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Illinois Property Tax Updates

Updated March 2015

The Story of Real Estate Taxes - 2015

Chicagoans should be wary about their 2015 Real Estate Tax Bills. Up to now, Chicago Taxpayers have fared much better than their suburban neighbors when it comes to real estate taxes. Tax Year 2015 may well mark the beginning of a “Perfect Tax Storm” in Chicago.

In 2015, all property lying within Chicago will be re-valued. It seems very clear that the Assessor has determined that the Great Recession has become an event of history and that most segments of the real estate market are well on the way to recovery.

Thus far, new valuation Notices have only been sent to the property owners in one of the eight townships that comprise the City of Chicago. We have been able to review the new values. On average, the assessed values in that township have increased approximately fifteen (15%) percent. Multi-family residential properties have increased beyond twenty (20%) percent, single family residences and condominiums have risen to triple digit increases in some cases. Based on what we have seen in the first townships, we have to forecast even greater increases for most of the other townships.

Real estate values are only one component in the calculation of real estate taxes. The other critical component is the Tax Rate. The Tax Rate is determined by dividing the total budgets of all the Municipal and County agencies which provide services to the public by the total taxable value of the service area. That will include school districts, police, fire, park districts and more.

In 2015 and 2016, the pension deficits of the City agencies are about to reach catastrophic proportions. The Mayor’s staff is looking to Real Estate Taxes to reduce these deficits.

A PERFECT TAX STORM!

James P. Regan
Fisk Kart Katz Regan & Levy, Ltd.
Telephone:  (312) 726-1833
American Property Tax Counsel (APTC)

Illinois Property Tax Update Archive

Updated March 2014

Reassessment Time In Cook County

For Real Estate Tax Purposes, Cook County is divided into three districts; namely, the City of Chicago, the North and Northwest suburbs and the South and Southwest suburbs. Every property located in each District is revalued once every three years.

In 2014, the Revaluation Cycle moves to the South and Southwest suburbs. Re-Assessment Notices have already been sent to real estate taxpayers in Riverside Township, River Forest Township, Bremen Township and Cicero Township.

Following is a list of the remaining Townships to be revalued and reassessed along with the tentative dates on which the Reassessment Notices will be mailed:
    
     TOWNSHIP        TENTATIVE MAILING DATE
        Worth                 April 2, 2014
        Oak Park             April 14, 2014
        Berwyn               April 25, 2004
        Lyons                 May 7, 2014
        Lemont               May 14, 2014
        Stickney              May 22, 2014
        Palos                  June 6, 2014
        Calumet              June 17, 2014
        Proviso               July 7, 2014
        Orland                July 28, 2014
        Thornton            August 12, 2014
        Rich                   August 22, 2014
        Bloom                Sept. 5, 2014

The Reassessment Notices are not something to disregard. The new assessment will significantly affect real estate taxes for the next three years. We have already seen new 2014 assessments that have risen more than 30%. Those increases will be reflected in next year’s real estate taxes. Often people dismiss the Notices when they realize they are not bills. The one avenue open to taxpayers to reduce their tax bills is to appeal the assessments. From the time the Assessment Notices are received, taxpayers have approximately thirty (30) days to begin the appeal process to lower their property’s assessment.

The highest tax rates in Cook County are in the South and Southwest suburbs. If you are a taxpayer and have any questions, please feel free to contact our firm at (312) 726-1833 and ask to speak to one of our lawyers.

James P. Regan
Fisk Kart Katz Regan & Levy, Ltd.
Telephone:  (312) 726-1833
American Property Tax Counsel (APTC)

 

Updated December 2013

The Importance Of Floor Area Ratio

A rectangular shaped corner site in downtown Chicago contains 5,900 square feet of area and is improved with a single story 40 year old building containing approximately 1,564 square feet of gross building area. An appraisal of the property has placed the market value at $150,000. The property's assessed value reflects a market value of $408,976, or $261 per square foot of land area. Why the discrepancy? In this particular case it all comes down to the number of square feet of building that could be constructed on the site under its current allowable floor area ratio ("FAR").

The property was part of a larger tract purchased by a developer in 1996. The property along with the adjacent parcel owned by the developer was the subject of a planned development ordinance established by the City of Chicago which provided for the adjacent property and the subject, to be developed with 252 residential loft condominiums (PD-624). At the time PD-624 was approved, all of the allowable FAR within PD-624 was allocated to the residential loft condominium building. There was no FAR left for the subject property beyond its current use. Since the passage of the planned development ordinance, the zoning of the property is as a part of planned development. The underlying original zoning of the property was commercial.

The assessment assumed this property could be used for high density commercial purposes (as allowed under its original zoning), without regard for the fact that no greater development than the current small one story building could take place on the property. It would take an amendment to the planned development ordinance, an almost impossible occurrence, since all of the condominium owners would need to approve it.

This case is still on review, but it is a lesson on the importance of considering zoning, permitted uses and floor area ratios when looking at an individual property and at any comparable properties.

