Tribune and “Illinois Answers” explain why value of improvements should be excluded from assessments

“Cook County assessor misclassifies hundreds of properties, missing $444M in one year alone,” says the Chicago Tribune. The report is joint with Illinois Answers.  $444 million is a lot of money, about 1/2 of 1% of all the assessed value Countywide.   And assessment data is public, so the journalists could easily find examples of inconsistencies.

Evidently, Fritz didn’t do as good a job as we wish. The journalists didn’t report any comparable error rates for other jurisdictions; perhaps they couldn’t find any.  Some Cook County taxpayers were unpleasantly surprised when, the Assessor having suddenly discovered their improvements, they received big bills for back taxes.

The report includes a chart showing annual number of improved properties discovered and amount of back-taxes billed for each year going back to 2006:

From the Chicago Tribune / Illinois Answers report.

From this it appears Fritz’s record is pretty much in line with the results of prior Assessors.  He says there are 1,864,161 taxable parcels in the County, so in his worst year he discovered missed improvements on 0.1% of them.

Note that the Tribune/IAP folks mislabeled the chart; the assessments probably weren’t “omitted,” but the properties were underassessed because improvements weren’t recognized.

The report includes a number of complaints by former County employees and some local officials, essentially agreeing that Fritz did an imperfect job.  There’s even a time-series of aerial images of a subdivision in Lynwood, showing very clearly that houses have been built, but didn’t yet show up on the tax rolls. For a village of 9116 people, and their school districts, this subdivision of a few dozen houses might be a significant fiscal consideration.  And for the new homeowners, the back taxes will be a burden.

(The report implies that in this case the ball was dropped by the Bloom Township Assessor, an intermediary between Fritz and the municipality. )

The journalists also start, and conclude, their report with the case of one property owner who has experienced serious tax increases and is considering moving out state. Yes, excessive and wasteful government spending, and high taxes, is a big problem here.  But fixing assessment errors affecting 0.1% of the parcels will do little to address it.

We could make a couple of observations here.

What if Cook County could drop improvements from the tax base, assessing and levying only on the value of land, what the each parcel would be worth if vacant? Probably none of the problems described in this report could have occurred.  And instead of increasing “the number of budgeted field staff from 34 in 2023 to 38 in 2024,” Fritz could have laid off most of the field staff, putting a few to the task of correctly valuing land.  He’ll also need (probably already has) somebody to monitor the County Clerk’s Tax Map Department, to be sure parcel boundaries and numbers are up to date.

How does the government’s ability to accurately administer the property tax system compare to the income tax system, or the sales tax system? Nobody knows. While nobody really understands how income taxes work, the revenue agencies release only aggregate data, so we know nothing of any invidual’s situation unless the person chooses to publish her income tax returns, as some politicians do, or somebody violates the rules and liberates confidential information. Even sales tax information for individual taxpayers is largely confidential.  To guess how well these taxes are administered, one could search for /IRS agent indicted/ on luxxle or  freespoke  .

And here’s a report asserting that over a recent 18-month period, more than 1% of Internal Revenue Service employees had “confirmed tax noncompliance issues.” (Apparently most of them kept their jobs.)  If 1% of IRS employees are “cheating,” I doubt that the percentage for average taxpayers is less.  So it seems that overall, Fritz is doing a better job than the Feds.

Maybe he should ask the State to make his job easier by removing improvements from the real estate tax base.

 

 

Three “finalist” proposals for fixing Chicago’s pension mess

image credit: Artistmac

We have an article from Crains  reporting on the winning proposal for solving the disaster that is the City of Chicago’s pension plans.  Of course a new fee is involved, being a toll on DLSD.  Article doesn’t disclose how much this toll would be, nor its likely impact on traffic.  I suspect that parallel arterials would see increased congestion, while DLSD itself might flow a lot better with reduced traffic volumes.

