Image of 3710 N. Kenmore from Cook County Assessor

Gary Lucido writes of a small parcel at 3710 N. Kenmore, offered at $9.9 million ($4950/sq ft) after failing to sell when offered at lower prices. While the price seems outrageous, the property is very close to Wrigley Field and could be used for a billboard or rooftop viewing platform. We know that the former use has commanded $350,000/year on a nearby building, which seems to justify a multi-million-dollar asking price.

So we have a parcel worth, let us say, five million dollars.  What are the taxes? Using data from the Illinois Department of Revenue, our friends at the Civic Federation publish estimates of the effective tax rate for various kinds and locations of property.  For residential parcels in Chicago, they estimate that the real estate taxes at 1.45% of actual market value. So on that basis, a parcel worth $5 million would pay $72,500/year.

But the Assessor doesn’t think this parcel is worth $5 million.  His estimate is $569,580.  (That is, the assessed value, which is supposed to be 10% of market value. is $56,958.)

Looks to me like this parcel is underassessed by something like 90%.  Even if we pretend it’s worth just $569,580, tax at 1.45% should be $8259/year.  Which is  $64,241/year less than the  “fair share” I estimate above.

So how much does the property actually pay? The Realtor’s listing says $147.  Surely this is a typo, no residential property in Chicago can pay so little?  Actually, the County Treasurer confirms it (I can’t seem to link to the actual record, but go here and search for parcel 14-20-218-047-0000).  This parcel receives three different kinds of exemptions: Homeowners, Senior Citizen, and Senior Freeze.  Apparently the net result is a tax bill of $147/year, on a multi-million dollar property which would “normally” pay about $72,500/year toward the costs of running the schools, parks, and various city services. Need we wonder why our local governments are in financial difficulty?

There are several additional points to be raised here.  First, assessment geeks may note that I have conflated data from several different years.  Of course that’s true, because taxes are always based on the value as of the start of the prior calendar year, and calculation assessment/sales ratios cause further delays. I also have not mentioned the multiplier, a factor which might help explain the details of this case but does not alter the basic fact that the property is severely underassessed.  Nor have I mentioned the owner of the property, beneficiary of this governmental failure.  The name of the apparent owner is on the Treasurer’s record, and he seems to have a Facebook page.

Finally, let’s give credit where credit is due.  Not only to Gary Lucido who might not realize the significance of the story he broke, but importantly to the open information policies of the Cook County Assessor and Treasurer.  Pretty much all assessment and real estate tax data is public record.  The income tax involves far worse outrages, but we rarely can see them since individual cases are confidential, and specifics have to be inferred from other sources (as for instance in this case.)

Postscript, a few hours later:

I was thinking about how the Assessor could come up with such a low value for this property.  Basically, what’s a very small residence on a tiny lot worth in the Wrigleyville neighborhood?  Very possibly the answer is $569,580. This particular parcel is worth many times that because of its precise location, but the Assessor does not consider that.  And if I owned the property, I would appeal any higher assessment.  Evidently the assessment rules need to be changed, so that the potential use of the property is considered. One does wonder how many dollars stay in speculators’ pockets because of this failure.

Anyhow, the debate is this Thursday, at the Union League Club (65 W Jackson), 4:30 PM.  It is open to the public without charge, but you must register in advance (by calling 312 435-5946) and you must dress in nothing less than business casual attire.  A bit more detail here.

By law and ordinance, he is supposed to put assessments at a specific proportion of what he estimates the actual value of real estate to be. These ratios have been adjusted over the years, and documentation is sparse, but for 2007 it appears that parcels containing single family or apartment buildings up to six units are to be assessed at 16% of value, and vacant land at 22%.

Annually, the Illinois Department of Revenue calculates the ratio between value assessed by Mr. Houlihan’s staff, and actual sales prices. The results for 2007(pdf)? Residential 8.34%, vacant 7.81%. (Not quite as bad as some previous years, however.)

The County is not ignoring this problem. Since the Assessor seems unable to assess vacant land at a higher percentage of value than land people use, they have changed the assessment policy so that, beginning wtih 2009, both residential and vacant land are to be assessed at 10% of value. We shall see how this proceeds.

This discrepancy isn’t due to any inherent problem with the real estate tax, but may have something to do with the fragmentation of taxing units, particularly school districts.  Areas with relatively little taxable real estate need to collect a greater percentage of its value than do areas with a larger tax base, other things being equal.  But there’s no reason we couldn’t have an equalization system under which the strong-tax-base communities share revenue with the others, as has been done since 1971 in Minnesota.

It is said that lower-income neighborhoods have a greater share of their real estate value in improvements rather than land, in which case exemption of improvements from the tax would also tend to equalize the burden.

The 2006 data are now published, and once again the Cook County Assessor has overassessed houses (and the lots they occupy) in Chicago relative to vacant land.  As in the previous year, data from actual sales show that, as a percentage of  sales price, assessments on houses (including land) average 50% higher than assessments on vacant land. This is the reverse of the legal requirement, under which real estate which includes houses is supposed to be assessed at a 1/3 lower percentage of value than vacant land.

This amounts to is a further penalty on homeowners (and owners of condo’s, and 2-4 flats, too), as owners of vacant land aren’t carrying their legal (let alone fair) share of the tax burden.

Is Cook County uniquely corrupt or incompetent in this regard? Other Illinois counties do not even pretend to assess residential parcels at a lower percentage of value than vacant parcels.  Rather, they are obligated to assess everything at the same percentage of value.   In most cases where data are reported, however,  the assessment as a percentage of sales price is considerably lower for vacant parcels than for improved real estate.

Source: Data compiled by the Illinois Department of Revenue, which can be seen here (look at the “ratio” links under “property tax.”

Last week Cook County Assessor James M. Houlihan was kind enough to tell me about another means-tested benefit, that apparently has put some people into a marginal tax bracket of 2,000% or more. And they didn’t even know it, because tho just announced, it’s based on 2006 income.

He calls it the “Long-time Occupant Homeowner Exemption,” and it only applies to “homeowners residing in their homes 10 years or more.”

• If total household income for 2006 doesn’t exceed $75,000, the increase [in assessed valuation for the homeowner's residence, apparently] will be limited to 7%.
• If total household income for 2006 doesn’t exceed $100,000, the increase will be limited to 10%

In both cases there is no maximum exemption amount.

Somewhere there is a longtime homeowner, whose 2006 income was, say, $100,005. That extra $5 might now cost her hundreds (or thousands?) of dollars in real estate taxes.

The impossibility of intelligent tax planning is far from the only reason this is a dumb idea, of course. The savings these longtime homeowners receive will be made up by the rest of us– including the first-time recent buyer struggling to cover an adjusting mortgage.

But I don’t mean to blame Assessor Houlihan exclusively for this nonsense. He says, and I’m sure it’s true, that it is established by the Illinois Legislature. And furthermore, he seens toi be embarrassed enough by it that it’s not on his web site at http://www.cookcountyassessor.com (or at least I couldn’t find it there). There is some mention of it at the City of Berwyn site.