James P. Regan and Richard Levy
Fisk Kart Katz Regan and Levy, Ltd.
American Property Tax Counsel (APTC)

 

Updated September 2013

Reasonable and Unreasonable Taxes

For raising revenue in general, and specifically for real property taxation, Article IX of the Illinois Constitution provides the basic principles which guide the taxation process. Two words stand out in Article IX: taxes must be reasonable and uniform.
In the past month, we have had to confront a situation in the South Suburbs of Cook County in which the taxation process was both uniform and reasonable but the resulting taxes were completely unreasonable.

For 2012 Real Estate Taxes, the vast majority of the City of Chicago taxpayers paid $6.81 per $100 of the equalized assessed value of their property. Most Chicagoans were shocked when they saw their bills.

It's a good thing they didn't live in the South Suburbs. In the South Suburbs there are 673 taxing districts. Of those 673 districts, 600 districts had tax rates double that of Chicago. In two districts, taxpayers had to pay $31 per $100 of equalized assessed value of their property. Of the 673 Taxing Districts, 446 had rates of $14.00 a higher per $100 of equalized assessed value.

A comparison of Chicago taxes versus the taxes in the South Suburbs should clearly demonstrate the problem. We have chosen a $14 rate for the South Suburbs and the actual rate of $6.81 for Chicago. We note that the majority of the South districts have a rate higher than $14. Our example shows the taxes on a house valued at $200,000. The actual 2012 taxes would be:

Chicago House - $3,821
South Suburb House - $7,855

The causes are manifold; the process is uniform and reasonable. The result is unacceptable.

Richard H. Levy
Fisk Kart Katz Regan and Levy, Ltd.
American Property Tax Counsel (APTC)

 

Updated June 2013

Different Assessments of Similar Parcels - What is Right?

Two vacant parcels are next to each other and of the same size. But they are assessed differently. The taxpayer of the higher assessed property tells the court this violates the general rule that there must be uniformity of assessed value among similar properties. Is the taxpayer right?

The answer is, it depends. In looking at uniformity of assessments, the touchstone is the fair cash value of the properties. This will vary from property to property depending on, among other factors, how government regulations affect the use of the property. For example, if one of our parcels is zoned for single-family homes and the other for commercial uses, the latter will likely have a higher fair cash value. In order to truly have uniformity of assessments, the local assessor must weigh zoning and other encumbrances on the use of the property. Determining and applying those standards equally is the meaning of uniformity of assessments. Uniformity does not mean that Parcel A and
Parcel B must be assessed the same. It means that the same standards of valuation must be used for all similar parcels.

Richard H. Levy
Fisk Kart Katz Regan and Levy, Ltd.
American Property Tax Counsel (APTC)

 

Updated March 2013

Assessment Of The North And Northwest Suburbs

For real estate assessment purposes, Cook County is divided into three districts; the City of Chicago, the North and Northwest suburbs and the South and Southwest suburbs. The properties in each of the districts are revalued once every three years. The City of Chicago was revalued in 2012; the revaluation of the North and Northwest suburbs is ongoing this year and the South and Southwest suburbs will be revalued in 2014.

Notices containing the proposed 2013 Assessed Values have already been mailed to the owners of properties in Evanston and in Elk Grove Village. Following is a list of the 2013 townships that will be revalued and the estimated mailing dates on which the assessment notices will be sent:

Township Mailing with the Date of Assessment Notices:

    • Evanston 2/22/2013
    • Elk Grove Village 3/15/2013
    • Maine 4/08/2013
    • New Trier 5/01/2013
    • Palatine 5/24/2013
    • Barrington 6/06/2013
    • Leyden 6/21/2013
    • Wheeling 7/15/2013
    • Northfield 8/05/2013
    • Schaumburg 8/26/2013
    • Hanover 9/11/2013

For those taxpayers who believe that the proposed assessed values do not accurately reflect the value of their properties, appeals can be filed with the Assessor within thirty days from the date the assessment was published. For further information on your appeal rights, you may want to contact our firm.

James P Regan
Fisk Kart Katz Regan and Levy, Ltd.
American Property Tax Counsel (APTC)

 

Updated December 2012

A Fresh Look Is Needed For Uniform Taxation Of Residential Condominiums

Article IX of the Illinois Constitution provides the fundamental principles upon which the State's real estate tax system must operate. Chief among those principles is uniform taxation based on the value of the taxpayer's real estate. Our current Real Estate Assessment System operates primarily to assure that all taxpayers pay their fair and uniform share of taxes and no more. The two fundamental pillars of the Assessment System are UNIFORMITY of the taxes and the UNIFORMITY of the application of valuation methodologies. As the song says "You can't have one without the other."

No section of the current real estate market has been hit harder than the residential market in general and the condominium residential market in particular. Prior to 2009, the development of new residential condominium buildings and the conversion of rental buildings to condominium usage exploded. The availability of very cheap money supported a rise in purchase prices and in turn real estate values and a uniform rise in real estate taxes.

We all know that that world has collapsed amidst declining values and foreclosures. Condominium Units that were selling for $250,000 in 2008 are now being purchased in bulk for $50,000. In many cases the bulk of the units in new condominium buildings are either vacant or leased at market rental rates.