The two runners-up proposed income tax increases.  One would be a 1% income tax on the remaining Chicagoans, to be termed a “public safety tax” and used to fund police and fire departments, freeing up municipal funds to go to pensions. The other proposed raising the State income tax to 6%.

There were originally eight proposals, and perhaps one of the losing five made the logical proposal– a tax on whoever controls on-street parking. Like any real estate tax, this would be based on the value of the control, and should be set such that LAZ Parking can retain just enough profit to operate the system.  .The Sun-Times’ Fran Spielman said LAZ grossed $136.2 million in 2021).

A tax collecting most of that annually could make a significant dent in $35.4 billion shortfall recently estimated for the City’s pension funds, tho it couldn’t cover the entire need. And that doesn’t include Chicago Public Schools, Cook County, State of Illinois, and other government pension funds which are in difficulty.

All these proposals come from students at UChicago’s Harris School of Public Policy.  Which somehow reminds me of the remark decades ago from Mike Royko, observing that Hyde Park isn’t really part of Chicago, but rather a sixth boro of New York.

Are Cook County property taxes actually paid? Some data from Maria Pappas

A street in Ford Heights (Google)

Georgists like to say that one of the many advantages of a real estate tax over other taxes is that, if the owner does not pay it, eventually s/he’ll lose the property, which can be sold to pay the arrears. But “eventually” is an important word here.

Now Cook County Treasurer Maria Pappas has compiled data showing the extent to which taxes don’t get paid.  For this purpose, “not paid” means “not paid within a month of the due date.”  I suspect that in most cases, these taxes are eventually paid, with a penalty (9% interest, recently reduced from 18%) included.  But years might elapse, and various games can be payed by “investors” regarding these properties. (Some detail is on pages 23-26 of this pdf.)

The reports are broken out by property class, by ward, by municipal area, and by taxing agency, showing amount billed and amount paid, and can be downloaded to spreadsheets.

Countywide, 96% of all taxes billed were collected within a month of the deadline. In the impoverished Village of Ford Heights, only 28.55% of taxes got paid, but no other community had less than 50%.  The six lowest percentages are all in the south suburbs, followed by the Chicago community areas of Englewood and West Garfield Park.

For parcels coded as “vacant,” only 71% of taxes were collected; all the other categories were above 95%.  Total taxes billed to vacant parcels was $121,810,594, of which $86,873,652 was paid, implying that, were vacant parcels taxed at the same rate as commercial and industrial land, government revenue would increase by something like  $130 million to $183 million — not counting the development which such a tax increase would encourage.

 

Property tax can’t be equitable, Kaegi asserts

former Schulze bakery
Disused Chicago bread factory to become data center. Image credit: Emily CC BY-NC 2.0

In a new article (archived copy, also included in this pdf) for the Chicago Council on Global Affairs, Cook County Assessor Fritz Kaegi asks “In a digital economy, how can cities create a more equitable property tax system?” Of course he does not try to define “equitable,” but one infers from the article that it means “funded more by those benefiting from the digitalization of the economy, and less by those who actually perform useful work.”  A desirable result, to be sure, but how does he propose to accomplish it?  He also seems to assume that government-funded schools are a good thing, or at least that parents shouldn’t be held individually responsible for arranging their own children’s education.

He proposes to get more revenue from the big infotech companies, specifying Apple, Microsoft, Alphabet/Google, Amazon, and Facebook, but by implication the numerous other organizations who have prospered by taking advantage of the internet (as well as their lobbying capabilities to stifle competitors). He doesn’t think that local or state government is equipped to collect much of this revenue.  Further, he assumes that a real estate tax to fund “education” can only be implemented at the school district level, and couldn’t be countywide, regionwide, statewide, or in any respect subnational.  He concludes that the U S government needs to send large quantities of money to America’s cities, particularly including Chicago and the rest of Cook County.

