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The Sun-Times has a good but complex piece today on the relationship between rising property taxes and the phaseout of the so-called 7% property tax cap instituted by outgoing Cook County Assessor James Houlihan (here's more on the candidates vying to replace him). Fortunately, Ben Joravsky's been writing about the 7% cap - which is obviously integral to the TIF issue - and his work provides some good background.
From October 2008, on the roles of Houlihan and Mike Madigan, and the phaseout of the cap:
Yes, in 2007, after months of wrangling, the state legislature passed a bill that hiked the home owner's exemption, and Governor Blagojevich signed it into law. The law was a big deal because the property tax you pay is essentially determined by multiplying the tax rate by the assessed value of your home and then subtracting the home owner's exemption. In other words, the higher the exemption the less you pay.
But at the insistence of House speaker Michael Madigan, the relief provided in the law was watered down. Cook County assessor James Houlihan and Senate president Emil Jones wanted to raise the exemption to $40,000. Madigan successfully insisted that it only be bumped up to $33,000, which is what was applied to your last tax bill. It fell to $26,000 for this tax bill, and next year it'll drop to $20,000, the same as it was four years ago.
Madigan said he limited the exemption to make sure rich people in north-side mansions don't get too much of a property tax break. Of course, by limiting the home owner's exemption he essentially gave a tax break to commercial property owners, including the big boys and girls downtown. That's because you have to think of our property tax levy—that is, all the money our governments spend—as a big barrel the city and county fill with cash. The more the home owners put in, the less the commercial property owners have to put in. The government doesn't really care who pays what so much as the money fills the barrel. But if it makes you feel any better, the commercial property owners are complaining about their recent tax bills too.
From November 2007, more on Madigan and the push-and-pull between homeowners and commercial property owners over property taxes:
The state allows residential property owners to claim a home owner's deduction of as much as $40,000 a year. It's a good deal for residents, provided they get around to filing for the exemption—thousands do not. But it's a source of vexation to the owners of commercial and industrial buildings and apartment complexes, because what the home owners get out of paying they have to pony up instead.
Still, they're not exactly defenseless. Both residential and commercial property owners can appeal their assessments to the assessor's office and/or the Cook County Board of Review.
This year, after hearing the appeal from Madigan's firm, the board lowered the Hancock's assessment from roughly $64.8 million to $53.5 million, a cut that will save Shorenstein about $4.8 million over the next three years. (Its last bill was for $3.5 million.) For another Madigan client, the 61-story AT&T Building at 227 W. Monroe, the board cut the assessment from $116.5 million to $105 million; its owners figure to save about $4.9 million over the next three years. Madigan's firm also represents the Citicorp Center at 500 W. Madison, which it saved $3.4 million, and the Prudential Plaza, which it saved about $6 million.
With his law practice, Madigan may have more influence on Cook County property taxes than any politician in the state. He's the legislative power people must court when they want the home owner's exemption extended or raised. When he does use his influence to hike the home owner's exemption, his commercial business booms as clients like the Hancock and Prudential hire him to appeal their assessments. Meanwhile, grateful home owners give him and his cohorts their votes. Any way you look at it, Madigan wins.
From August 2007, on the legislative wrangling over the cap:
Earlier this year the senate passed a bill that would have raised the home owner's exemption to $60,000, but it got tabled in the house. Houlihan, with backing from Jones, then pushed for legislation raising the exemption to $40,000 for the next three years. Madigan's bill, meanwhile, favored a tiered approach in which the exemption for most home owners would top out at $33,000 this year, $26,000 next year, and $20,000 in 2009. Houlihan's larger exemption would save home owners thousands more in property taxes than Madigan's approach would, but Daley's position was unclear. As more than one state rep has told me, the mayor played it both ways for months, letting it be known to legislators that he'd agreed to back the Madigan bill even as he gave public lip service to Houlihan's proposal.
Back in May Houlihan called a rally to draw attention to his plan, and Daley was supposed to attend. Not only was the mayor a no-show, he held a rival press conference, upstaging Houlihan's rally. In July Houlihan put together a coalition of 49 aldermen to call for the larger exemption (the only alderman who didn't sign on was Frank Olivo, who represents the 13th Ward, Madigan's home turf). Afterward local state reps who had supported Madigan's bill expressed their irritation. They felt that by pointing to the bill's inadequacies the aldermen were grandstanding and trying to make them look bad. They also feared that Daley was about to double-cross them by pulling his support. But at a private meeting held shortly after, Daley's top legislative aides assured state reps that the mayor still supported Madigan's bill. The aides claimed the mayor hadn't known what the aldermen were up to, an explanation exactly no one buys.
With the mayor on record as supporting it, the bill with the lower exemption passed both houses earlier this month. The governor's press aides tell me he hasn't decided whether he'll sign it.
