CHAP could help support home ownership and neighborhood reinvestment, but that it "would be enhanced if it were a grant so that homeowners would not have to repay the loan upon selling their property."

Converting CHAP from a loan to a grant, says del Valle, would make it the functional equivalent of his exemption proposal. "Except that a fund would have to be established," he says, "whereas with an exemption you're just reducing the tax liability."

But Houlihan still sees problems. "One of the concerns was that if you're in a neighborhood with increasing home values, are you making that a program to help someone who is really house rich--because they have an asset that is worth more than they might have ever considered it to be? Is that fair? Is that a program that just helps a segment of that community? And then, of course, depending on what the criteria are, what's the cost? What's the impact on the county? Schools? Those are issues that need to be addressed."

Last October the Chicago Tribune called del Valle's idea "ill-advised and unworkable." The editorial went on: "To propose a limited tax holiday for lower-income homeowners--while ignoring the financial benefits brought to them by the gentrification--is neither practical nor fair."

Del Valle responds that the amount of the average exemption wouldn't be very big. He points out that the average CHAP loan was $400 a year. "If that's a windfall," he says, "then I hate to think how we should describe the property-tax break that the Tribune got from building its [printing plant] on Chicago and Halsted." That's a reference to the break the company got for building its new plant on Chicago Avenue in 1983 under an incentive program designed to encourage industrial development in Cook County. Until 1991, when it was no longer eligible for the program, the plant was taxed at 16 percent instead of the usual industrial rate of 36 percent, saving the company over $5 million in taxes.

Cook County commissioner Roberto Maldonado, usually an ally of del Valle, is well aware that del Valle sees the referendum mostly as a way to get the attention of the county board. But he says he's already drafting an ordinance that would allow the commissioners to designate "property-tax-assessment freeze areas" within their own districts based on requests by community organizations in gentrifying neighborhoods. Before an area could become eligible it would have to meet certain criteria; for instance, the assessed value of the homes in the area would have to go up by a certain percentage, and an eligible home would have to be the primary residence of the taxpayer for at least ten years and could consist of no more than four units. Assessments of eligible homes would be frozen at existing levels, in effect exempting the owners from taxes on 100 percent of any increase, though municipalities and other taxing bodies would still be allowed to increase the overall tax levy.

Houlihan says that if an exemption program is established, he'd like to see it place income restrictions on participants. The CHAP program has an income cap; a family of four can make no more than $47,800 a year. But Maldonado opposes such restrictions, insisting that an exemption will have to be available to anyone if it's to gain public support.

Maldonado doesn't believe his ordinance, which he plans to introduce this spring or summer, would have a significant impact on the county's finances, but he worries that without sufficient public support, municipalities will oppose the idea and exaggerate its impact. "I must be able to document the estimates of the fiscal impact that it would have in those taxing bodies," he says. "But right now there is no mechanism to estimate that. We've never done something like this."

Nevertheless, he isn't happy that del Valle is pushing the referendum. "My biggest concern is that as soon as municipal leaders, taxing-body leaders throughout the county start calling their commissioners to say, 'That's not a good idea, an ordinance of that nature, because it's going to be detrimental to our village, town, or park district or the library district or the [Chicago Public Schools] or the city of Chicago,' well, that's going to be the beginning of the end of an ordinance of this nature," he says. "Exactly what I'm sharing with you I shared with [del Valle]--that is, my concern of being too premature, going out there to promote this when the one that has to introduce the ordinance, which is me, is not ready."

"Of course I wouldn't expect Maldonado to say anything different than what he's saying, because basically this is putting pressure on him," del Valle says. "He's got to respond to his constituents in his district on this issue. So the idea of having thousands of constituents sending a message by way of a vote within your own district has to make him a bit nervous. But that's fine--that's what the process is for."

Del Valle dismisses Maldonado's fear that a referendum will set taxing bodies against the exemption idea before he's ready to defend it. "I could use that excuse just about for every piece of legislation that I introduce in the general assembly," he says. "I could say, 'Well, I can't introduce this bill because it will give the opportunity for my opponents to step forth and lobby against it.' It's the process." He thinks Maldonado is worried because the ordinance would be "a tough sell within the county board, and he's afraid to take on a tough issue. I say to him, 'If there's public support for it, take it on.'"

Art accompanying story in printed newspaper (not available in this archive): photo/Dorothy Perry.

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