“The federal government … is best situated to tax incomes generated by activity like digital commerce, virtual meetings, and footloose service providers [and]…will need to build fiscal mechanisms for a digital world that separates economic activity from physical space. ”  (Presumably these wealthy and influential companies won’t use their influence to deflect the tax burden to others. )

OK, so Cook County local governments don’t get revenue from this digital economy?  What about the 11 (soon to be 12) data centers in Elk Grove Village (archived copy), paying real estate taxes and utility taxes, as well as taxes imposed on persons working to construct and operate them. This report (archived copy) counts 52 data centers regionwide as of February 2021.  Both reports note that several kinds of tax favors are provided, without indicating that they’re necessary since the digital economy requires facilities in appropriate locations.

And Amazon and other on-line retailers don’t generate taxes?  Those of us who’ve bought something on line in the past couple years have noticed that the e-commerce giants collect and remit state and local sales taxes, typically in excess of 10% here.  Last year the BGA counted (archived copy) 36 warehouses in the Chicago area built for Amazon since 2015 (and noted “at least $741 million in taxpayer-funded incentives”).  This of course doesn’t count warehouses used by non-Amazon sellers such as Walmart and Target.  Again, it’s likely that most or all of these facilities would have been built without subsidies, since warehouses have to be located appropriately with respect to markets, labor supply, transportation, etc.

Kaegi is legitimately concerned about the fragmentation of Cook County’s tax base, noting that “The lower the value of real estate in a community, the higher the effective rate to provide a comparable level of school services. This results in
great disparities.”  But that problem isn’t inherent in the real estate tax; it’s inherent in the fragmentary structure of finance, funded largely by local real estate tax. A statewide real estate tax, such as Illinois had until it was replaced by a sales tax in 1933, could reduce or eliminate the disparities.  A number of states retain statewide real estate taxes, but the problem of disparities can also be addressed by a tax-base sharing arrangement, as has operated for half a century in Minnesota.

“[W]e must continue to push for local-school funding that is not rooted in local land values,” writes Kaegi.  Actually, if an effective disparity-reduction arrangement is in place, the opposite might be true.  I have previously posted a table and map illustrating that, if taxes were based on land value rather than land+improvement value, the burden on homeowners in communities of low income and color would be lessened.  And of course if the burden of sales taxes could be replaced by a tax on land value, the benefit to moderate-income households would be enhanced.

So we have an Assessor, running for re-election, who doesn’t believe the taxes he helps calculate are a good way to fund local services.  I had hoped for better (but didn’t really expect it), as the quality of assessment seems to have improved during his tenure. He does have one announced primary opponent.

Cheap housing is on cheaper land

Click for larger, interactive map

UPDATE Aug 29 2021:  If anyone familiar with Chicago doubts that removing improvements from the tax base will ease the burden on low-income homeowners, this map will be instructive.   The original, mapless post from Aug 25 follows.

We sometimes are told that a land value tax (LVT) would punish the poor person who has a small rundown house on a high-value lot, while benefiting the person next door who has a large fancy house on an identical lot. And that’s not wrong, it’s just atypical.  In practice, we believe, poor people mostly live in neighborhoods where housing is cheap and land is cheaper, thus they would tend to benefit from a shift to LVT.

As the quality of Cook County assessments has been improving, we expect to be able to show this by analysis of that data. In the meantime, we have some estimates of land and improvement value from William Larson and colleagues at the Federal Housing Finance Agency.  Using appraisals produced for mortgage underwriting, they estimate land and improvement values for homes in most zip codes (and census tracts) nationwide.  Their source data includes only single family properties which were appraised for mortgage purposes.  They consider only parcels where the improvement is less than 15 years old, and exclude vacant land as well as land where the appraised value is very close to the assessed value (in case appraisers might have relied on low-quality or obsolete assessments).  Also excluded are zip codes with an insufficient number of single family home transactions.

The chart below shows, for Chicago zip codes, the ratio of land value to total value (vertical axis) and total value of the property (horizontal axis. What stands out is that the ratio tends to be lower where the properties are cheaper.  That is, a revenue-neutral shift of property taxation to land values only, ignoring value of improvements, would tend to reduce the taxes on low-value zip codes, while increasing it in higher-value areas.