Condominiums have always been valued based on the aggregate value of recent purchase prices. The facts are that there are very few sales and the sales that have occurred are rejected as forced and not reflective of value. It seems clear that new valuation paradigms based on the current rental uses of the condominium building must be developed to assure the constitutional mandate of uniform taxation.

 

Updated September 2012

2012 Re-Valuation Of The City Of Chicago

By next week, the Cook County Assessor's Office will have published all of its proposed 2012 real estate Assessed Values for the County. That includes the assessments for the City of Chicago, which is currently being re-valued as part of the County's three-year valuation process. The only area awaiting re-valuation notices is the Central Business District south of the Chicago River.

The appeal process is an integral part of the re-valuation. In assigning value to real estate, the Assessor relies on market data such as sales and rental rates that have been collected over the past three years. There has been a great reduction in sales and rental rates for office properties, retail facilities and industrial buildings continue to go down. Those specifics and others affect value significantly and ultimately their real estate taxes. The Assessor cannot be expected to know the specifics of the vast majority of properties. For an accurate valuation, he needs the input of the property's owner or manager who is thoroughly familiar with the site.

With the exception of Rogers Park and Lake View, valuation Complaints can be filed for the City of Chicago at the Cook County Board of Review.

 

Updated June 2012

Second Installment Real Estate Taxes In Cook County To Be Mailed Be Mailed By July 1

According to Statute, Second Installment Real Estate Tax Bills in Cook County are supposed to be mailed prior to July 1, with a due date of August 1. At no time in the past thirty years have the Second Installment Bills been timely mailed. In the past five years they had due dates in November and December.

The timely collection of Second Installment Taxes will save local taxing districts millions of dollars in interest payments. In past years the late collection dates forced many of the districts to seek interim loans to cover revenue short falls created by the late tax collections.

On the subject of Tax Bills, homeowners should check their bills carefully to make certain that they are receiving their Homeowner Exemptions and their Senior Exemptions. The Exemptions can, and in some cases will, lower the Tax Bill by as much as one-thousand dollars.

 

Updated March 2012

Assessment Complaints – Integral Part Of The Assessment Process

Over the next six months, owners of property in the City of Chicago will be receiving Revaluation Notices from the Assessor.

For real estate tax purposes, Cook County has been divided into three separate Assessment Districts:

  1. The City of Chicago;
  1. North and Northwest Suburbs; and
  1. South and Southwest Suburbs.

The Assessor is required by Ordinance to revalue all of the properties in each District once every three years. 2012 is the Revaluation Year for Chicago; it was last revalued in 2009. The task for 2012 is extremely difficult. By Statute, the Assessor is required to determine the Fair Cash Value of each property, as of January 1, 2012. In the best of times, this is no easy task. In the current real estate market, a difficult process becomes monumental in scope.

Practically every sector of the real estate market has suffered loss in value. "The Great Recession" which began in mid-year 2008, has caused havoc with Real Estate Values. Various surveys have placed the declining value at more than 30%. In Cook County, the number of annual sales of real estate has declined by 90%.

As a first step in the revaluation process, the Assessor uses mass appraisal techniques to develop values for his Real Estate Valuation Notices that are to be mailed. That is the first step in the process. Those values have been generated based on models that were developed from valuation data gathered by the Assessor.

The issue always is whether a specific property fits the model that has been developed. For that reason, the Appeal Process has been established to correct and refine the general model that established the Assessor's Proposed Values. A revaluation process can never be successful unless there is an appeal component which corrects the general model with the specific details of the individual property. Those individual details can have a significant affect on the actual value of the property. Every property owner should recognize that the receipt of a Notice it is only the beginning of the Revaluation Process. After reviewing the value shown on the Notice, the owner must determine whether an appeal should be taken.

James Regan
Fisk Kart Katz Regan and Levy, Ltd.
American Property Tax Counsel (APTC)

 

Updated September 2011

Latest Civic Federation Tax Rate Report

In Illinois, the Civic Federation (which is a Chicago-based tax research organization that studies local and state governmental tax policies and which also publishes articles and studies regarding government budgeting, spending and tax policy) has just released its latest study on local property tax rates. The new Civic Federation report covers a ten year period from 2000 to 2009 (and adds the tax assessment and tax rate information for the 2009 tax year-the most recent year for which the information is available in Illinois).

The Civic Federation Report not only provides the actual tax rates and equalization factors, but more importantly, calculates the "effective tax rates," a ratio which compares the actual taxes paid by a particular property to the market value of the same property. In this regard, the "effective tax rate" ratio constitutes a valuable tool for developing an apples-to-apples comparison of the actual tax burden being imposed on different property types (residential or commercial) or similar property types located in different geographic areas. Moreover, if taxes go up while market values are declining, this will have an immediate upward impact on the effective tax rates in a given location.

For 2009, the Civic Federation study reports that the effective tax rates increased for residential properties in all of the 32 Illinois municipalities studied. In Chicago, the effective tax rates for residential properties increased by a very substantial 10.7%. Commercial properties fared somewhat better with an overall effective tax rate increase of 3%.

