Tribune exposes one scandal and misses a bigger one

Property tax needs attention

credit: From Sovereign to Serf (CC BY-ND 2.0)

The Chicago Tribune, or what’s left of it, has issued a pretty good report on inequities and corruption at the Cook County Assessor’s office. Of particular note, they’ve included a lot of detailed statistics looking at assessment/sales price ratios, as well as a lot of details of recent history.  I think it’s fair to describe their main points as:

  1. Less expensive homes typically are assessed at a higher percentage of market value than more expensive homes, and therefore pay more taxes than they would if assessments more accurately reflected market prices.
  2. Sophisticated homeowners are more likely than unsophisticated ones to appeal their assessments, and a large percentage of appeals are successful.  This is one cause of the problem in (1).
  3. The quality of assessments in Cook County doesn’t meet professional standards of accuracy.  The MacArthur Foundation funded development of new mass appraisal methods which may provide more accurate results, but the Assessor has made little or no use of them.
  4. The Cook County Assessor’s office suffers from some combination of corruption and incompetence.

The Assessor did respond to the newspaper’s findings, saying, among other things:

Some mathematic formulas and practices do not necessarily opine to real market transactions.

A few oversights

Some details of the article, of course, are deceptive. For example

Some states, such as California, base assessments on actual sales and adjust those values based on market trends, a system that results in far fewer appeals.

That’s technically correct. California does not much concern itself with changes in market value.  As the State explains:

The process that county assessors use to determine the value of real property was established by Proposition 13. Under this system, when real property is purchased, the county assessor assigns it an assessed value that is equal to its purchase price, or “acquisition value.” Each year thereafter, the property’s assessed value increases by 2 percent or the rate of inflation, whichever is lower.

Under a system like this, longtime homeowners in affluent neighborhoods will likely pay a lot less tax than their recently-arrived neighbors. Keeping real estate taxes relatively low also tends to increase the cost to purchase a home.  There does not appear to be any mechanism for reducing taxes when property value drops.

Regarding the extensive use of appeals by Cook County taxpayers, the Tribune observes that

New York City, which has a larger tax base[than Cook County], saw [far fewer] applications for reductions in 2015.

True, I suppose, but with so many New Yorkers living in rental apartments or co-ops, how does the number of taxable parcels compare? Here we find another surprise. New York issues a detailed statistical report of their property tax work (pdf), where we can read that they have 1,057,177 taxable parcels.  How many does Cook County have? This information doesn’t appear to be posted anywhere,  We do see from Table 21 of Illinois Property Tax Statistics that, in 2015, Cook County granted 1,033,154 homestead exemptions for owner-occupied residential parcels. Which leads one to believe that the total number of parcels taxed in Cook County almost certainly exceeds the number in New York, and perhaps is too many to count.

Tribune also gives little attention to the effects of exemptions for homeowners, old people, and low income old people.  These are of relatively greater benefit to owners of low-value housing.

The bigger scandal

Extensive tho their research was, the Tribune missed the important points about real estate tax as a source of public revenue, which include:

Legitimacy of land as a source of public revenue

The benefit a real estate owner receives from the community is reflected in the selling price of the land as if vacant.  It has nothing to do with the improvement.  Even a vacant lot can have a lot of value, which the owner can collect by selling it, if it’s in an area where people want to live.  That’s why the fairest kind of real estate tax is one based only on the value of the land, excluding improvements.

Practical advantages of exempting improvements

Excluding improvements from the tax base would simplify the real estate tax and eliminate many of the disparities the Tribune describes. On a typical residential block, if every lot is the same size, then each has nearly the same value (with variations for corners, adjacent alleys, etc.)

Problem of geographic scale

Government schools and other local taxing units within Illinois vary widely in the per-capita amount of their property tax base, resulting in disparate tax burdens for owners of otherwise similar properties. This is not an argument against the property tax, but rather for some arrangement which would tend to equalize burdens, for example a statewide property tax (which Illinois had until it was replaced by the sales tax in 1933), or a tax base equalization system such as this one.

Neglect of vacant land

The Assessor has failed for many years favoured vacant land with underassessment; I wrote about this in 1998(pdf) and haven’t observed any improvement.  Of course, bringing taxes on vacant land up to standard would benefit those who own only their own home or other improved property, or own no real estate at all.

Visibility of real estate tax

A great advantage of the real estate tax is that it is visible to the public.  Anyone can find assessment and tax information for each taxable parcel on County web sites. Scandalous tho real estate tax administration has been, there are probably much bigger scandals involving sales tax, income tax, and other revenue sources, but the specifics are virtually invisible because the tax returns are confidential.

Need everyone be a homeowner?

The Tribune focuses on several individual homeowners who find their real estate tax burdens excessive.  Either they did not realize when they purchased how much the real estate tax would be, or they weren’t able to successfully negotiate the appeals process.  These are real people with real problems, but they do have an option: Renting.  43% of Cook County households are renters. A renter still pays property taxes, of course, as part of her rent, but that’s all.  Renters never need to file appeals or get surprise tax bills. (A landlord will use “increased taxes” as an excuse to raise the rent when the lease expires, but the tenant is free to leave.)

An advantage of property tax over income tax

Contrast that with income taxes: Nearly everyone is obligated to file a return, even low income people who need to recover withholding or obtain EITC. It’s all too easy to get stuck in a tax nightmare like these or this one or some of these.  In effect, the personal income tax is an assertion the government owns the people.  The real estate tax is merely an assertion that the value of real estate is based to some extent on the community in which it’s located.  Which would you prefer?

 

 

 

 

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