 

The table below shows the data for each zip code, sorted from high proportion of value in land to low.   Clearly the more affluent areas have lower proportion of improvement value, and the areas with low income population have a higher proportion of improvement value.

Estimated land value proportion and related data for single family properties in Chicago zip codes
ZIP Code Lot Size building sq ft floor area ratio Property Value (As-is) Land Share of Property Value
60640 4300 2320 0.540 $809,500 50.70%
60614 2920 2950 1.010 $1,516,300 47.10%
60613 3740 2590 0.693 $1,128,200 46.90%
60625 4220 1860 0.441 $528,000 46.30%
60618 3580 1890 0.528 $615,800 45.90%
60660 3820 1940 0.508 $553,500 44.50%
60657 3210 2600 0.810 $1,133,300 44.40%
60622 3120 2330 0.747 $911,800 41.80%
60631 5620 1690 0.301 $390,700 40.90%
60610 2250 2900 1.289 $1,443,300 40.20%
60646 5370 1820 0.339 $445,900 39.80%
60647 3250 1880 0.578 $600,800 39.20%
60654 1990 3580 1.799 $1,661,200 37.40%
60630 4310 1550 0.360 $315,500 37.20%
60642 2230 2140 0.960 $667,200 37.20%
60641 4230 1640 0.388 $316,400 35.70%
60605 1840 2200 1.196 $774,700 35.30%
60659 4310 1800 0.418 $367,500 35.10%
60626 5410 2050 0.379 $407,400 34.20%
60656 5100 1500 0.294 $334,600 34.20%
60612 2910 1920 0.660 $424,300 33.90%
60645 4420 1870 0.423 $373,600 33.70%
60634 4240 1470 0.347 $264,100 32.40%
60608 2960 1530 0.517 $302,200 31.70%
60615 4460 2630 0.590 $615,700 31.50%
60616 2570 1950 0.759 $447,900 31.40%
60607 1970 2140 1.086 $641,400 28.90%
60655 5140 1490 0.290 $258,000 28.80%
60707 4940 1600 0.324 $258,700 28.70%
60637 3920 1970 0.503 $350,000 26.30%
60609 3320 1450 0.437 $209,700 25.20%
60639 3900 1420 0.364 $202,900 25.20%
60638 4280 1340 0.313 $225,100 24.70%
60632 3860 1300 0.337 $173,600 20.60%
60643 5960 1600 0.268 $200,800 20.60%
60652 4730 1330 0.281 $176,400 18.30%
60629 4040 1340 0.332 $155,300 17.40%
60651 3920 1440 0.367 $158,300 16.90%
60653 3290 2360 0.717 $390,100 16.60%
60644 4580 1650 0.360 $137,400 16.00%
60633 4690 1320 0.281 $120,200 15.20%
60649 4960 1870 0.377 $170,800 13.80%
60623 3510 1340 0.382 $118,500 13.60%
60624 3300 1540 0.467 $122,200 12.80%
60621 3880 1490 0.384 $69,300 11.50%
60617 4200 1360 0.324 $116,300 11.20%
60619 4320 1430 0.331 $127,700 10.50%
60636 3540 1270 0.359 $65,200 10.30%
60620 4180 1410 0.337 $117,800 10.20%
60628 4320 1340 0.310 $99,800 9.20%
source: https://www.fhfa.gov/PolicyProgramsResearch/Research/Pages/wp1901.aspx

A Chicago zip code map is here.

Also of interest, even tho the low-value areas have a high ratio of improvement to land value, this isn’t because of large houses on small lots.  The floor area ratio is generally lower in the areas with lower land value proportion.

Overall, the above data is consistent with Georgists’ assertion that low-income residents usually benefit from a switch to LVT.  I might be taking a further look at this dataset.