Jeffrey A. Brown
Fisk Kart Katz Regan and Levy, Ltd.
American Property Tax Counsel (APTC)

 

Updated June 2011

Downtown Parking Garages After the Great Recession

Although the experts concur that the recession has officially ended, it does not mean that its effects have not continued. That is certainly true for many sections of the real estate market. A former appraiser for the Federal Reserve Bank projects that the "Value Loss" in real estate will not be rectified before 2017.

We recently reviewed the assessed value for one of the larger downtown parking garages in Chicago and "Value Loss" was not evident whatsoever in the 2009 nor 2010 assessed values.

However, the annual volume of daily parkers between 2007 and 2010 has declined by more than 20%. Posted parking rates have gone down by 25% and in many cases those rates include a city parking tax, on top of other real estate taxes of 20 to 25% . It is not surprising that between 2008 and 2010 gross revenues were down close to 25%. In such environment, the market values upon which assessments were based did not decline, they rose almost 80%. One should carefully review both the current condition of the market and the most current condition of the property itself.

James P. Regan
Fisk Kart Katz Regan and Levy, Ltd.
American Property Tax Counsel (APTC)

 

Updated March 2011

Post–Administrative Tax Assessment Remedies

In Illinois, a taxpayer seeking a tax assessment reduction beyond what was received from the local County Assessor’s Office or County Board of Review has the right to further appeal his or her assessment to either the State of Illinois Property Tax Appeal Board (“PTAB”) or to initiate what is referred to as a “Tax Objection” lawsuit in the Circuit Court of Illinois. This article will examine the procedural similarities and differences between the two forums, and next quarter we will examine the substantive differences between the two forums. 
Both the PTAB and the Illinois Courts require a filing with and a Decision from the lower tribunal (typically the County Board of Review) as a condition to filing an appeal in either jurisdiction.  However, in neither forum (PTAB or the Illinois courts) is the Appellant limited to the evidence or issues previously presented to the County Board of Review.  Accordingly, unlike a typical “administrative review” proceeding, in which the record is limited to the matters presented to the administrative agency below, both the Circuit Court and the PTAB proceedings are “de novo” in nature, permitting the filing of new evidence by the taxpayer for the first time on appeal.

A key difference between the two forums, however, is the timing of the appeal.  A PTAB appeal must be initiated by the filing of a “Petition for Review” within 30 days of the final County Board of Review Decision.  The benefit of such an early appeal is that the initiation of the appeal at PTAB will occur well prior to the issuance of the tax bills for that tax year (since the tax bills in Illinois are paid one year in arrears) and the taxpayer will not be confronting an immediate tax payment deadline at the time the PTAB appeal is initiated.  However, the extremely short time frame for initiating an appeal at PTAB does put significant pressure on a taxpayer who needs to obtain a full or limited narrative appraisal report or other fairly complex evidence of fair market value to support the appeal.

The filing deadline date for the Tax Objection lawsuit in the Illinois Circuit Court comes several months later than the PTAB deadline, actually occurring well after the due date for payment of the tax bills.  The significantly later filing date for the Tax Objection does provide for a much more expansive time frame in which to prepare the taxpayer’s case and to obtain the necessary financial data and other evidence of fair market value (such as a full or limited narrative appraisal report) to support the appeal.  However, since the Tax Objection lawsuit gets filed well after the tax bills are paid, Illinois law requires the full and timely payment of the taxes as a condition precedent to the filing of the Tax Objection lawsuit.  In this regard, any tax assessment reductions resulting from the initiation and resolution of the Tax Objection lawsuit will, by necessity, result in a tax refund of a portion of the taxes already paid.

 

Updated December 2010

Taxes Increase Notwithstanding Substantially Lower Levels of Assessment

Our last Illinois quarterly up-date concluded with our speculation as to whether or not the extensive 2009 "level of assessment" reductions enacted by the Cook County Board for all properties located in Cook County and Chicago, Illinois, would flow through to any significant tax reductions on the actual 2009 tax bills. The statutory "level of assessment" reductions amounted to more than a 30% drop in the "levels of assessment" for commercial, industrial and larger apartment buildings located in Chicago and Cook County, Illinois. However, because the property tax bills in Illinois are issued and paid one year in arrears (i.e.; 2009 taxes payable in 2010) Cook County taxpayers were forced to wait until the issuance of the second installment 2009 tax bills to actually observe what impact, if any, the reduced levels of assessment would have on the dollar amounts of their actual tax bills.

The second installment 2009 Cook County tax bills (which contain the final tax amounts for the 2009 tax year) were just issued by the Cook County Treasurer's Office with a final payment due date of December 13, 2010. Moreover, they are substantially higher than most Cook County taxpayers would have anticipated in light of the large "level of assessment" reductions enacted for 2009. What happened to cause the 2009 tax bills to rise so significantly when the "levels of assessment" had been so dramatically reduced?

First, in anticipation of what would have been an enormous revenue loss resulting from the adoption of the 30% level of assessment reductions directly into the 2009 tax bills, the Cook County Assessor's Office, in the spring of 2009, began an unprecedented campaign to re-assess every property located in Cook County (including every property located in the City of Chicago) in a single year. Traditionally, because of its size and the sheer number of tax parcels it contains (well over 1.5 million) Cook County is divided into thirds for property tax assessment purposes with only 1/3 of the County being re-assessed in any given calendar year.