What does this all mean for the south-siders who crowded into the South Shore Cultural Center to hear the mayor? Many of them probably won't be able to afford to live in their neighborhoods for much longer. As Houlihan's office has been warning, rising taxes together with high financing rates could sweep hundreds if not thousands of residents out of the city, particularly from west- and south-side communities like Lawndale, East Garfield Park, Woodlawn, and Washington Park.
Reminder: Abdon Pallasch's Sun-Times piece is focused on West Garfield Park.
From June 2007, more on the wrangling between Madigan and Houlihan:
Over the last few weeks, according to statehouse sources, Madigan let legislators know he was opposed to raising the exemption to $60,000. He wanted a tiered approach: for home owners whose property has doubled in assessed value since 2002, the first-year exemption could rise to as much as $40,000; for most people it would be set at $30,000 in the first year, $24,000 in the second, and $18,000 in the third. "He was basically trying to wean us off the home owner's exemption," says one legislator who asked not to be identified.
When Houlihan and legislators pointed out that the lower exemptions would offer little relief to people in Woodlawn and other vulnerable areas, Madigan added a bigger break for people who make less than $75,000. But unlike the exemption, that wouldn't go into effect until next year. On May 31 Madigan introduced his version of the bill and had state rep John Fritchey and other allies spread the word that this was the best they were going to get. Daley signed on, and it sailed through the house by a vote of 101 to 9.
How much will it help? In many cases, not much. Take the case of Sarah, a resident of Woodlawn. The assessment on her two-flat on Indiana went up from about $11,000 in 2003 to $32,000 in 2006. She paid $700 in taxes last year, and her March bill was $345. Now she's looking at an August bill of more than $2,000, and that's after the heftiest exemption. She'll either have to sell or take out a loan to settle her bill.
What's the long-term solution? Obviously, it's time to attack the problem from the other end and cut the tax rates by cutting the budget. Let's start with TIFs, which divert about $400 million a year (and rising) in property taxes to slush funds controlled by the mayor and individual aldermen. Don't adopt any new ones, and cut off the flow of money to those that already exist once they've served their purpose.
From May 2007, on Daley's (non-) role in the issue:
Held on the steps of First Baptist Congregational, at Washington and Ashland, [Houlihan's press conference] was intended as a show of support for the cap—which in fact is not a cap at all but a home owner's exemption of $20,000. Passed in 2004 to help limit the hit taxpayers were taking as a result of rising reassessments, the "cap" is set to expire this year, in which case the home owner's exemption would plummet back down to $4,500.
It's not as though Houlihan's press conference was without heavy hitters. There was the Reverend Jesse Jackson, who spoke pretty accurately about our property tax system when he said, "There's always some scheme afoot that rewards the wealthy and punishes the poor." But it wasn't so much who was there as who wasn't—Mayor Daley—that mattered. Despite the mayor's rhetoric about how he worries John and Jane Bungalow may get taxed out of their longtime family homes, he's never really lifted a finger to push tax relief through the Illinois General Assembly.
He was supposed to show up at yesterday's press conference, or at least send a representative. But no one from the mayor's office came. Instead Daley hastily put together his own press conference unveiling a new proposal for an independent police oversight board. Set at City Hall at the same time as Houlihan's press conference, it drew most of the mainstream media away and became front-page news. There was next to nothing about Houlihan's press conference.
For starters, [the mayor] claims that he "proposed the original plan that became the 7 percent cap on the taxable value of homes." Not only did Daley not propose the original plan (Cook County assessor Jim Houlihan did), he did very little of the lobbying needed for the watered-down version that passed.
But the big daddy of tall tales in his editorial is this one: "Even with the increase in Chicago property taxes in this year's budget, city property taxes have risen a average of only 1.5 percent a year since I've been mayor."
The only reason Daley can make this claim is because he's not counting hikes in school taxes and, more to the point, he doesn't regard TIFs as property taxes that residents have to pay. Instead, the mayor's official policy is that TIFs dollars are created by some sort of magical City Hall money-making machine at no expense to taxpayers.
From November 2006, more Madigan:
In the ensuing months Daley and Madigan have been passing the buck on the issue. At budget hearings over the last several months, Daley reaffirmed his support for the cap (even though he did next to nothing to push for the bill in last spring's session) and called on voters to pressure Madigan.
On November 13 Chicago property owners affiliated with the Tax Reform Action Coalition marched on Madigan's downtown law office, where they left hundreds of letters calling on the speaker to use his influence to pass the bill. A few days later Madigan responded with the following form letter:
"I voted Yes for the renewal of the 7% cap. I encourage you to get Jim Houlihan and Mayor Daley to do a better job of persuading legislators to vote for the 7% cap."
Touche. Of course Madigan voted for the bill. After working against it behind the scenes—several sources tell me he put pressure on key legislators to vote against it—and saying nothing to support it when it came before the house, he voted for it to appease his southwest-side constituents and give himself plausible deniability when the protesters showed up at his door.