economic development – The Menace of Privilege

Tax favors for owners of “farmland”

Continuing our exploration of land values and real estate taxes in Cook County …

parcel #06364020270000, at 1830 Lake St in Hanover Park — Parcel #06364020270000, at 1830 Lake St in Hanover Park. 7.36 acres, adjacent to a residential area and virtually across the street from a Metra station. Due to favors done for class 239 farmland owners, it pays less than $200/year in property tax.

The County contains 813 parcels coded as class 239 “non-equalized land under agricultural use, valued at farm pricing.” An explanation of how farms are supposedly assessed is included in this document, page 12 of which states:

The assessor notes each of the farm’s land use categories and uses the equalized assessed value for each soil productivity index to determine the assessed value. The assessor may make some subtractions for things like slope, drainage, ponding, flooding, and field shape and size before calculating the final value.
• The portion on which crops are planted is assessed at the state-certified equalized assessed value certified by the Department for the corresponding soil productivity index.
• Permanent pasture is assessed at one-third of what would be assigned if it was planted in crops.
• Other farmland (e.g., forestland, grass waterways) is assessed at one-sixth of what would be assigned if it was planted in crops.
• Wasteland has no assessed value unless it contributes to the productivity of the farm.

For Cook County, the Assessor provides specifics here.

The total assessed value of these 813 parcels is $2.25 million. To calculate their acreage it seems I would have to retrieve the records manually and individually, but the 2022 Census of Agriculture says the County contains 154 farms totaling 10,281 acres. (A farm might comprise several parcels). This implies an assessed value of $218/acre. Reviewing a small sample of parcels, it appears that the Assessor values most class 239 parcels at $2250/acre, and assesses them at 10% of that, or $225/acre.

One might compare this to the Illinois Society of Farm Managers and Rural Appraisers’ report, which includes but doesn’t break out Cook County, and indicates sales prices in Northeastern Illinois range from $5500 to $40,000 per acre.

There’s no minimum parcel size for a “farm” under class 239. Thus, we have a series of 18 small vacant lots in Matteson: 31-20-218-001-0000 thru 31-20-218-018-0000. All of these appear to be empty lots, awaiting the construction of houses. Eight of them are classified as vacant land, with assessed values ranging from $5392 to $7953 (differences apparently due to differing sizes). Taxes due on these in 2024 range from $2351 to $3467 (excluding overdue taxes from the prior year, but including interest charged). But ten of these similar lots are class 239, farmland, assessed at $50 to $84. The County issues tax bills of zero for these parcels. This is claimed to be due to 35 ILCS 200/18-40, which states

If the equalized assessed value of any property is less than $150 for an assessment year, the county clerk may declare the imposition and collection of all tax for that year to be extended on the parcel to be unfeasible and cancelled. No tax shall be extended or collected on the parcel for that year and the parcel shall not be sold for delinquent taxes.

However, these parcels are assessed at $50 to $84. Applying the equalization factor of 3.0163 results in EAV greater than $150. In response to my inquiry, the Cook County Treasurer explained that, even tho equalized assessed valuation is printed on the tax bill, it isn’t used for taxation of farm properties. Here are the 18 parcels:

table of data — 18 vacant lots in Matteson

I don’t know why 10 of these properties are assessed as farmland while 8 are not.

Countywide, the 813 class 239 parcels have a total assessed value of $2,251,552. While the Assessor’s records are imperfect (there being, for example, no “Dundee” municipality in Cook County), it appears that only 37 of the County’s municipalities (plus a few unincorporated areas) contain class 239 parcels. The tally is shown in the following table. Keep in mind that these are assessed value, 1/10th or less of the actual market value.

table showing class 239 parcels in Cook County — Summary of Class 239 parcels by place