However, for 2009 the Cook County Assessor's Office chose to re-assess every property located in Cook County. The Assessment Notices issued by the Assessor's Office in connection with the "Re-assessment" appeared to have relatively modest "assessment" increases or decreases, but, in fact, contained very substantial increases to the underlying "fair cash values" or "fair market values" of the properties carried on the assessor's books in an apparent effort to offset the large decline in the "levels of assessment." The Assessor's attempt to thwart the impact of the reduced "levels of assessment" by way of increasing the underlying fair market values of the properties essentially warped the Illinois constitutional and statutory requirements that properties be assessed for ad valorem tax purposes in Illinois based on their "fair cash value." It also came at a most inopportune time for property owners, when the actual market values of their properties were already severely depressed as a result of the on-going economic recession.

The Cook County Board of Review was particularly helpful to Cook County taxpayers in rectifying to a certain extent the clear overstatement of fair market values initiated by the Cook County Assessor's Office. Board of Review Commissioner Joseph Berrios, who was instrumental in spearheading this effort at the Cook County Board of Review, has now replaced the former Cook County Assessor and was recently elected to serve as the new Cook County Assessor.

Finally, the broad-based reductions to the "levels of assessment" do not necessarily translate directly into commensurate reductions on the individual property tax bills because the bills reflect the individual budgets and levies of the taxing districts which can vary dramatically from location to location and from tax bill to tax bill.

 

Updated March 2010

An Opportunity for Cook County Taxpayers

Cook County employs a Classification System for the Assessment of properties for real estate tax purposes. Through 2008, the classification scheme required commercial properties to be assessed at 38% of their Fair Cash Value, industrial properties at 36%. Our Supreme Court has determined that Fair Cash Value is equivalent to Market Value.

The Illinois Constitution gives each county the option to adopt an Assessment Classification System but states clearly that the highest assessment Ratio can be no greater than 2 ½ times the lowest ratio. Cook County is the only County to take advantage of that option.

In 2008, the Cook County Assessor proposed a revision of the Local Ordinance authorizing Classification in Cook County. Residential properties would be assessed at 10% and commercial and industrial properties would in turn be assessed at 25% to comply with the Illinois Constitution. That proposal was approved by the Cook County Board and became effective beginning January 1, 2009.

The 2009 Assessments have now been published for all of Cook County. For the most part, the 2009 Assessments have remained very close to the 2008 Assessments. That one fact gives rise to important considerations for Cook County Taxpayers.

There is an essential relationship between a property's market value and its assessment. Both the Illinois Constitution and the Illinois Property Tax Act tie Assessment Value and Market Value together. They are the foundation upon which our Real Estate Tax system is built. The 2009 Assessments as published do not appear to be tied to value.

A simple example will illustrate the point.

An office building had an assessed value of $1,000,000 in 2008. The 2009 Assessed Value has also been set at $1,000,000. The big difference is that in 2008 the property was assessed at 38% of market value and in 2009 it was assessed at 25% of market value. That means that the 2008 Assessment was based on a market value of $2,631,550 but the 2009 Assessment was based on a Market Value of $4,000,000.

An Assessment cannot be created from a prior assessment, it must be based on a property's value. Without the relationship of Assessment to Value, the Tax System has no objective standards. There are remedies available to Cook County Taxpayers. Contact us if you are interested.

 

Updated December 2009

Dramatic Reductions to Tax Assessment Levels in Chicago & Cook County

In Illinois, all properties located outside the City of Chicago and Cook County are assessed for real estate tax purposes at exactly 33.33% of their fair "cash" or market value. However, in Chicago and Cook County, different types of properties have been assessed for many years at different levels of assessment ranging from 16% of fair market value for homes and smaller residential properties to as much as 38% of fair market value for larger commercial properties such as hotels and office buildings. This historical classification system exists only in Chicago and Cook County and is legally authorized by a long-standing local Ordinance known as the Cook County Classification Ordinance.

Illinois also has a constitutional requirement that no level of assessment for any class of property can exceed two and one-half times the level of assessment for any other class of property. Recent sales ratio studies performed by the Illinois Department of Revenue suggested that homes and smaller residential properties in Chicago and Cook County were being assessed under the Ordinance at "de facto" levels of assessment of approximately 10% to 11%, rather than the 16% level of assessment provided for in the Ordinance. These "de facto" levels of assessment were creating a potential violation of the Illinois Constitution because two and one-half times the "de facto" 10% residential level of assessment would be 25%, significantly lower than either the existing 36% ordinance level of assessment for industrial properties or the 38% ordinance level of assessment for commercial properties.

In an effort to resolve the constitutional issue surrounding the existing Classification Ordinance, the Cook County Board recently amended the Ordinance to dramatically reduce the levels of assessment for all properties located in Chicago and Cook County (Classification Ordinance enacted September 17, 2008). Vacant land (previously assessed at 22% of fair market value) and smaller residential properties (previously assessed at 16% of fair market value) were both reduced to 10% levels of assessment. Larger apartment buildings (over six units) that were previously assessed at 20% of fair market value have been reduced to 16%, with a further reduction to 10% of fair market value by the 2011 tax year. Finally, the levels of assessment for all commercial and industrial properties located in Chicago and Cook County were reduced from 38% and 36% respectively to only 25% of their fair market value in order to ensure compliance with the Illinois Constitutional "2.5 to 1" requirement.