2020 Cook County Property Tax Analysis — sort of

image credit: Andy Arthur CC BY 2.0

We have a new report from Cook County Treasurer Maria Pappas, subtitled “2020 Cook County property tax analysis: A heavier burden for businesses, Black and Latino suburban property owners.”   It’s got more detail than I recall seeing published before, including two decades of total real estate tax revenue countywide and by triad, and (for the past two years only) median taxes per parcel for residential and commercial, by municipality and township (and limited data for Chicago wards)  as well as a fun list of the ten highest residential and commercial tax bills for each township. The extra load Cook County’s current classification system places on commercial property is noted.

All of this data for individual parcels has been available on the Treasurer’s web site for some time, but it wasn’t assembled for convenient use.

It’s likely impossible to discuss the real estate tax system (let alone the complete scope of public revenue) in a way which can hold the attention even of people who find themselves heavily burdened by the way government is funded and operated.  And Pappas’ office got this information out quickly, as the taxes have only recently been calculated and won’t be due until October 1.  All the same, there are problems which one hopes will be fixed next time this is done (and one certainly hopes there will be a next time, soon.)

Noting the continuing rise in revenues, the report asserts that “[t]he bigger tax burden is not being shared equally.”  What could this mean?  What would be equal?  Should we fund government by a poll tax, which is the only way to get everyone to pay the same amount? Perhaps the writer means “equitably,”  a desirable thing tho difficult to agree on. It’s then observed that “Property owners in many south suburbs continue to pay far more in taxes than landowners in other parts of the county.”  I will set aside the fact that “property” and “land” aren’t the same thing, and assume that the writer may have meant “real estate taxes are higher in many south suburbs than in other parts of the county,” which is sufficiently cautious that it must be true.

But in fact the amount of real estate tax paid by a median homeowner is much lower, less than $4,000/year in Bloom and Thornton townships (page 49 of the statistics section of the report), less than any of the north suburban townships (page 56).

That doesn’t mean that the taxes in Bloom and Thornton aren’t a burden for many, because taxes imposed on struggling people are always a burden. And the very high tax rates reduce market values, while increasing the extra burden on renters (who cannot benefit from the “homeowner exemption.”)

The report makes no attempt to separate the value of land from the value of improvements, even tho the assessments provide this breakout for each parcel.  There’s no distinction between owner-occupied and renter-occupied homes. The only mention of vacant land is to say that it’s been ignored, as has mixed-use (residential+commercial) property.  There’s no mention at all of exempt government-owned land.

It would be helpful to include reference maps, especially of townships. And in an ideal world, the tables would be offered in spreadsheet format.

 

Sun-Times report inadvertently helps show the benefits of simple LVT as a revenue source

Image credit: Purple Wyrm CC BY-NC-SA 2.0

According to a Sun-Times report, Cook County Assessor Fritz Kaegi acknowledges that his “Senior Freeze” program, under which old property owners claiming household income under $65,000 can get a big break on property taxes, is “riddled with errors.” Highlighted is a multi-million dollar condo in Water Tower Place, whose owners pay only $2502/year.  While it’s certainly possible that these folks might have income under $65,000/year, that seems unlikely, as they also own a Florida condo valued at over $1 million. Their Chicago property apparently also benefits from the temporary removal of toilets during a 2017 remodeling.   It seems that the Assessor never noted that the toilets were replaced (or perhaps they were not?)

While the WTP property is clearly an extreme case, the senior freeze program transferred $250 million from owners of 144,904 properties who participate in it to the remainder of the 1.77 million taxable properties (of which 1.6 million are residential) in the County.  With the total property tax revenue at $15.6 billion, this amounts to about 1.6 % of total taxes collected.  The Sun-Times article provides several other examples of affluent old people who benefit from the program.

Clearly this is a problem of bad policies ((discriminating against renters, the nonelderly, and people who find it difficult to complete simple bureaucratic forms), and taxing improvements), combined with governmental malfunction (Kaegi hasn’t been able to get the program under control, partly because there is no mechanism for the County to verify incomes).