While class 239 is a great bargain for owners of “farmland,” the inequity doesn’t seem, by itself, to have a major effect on the financial condition of the taxing bodies. For example, Ford Heights has the largest number of class 239 parcels, 114. Total class 239 assessed value in Ford Heights is $35,496. If this land was subject to equalization like other parcels, the equalized assessed value would be $107,067. As noted above, the Assessor seems to undervalue class 239 parcels, but even if we assume undervaluation of 75%, the total EAV of these parcels would be $428,268, for a net increase of at least $392,772. (I say “at least” because some or all of the class 239 parcels may be assessed at less than $150 and therefore completely untaxed.) The latest report I can find for Ford Heights total EAV, from 2022, is $14,201,062. Thus, if my assumptions are correct, and tax levies don’t change, then the typical property owner would save just 2.76%, Longer-term, landowners might be encouraged to develop their parcels, with housing or other improvements, so the benefit over time might be greater and might not only be financial. There would be no expense to the Village or other taxing bodies.

And of course the captioned illustration at the top of this post, 7+ acres in desirable Hanover Park, easy walk to Metra, adjacent to residential areas (or suitable for retail/commercial use), takes advantage of class 239 to pay taxes of less than $200/year.

[Still more to come.]

Cook County contains 59,886 vacant taxable land parcels

A vacant lot (source: Cook County Assessor)

The current locally assessed value of these 59,886 parcels totals $490.23 million. By ordinance, these assessments are 10% of what the Assessor estimates to be the market value of these parcels, implying that they’re worth $4.902 billion. Of course there’s also a “multiplier” of 3.0163, meaning the taxable value is $490 million X 3.0163 =$1.478 billion. Tax rates vary around the County, but in Chicago currently (before expected increases) is 7.02%. Meaning that owners of vacant land need to pay $1.54 billion X 7.02% = $103 million.

The County Board decided that vacant land, like residential real estate, should be assessed at 10% of estimated value. Commercial and industrial land is assessed at 25% of value (with exceptions for special favors). The Board could, by ordinance, apply this 25% factor to vacant land also. Which would raise something like $490 million X 1.5 X 3.0163 X.0702 = $155 million/year. Without taxing any housing; without taxing any business. Without taxing anybody who can’t afford to own land. Now $155 million may not seem like a lot, given that the City of Chicago is running something approaching a $1 billion annual deficit, Chicago Public Schools hundreds of millions more, and of course many suburban Cook County taxing bodies are in deficit. But $155 million is just the start.

If you are owner of a vacant lot, and you receive notice that your taxes have more than doubled, what will you do? You could sell the lot, but who would buy it? Probably somebody who wants to build housing, or a commercial business, or something else that serves the community. Or you might decide to build something yourself. Either way, this contributes to better housing supply or increased job opportunities.

Also, that $155 million/year is just for actual vacant lots, coded by the Assessor as class 100. There are also 25,180 parcels labeled as “vacant land under common ownership with adjacent residence” (class 241), also assessed at 10%. These are assessed at $123 million. By the same calculation as we used for vacant lots, assessing these like other nonresidential property could yield an additional $39 million, and some of the parcels would be used for new housing (including accessory dwelling units) or other useful projects.

This amount of revenue is not going to solve all the financial problems of Cook County local governments, but it would be a start, would cost practically nothing to implement, and would have the side benefit of increasing jobs and housing.

Many vacant lots are not taxable, because they belong to the City of Chicago or other government agencies. The above calculations omit such lots. DePaul’s Institute for Housing Studies has examined vacant land in Chicago, including City-owned parcels, and provides some analysis here.

This is not a complete remedy for Chicago’s and Cook County’s financial (and other) difficulties. But it should be an element in any plan to achieve prosperity and justice.

[More to come.]

Everything changed for him when he read Progress & Poverty

Tech billionaire wants to solve economic inequality, among other problems, by building a new city funded by land value tax. As described here, alternate source here.

Of course there are all kinds of issues involved in building a new, freestanding city, but it’s encouraging that he wants to start on a sound economic basis. Thanks to Bob Jene and Edward Miller for the tip.