These dramatic level of assessment changes were made effective immediately with the 2009 tax year (taxes payable in 2010). Moreover, the changes amount to dramatic reductions in the levels of assessment for commercial and industrial properties of approximately 35% (from their previous 38% and 36% levels of assessment respectively to a uniform 25% level of assessment for both property types). The amendments to the Classification Ordinance also raise several important issues such as (1) whether or not the restructuring of the levels of assessment will result in an overall increase in the 2009 tax rates and, if so, whether the rate increase will completely offset the anticipated tax reduction that would have resulted from the lower levels of assessment, (2) whether or not the amendments will result in a shifting of the tax burden from one group of taxpayers (such as commercial property owners) to another class of taxpayers (such as residential owners), and (3) whether or not the amendments will produce a decline in tax revenue that may have to be absorbed by the various taxing districts, such as the local School Districts, who are currently subject to annual tax cap legislation. We will keep you advised as to new developments in Chicago and Cook County, Illinois, in this regard as they occur.

 

Updated March 2009

Revaluation Of The City Of Chicago And Changes In The Assessment Ordinance

As part of Cook Count's revolving three year cycle of property revaluations, all properties in the City of Chicago will be revalued in 2009. We expect that Assessment Notices for Rogers Park and Lake View will be mailed some time after April 15th. From there the revaluation process will continue throughout the rest of 2009.

Effective for 2009, the Cook County Board has revised the Ordinance which governs assessment ratios in all of Cook County. All commercial and industrial properties will now be assessed at 25% of market value. Up to 2009, industrial properties were assessed at 36% of market value and commercial properties were assessed at 38% of market value.

In the wake of the current devaluation of real estate, there is great uncertainty as to how the Chicago Revaluation will go forward. Every segment of the real estate market has suffered significant decline and the City, the County and the State are forecasting budget deficits. A reasonable assumption might be that assessments will go down but rates will increase geometrically. At the same time, history suggests that assessments will rise to minimize the need for big increases in the tax rate. Chicago taxpayers should be very diligent reviewing their new assessments.

 

Updated December 2008

The Real Estate Market: The Wrong Target for Assessors

The Christmas Shopping Period has brought into strong focus the perilous situation of retail. Every means possible has been used to bring potential shoppers into the stores. Ultimately, such efforts may enable retailers to lower inventories, but that may not be sufficient to allay significant losses.

In an economy that relies so heavily upon consumer spending, retailers, big and small, find themselves in a survival mode.

At the same time, local governments, facing huge budget deficits, appear to be targeting the retail real estate market with higher and higher real estate assessments. In the past few weeks, we have seen assessments rise to the point where small stores of 4,500-6,000 square feet have received assessments that will generate real estate taxes from $9.00 - $13.00 square foot in Cook County's south and southwest suburbs. Community Shopping Centers anchored by grocery stores have been valued in one DuPage Township of $175 to $185 per square foot, when every other Township has maintained values below $135 per square foot. Regional and Super Regional Malls are losing credit worthy national tenants and depending more and more upon temporary tenants, which in some cases, do not pay any base rent but only a percentage of sales above a certain level.

There are so few recent sales of retail properties that it is impossible to establish a 2008 Real Estate Market. 2005, 2006 and 2007 sales do not reflect a current Market though Assessors insist on using such sales. By the time, government recognizes the depressed real estate market, the market will be rebounding and government will point to rising values.

Cook County retailers are still facing another issue. Sales Tax rates are now at 10.25%. Why would someone shop in South Holland, when it is almost as convenient to go to Northwest Indiana or to the collar counties. This is just another pressure on the Cook County Retailer. Lower gas rates and lower sales tax rates make it much more attractive to go to Will County or to Indiana to shop.

There is a continuing need to bring these issues before the Assessing authorities. Nobody knows more about Retail Real Estate than the owners. The current perils must be presented in such a way that the effects of declining sales on Retail Real Estate become apparent and intuitive.

 

Updated September 2008

2008 Re-Assessment in Cook County South and West Suburbs - Update

For re-assessment purposes, Cook County has been divided into three assessment districts: the City of Chicago (next in 2009); the North and the Northwest suburbs of Cook County (next in 2010) and the South and Southwest suburbs of Cook County (next in 2008). Each district is assessed in successive years.

All Townships in the South and Southwest suburbs of Cook County are currently being re-assessed in 2008 in part of the County's triennial reassessment process. This impacts on taxes payable in 2009 to 2011.

To date, the Cook County Assessor has published 2008 Re-assessment Notices for the following Townships (in order of publication):

    • River Forest* Riverside* Oak Park*
    • Cicero* Berwyn* Palos
    • Bremen Lyons Stickney
    • Lemont Worth

The townships listed with a * are certified (closed) by the Cook County Assessor. A taxpayer will need to file at the Cook County Board of Review for 2008, likely in late 2008 or early 2009 (no dates set at this time).