It should not be necessary to mention, but I will mention anyway, that the Sun-Times report relied on property tax data being, for the most part, publicly available.  While far worse scandals likely could be found regarding income tax, many of these can’t be documented unless taxpayers “voluntarily” release their information, or it is (probably unlawfully) liberated.

Clobbering fairness more accurately

Where fairness comes from: Cook County Board Pres. Toni Preckwinkle; Illinois House Speaker Michael Madigan (credit: WBEZ CC BY-NC 2.0 and Wikipedia)

We have a new North Suburban Reassessment Report from Assessor Fritz Kaegi. As a “reformer,” this Assessor publishes a lot more information than his predecessors.  In fact, he publishes all the code for his assessment models.

Accurate assessments are said to be important because assessing a property too high can “destroy wealth by diminishing the market value of the property.”  Which is true, but do not taxes based on accurate assessments also destroy wealth?  What the Assessor seems to mean by a “fair” assessment is an assessment that is calculated in accordance with applicable laws and ordinances.  This definition of “fair” comes mainly from our friends in the Legislature and County Board, with some role for other government officials. “Fair” in Cook County means that owners of houses or vacant land should pay taxes at 40% of the rate applied to ordinary industrial or commercial property, unless special favors have been bestowed.  In the rest of the State, “fairness” requires rates in the absence of special favors to be uniform. In all areas, “fairness” requires that religious and most nonprofit educational facilities are entirely exempt from tax. Continue reading Clobbering fairness more accurately

More failure of CTA to collect its earnings

CTA Holiday Train
2006 version of the Holiday Train at Belmont —                    Image credit: Tony CC BY-NC-ND 2.0

I recall a couple years ago, the first time I saw the CTA Holiday Train enter a station.  It was packed, mainly with grandparents/aunts/uncles/cousins taking small ones for a ride.  Probably generated a lot of revenue. Forward to 2020, a train crowded with people who breathe isn’t desired, so what to do?

Well, they could have just cancelled it, but that’d be dropping yet another tradition, and I suppose reducing overtime for union employees.  So they’re going to run it empty, and instead of crowding the train, folks can crowd the platforms– probably a bit less close breathing.

But CTA trains run every day with people on them– the problem is the crowding. Why not sell tickets? How much would people pay for a ride in a semi-private car, restricted to, say 10 people per car? $25 for a 2-hour trip? $100? I don’t know, but it’s nontrivial.  Maybe $1000/trip/car, $4000/trip/train, $160,000 assuming each space is sold just twice per operating day.  Now, $160,000 is probably not quite enough to operate one bus for a year.  But why not collect it?

Ideally, CTA would use the money to pay the cost of operation, and apply any left over to its growing deficit.  But it might be more acceptable to have some sufficiently progressive charitable organization– United Way?– devise a system for distributing the proceeds to a politically-balanced array of groups actually assisting impoverished people.  CTA could even reserve a certain number of tickets for actual impoverished folks who’d like to ride.

I wonder how much money a lobbyist could attract if paid $160,000?

How many deaths did the Covid response cause?

image credit: Tyler Merbler (CC BY 2.0)

Thanks to Center Square via Wirepoints  for alerting me to a (weekly?) mortality tally from the CDC. It provides weekly counts of death by underlying natural cause, for each state.  For Illinois, unredacted Covid-19 deaths started with the week ending March 21, and the report covers the 22 weeks thru August 15.  Counts for 2019 as well as 2020 are shown.  My tally below attributes to Covid those deaths where it is an “underlying cause.”

             Covid      All other     Total

Year 2019             N A                       43,223                  43,223

Year 2020            6,779                     46,537                  53,316

So if I am interpreting this correctly, we seem to have had 46,537-43,223=3314 excess deaths, not due to Covid, but possibly due to the plandemic lockdown measures.  Given that most Covid victims had co-morbities, which might for some have proved fatal without Covid, this figure must be an understatement. Further, if some excess deaths are due to people not getting routine screening or treatment during the lockdown, those might not show up until some time hence.