Over the Fall and early Winter of 2008, the following Townships will receive 2008 Re-Assessment Notices:

The Cook County Assessor still needs to publish 2008 Re-assessment Notices for the following Townships (in order of expected publication):

    • Calumet Proviso Orland
    • Thornton Rich Bloom

The publication of the Assessment Notices is the result of a mass appraisal process, based on sales taking place in 2005 to 2007. That process cannot take into account the specific circumstances of an individual property.

The only way to make certain that an individual property is equitably assessed is for a property owner to avail himself/herself of the Appeal Process that has been established by the State of Illinois. Valuation Complaints can be initially filed with the Cook County Assessor and/or the Cook County Board of Review.

2009 City of Chicago – Reassessment Significant New Class Changes

On September 17, 2008, the Cook County Board approved the Cook County Assessor's proposal to change the Property Tax Classification Ordinance from six assessment levels to two – 10% for residential property (from 16%) and 25% for commercial and industrial property (from 38% and 36% respectively). The Assessor said the measure must be adopted now so the new assessment levels can be incorporated in the City of Chicago 2009 triennial reassessment (taxes paid in 2010 to 2012).

While it may sound like a good idea that will lower taxes, with business groups, we opposed this measure because experts predict it will result in a shift of property taxes from residential to commercial taxpayers. We argued for more study as to the impact of the change. Instead, the County Board chose to accept the Assessor's argument that this change will not increase taxes on businesses and homeowners alike.

The basis for business group concerns is that the Illinois Department of Revenue sales studies indicate that the de facto assessment level for residential property in Cook County is 10% (ratio of sale price to assessed value), so this proposal is unlikely to change residential taxes. However, studies on commercial and industrial property indicate a de facto assessment level closer to 20%. Therefore, changing the ordinance level to 25% could result in a tax increase for commercial and industrial property. In addition, we believe the lower assessment levels may further increase the state multiplier (which equalizes all property taxes statewide at 33-1/3% of market value), resulting in higher taxes for all taxpayers.

The Assessor maintains that reducing the assessment levels and adjusting the estimated property value to more truly reflect the actual market value will not change a property's taxes bill. Given the actual, or de facto, levels of assessment for commercial and industrial property, we believe that an increase in commercial and industrial taxes is likely to occur.

Appraisals – Need Sales Comparison Approach in Illinois

The First District Appellate Court in Chicago reversed a State Property Tax Appeal Board ("PTAB") decision whereby it found that it was error for the taxpayer to not submit an appraisal with a sales comparison approach. The case concerned the Omni Chicago Hotel in Chicago's Magnificent Mile shopping district. The Court reversed the PTAB's decision and directed the PTAB to reinstate the assessment as finalized by the Board of Review.

The Court agreed with Cook County that it was error as a matter of law for the PTAB to rely upon the income approach, and exclude the sales comparison approach. The court found that a sales comparison approach needed to be presented by the taxpayer in order to prevail at the PTAB.

In the court's view, in determining whether to omit the sales comparison approach, the PTAB needed to review whether the subject property is so unique as to not be salable, for which no market exists. The taxpayer must make a showing that no reliable market data is available to be considered a "special purpose property", which would allow it to not present sales of comparable properties. The PTAB did not require such a showing, and their decision was reversed.

Not for Profit Hospitals – Provena Covenant

In a case watched closely by hospitals nationwide, the Illinois 4th District Appellate Court in Springfield reversed a lower court order that restored the religious and charitable property tax exemption of an Urbana, Illinois hospital, Provena Covenant Medical Center. Provena intends to seek Illinois Supreme Court review of this decision by the end of September 2008. The appellate court justices agreed with Illinois Department of Revenue Director Brian Hamer, who ruled two years ago that Provena Covenant's charity care was not enough to justify an exemption. In 2002, Hamer claimed that Provena Covenant's charity care was less than 1 percent of its revenue, and this was sufficient basis to deny the property tax exemption.

The result in the case turns heavily upon the standard of review and how much deference will be shown to the Department of Revenue's decisions. If the standard of review of the legal effect of a given state of facts involves a mixed question of fact and law is "clearly erroneous", an administrative agency's decision is deemed "clearly erroneous" only when the reviewing court is left with the 'definite and firm conviction that a mistake has been committed".

The Provena Court reviewed the IDOR's decision for this very deferential standard of review looking for "clear error". Under this standard, the Court found that the IDOR could reasonably have made inferences to find that Provena was not entitled to a charitable exemption and they are not left with a definite and firm conviction that he is mistaken.

Further information on the above can be obtained by contacting Fisk Kart Katz & Regan.

 

Updated June 2008

2008 Re-Assessment in Cook County

All Townships in the South and Southwest suburbs of Cook County will be re-assessed in 2008 in part of the County's triennial reassessment process.

For re-assessment purposes, Cook County has been divided into three assessment districts: the City of Chicago; the North and the Northwest suburbs of Cook County and the South and Southwest suburbs of Cook County. Each district is assessed in successive years.

To date 2008 Re-assessment Notices have been published for the following Townships:

Riverside, River Forest, Oak Park, Berwyn, Cicero

Over the Summer and Fall of 2008, the following Townships will receive 2008 Re-Assessment Notices:

Palos, Stickney, Calumet, Thornton, Bremen, Lemont, Proviso, Rich, Lyons, Worth, Orland, Bloom

The publication of the Assessment Notices is the result of a mass appraisal process. That process cannot take into account the specific idiosyncrasies of an individual property. The only way to make certain that an individual property is equitably assessed is for a property owner to avail himself/herself of the Appeal Process that has been established by the State of Illinois. Valuation Complaints can be initially filed with the Cook County Assessor and/or the Cook County Board of Review.

Further information on the Appeal Process can be obtained by contacting Fisk Kart Katz & Regan.

 

Updated March 2008

Crisis In The Real Estate Tax Process

The Cook County Board of Review, at the urging of the Mayor and the City of Chicago, has announced that it will accept 2007 Valuation Complaints for all Townships in Cook County from March 17-March 31. This is the first time in its history that the Board of Review has taken such action, and that is despite the fact that more than half the Townships had already closed for Valuation Complaints and the Board of Review is under great pressure to finish its work as early as possible.

The City of Chicago announced that it was available to help every homeowner prepare their Valuation Complaint. The City recognized that values had declined significantly and that recent sales should not be an indication of current Market Values.

The recent action by the Board of Review in accepting Complaints brings into prospective many Real Estate Tax Issues in Cook County.

Cook County has a Classification System in which residential properties are required to be assessed at 16% of Market Value and commercial properties are assessed at 38%. There is clearly a stated social policy, which seeks to balance the tax burden in favor of homeowners.

The Illinois Constitution specifically approves Cook County's Classification System, but it also puts limits on the extent of the difference between lowest and highest assessment levels. The highest assessment level cannot be 2 ½% times more than the lowest.

We recently reviewed the assessments in a residential section of Chicago that has undergone a significant a revival in recent years. It is marked by new construction and rehabilitation. In 2007 we found assessment ratios that ranged from 5.9% through 12.6% of recent sales. There was also clearly a pattern of "sale chasing", where some properties were assessed in the midyear of a three year cycle, and some were not.

The constitutional assessment Mandate of Uniformity has been disregarded; we have an Ad Hoc System without rules and without transparency. Every homeowner receives a notice indicating that the assessed value is 16% of the Market Value, when it could be anything between 6% and 13%, but never 16%. An artificial process in a system that must support education and basic local services can only lead to the chaotic situation that fostered the decision of the Board of Review.

 

Updated December 2007

New Legislation Governing Evaluation of Assisted Living Facilities for Lower Income Seniors

The Real Estate Assessment of Assisted Living Facilities for Low Income Seniors has faced a rocky road in Illinois. Over the years, these facilities have been consistently over valued despite the fact that they are the least able to withstand high tax bills.

As prelude to any discussion of the issues involved there is one fundamental valuation principle underlying the process along with a recognition of the organizational structure of assisted living residences.

1. THE VALUATION PRINCIPLE

The Illinois Constitution has eliminated ad valorem taxation of personal property. In effect, only real estate maybe the subject of an assessment for real estate tax purposes. Personal property not only includes Tangible Personalty, such as furniture and equipment but also Intangible Personality, such as client lists, goodwill and services that may be provided to the residents at their assisted living facility.

2. ORGANIZATIONAL STRUCTURE

In addition to the actual apartments occupied by the residents, there are additional services that are offered. Meals are provided in the common dining room, medicine management and various services are offered under Medicare, including special care for Alzheimer patients.

Crucial to the development of these low income facilities is the equity funding with Section 42 Credits for Low Income Housing.

Over the years certain jurisdictions have assessed the value of the Section 42 Credits and included in their assessment the value of the income derived from the services offered to the residents.

In successive steps, the Legislature has enacted legislation, which clarified the valuation of these facilities. First, the Illinois Property Tax Act ("the Act") was revised to eliminate the value of the Section 42 Tax Credits from the valuation of the Real Estate. Thereafter, the Act, provided that the most appropriate method of valuing assisted living facility was an income analysis. Finally, a further revision became effective on January 12, 2007. It specifically prohibits the inclusion of revenues received for services provided to residents at low income assisted facilities in the Real Estate Assessment of those properties.

 

Updated September 2007

The Influence of Financial Markets on Real Estate

The last few years have marked a dramatic increase in the value of commercial and industrial real estate. The availability of unlimited, cheap capital has driven the valuation of real estate more than any single factor. Price has not been an impediment to even questionable purchases. The cost of capital reached all time lows by the end of 2006. As a result, market driven cap rates went down and prices soared for Class A office buildings, hotels and other commercial and industrial real estate.

Assessing authorities were quick to seize the opportunity to increase real estate assessments substantially based upon those purchase prices.

Now the tightening of credit, by a shrinking of available capital, raises two important issues. First, as capital becomes scarcer, prices will go down and cap rates will rise. We must be vigilant and press the assessing authorities to reduce their assessments in line with the lower purchase prices. Secondly, it becomes more and more apparent that the valuation of real estate must take into account the influence of the financial markets on the valuation of real estate.

Recognition should lead us to develop methodologies, which take into account the changes in the financial markets and enables us to develop more stable values.

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