There is no mystery…

Ships Abandoned in Yerba Buena Cove San Francisco during the California Gold Rush 1849 (public domain image from Wikimedia)

…as to the cause which so suddenly and so largely raised wages in California in 1849, and in Australia in 1852. It was the discovery of the placer mines in unappropriated land to which labor was free that raised the wages of cooks in San Francisco restaurants to $500 a month, and left ships to rot in the harbor without officers or crew until their owners would consent to pay rates that in any other part of the globe seemed fabulous.

…Henry George; Progress & Poverty Book V Chapter 2

George goes on to describe how gold mining was organized, and why it was the form of tenure rather than just the availability of gold that raised wages:

[I]t was by common consent declared that this gold-bearing land should remain common property, of which no one might take more than he could reasonably use, or hold for a longer time than he continued to use it. This perception of natural justice was acquiesced in by the General Government and the Courts, and while placer mining remained of importance, no attempt was made to overrule this reversion to primitive ideas. The title to the land remained in the government, and no individual could acquire more than a possessory claim. The miners in each district fixed the amount of ground an individual could take and the amount of work that must be done to constitute use. If this work were not done, any one could relocate the ground. Thus, no one was allowed to forestall or to lock up natural resources. Labor was acknowledged as the creator of wealth, was given a free field, and secured in its reward.

— Progress & Poverty, Book V, Chapter 2

And now I tripped over a 2002 paper (From Commons to Claims: Property Rights in the California Gold Rush by Andrea G McDowell) that provides a lot of detail and background supporting George’s assertion. A particular mining claim might be 100 to 900 square feet. A miner would work it for a few weeks, then expect to move on to another one. Thus the first miners to arrive had an incentive to avoid land monopoly, because they’d be looking for land again in a short while. “[The miners’] position can be summed up as a rejection of a fee-simple interest in mining claims on the grounds that this would result in the monopoly of the diggings by capitalists and the exclusion of individual miners from the chance to strike it rich.”

There’s a lot about how various mining districts managed their operations — certainly not all the same and often poorly documented, with a lot of the information coming from personal journals and correspondence rather than official sources.

Who Owns Silicon Valley?

View of Silicon Valley in 2012, showing major employers — Vintage 2012 view of Silicon Valley showing major employers. “Silicon Valley IT Company Topography” by Wayan Vota is licensed under CC BY-NC-SA 2.0

Or more precisely, who owns Santa Clara County? With the cooperation of local officials including the County Assessor, a consortium including the Mercury News has determined who owns the greatest value of real estate in the County. Tech giants Alphabet and Apple are second and third, but the number one owner turns out to be Stanford University.

Some other important information:

Proposition 13 is mentioned, but the incentive which keeps old people in their homes which become unaffordable to most families is not explored.

Local opposition to development, preventing housing construction which might otherwise occur, is discussed.

Stanford’s existing holdings include commercial property, but their current acquisitions seem mainly to provide housing for some of their elite employees. These people are able to buy houses at favorable prices (relative to the area), however Stanford retains the land and retains the right to buy the house back eventually. Local non-Stanford people complain, of course, but do not offer to sell their properties at a discount.

Apparently California practice is to assess all real estate, even that which is exempt. This enables meaningful estimates of ownership even tho $13.3 billion of Stanford’s $19.7 billion in real estate is exempt.

Several local officials were interviewed. They don’t discuss how it feels to know that your opposition, Apple and/or Google, has control of much of your communications and might be monitoring them.

Well worth a read for those interested.

Putting government pension costs into perspective

Wirepoints recently issued a helpful report showing state and local government pension debt per Chicago household. They estimate the burden at $144,000 per household. This is a big number, but one could suppose that a prosperous household, over decades, could bear such a burden. Some could, but probably not those below poverty level. Take them out of the picture and the per household amount rises to $172,000. Excluding households with incomes below $75,000, or below $200,000, and the per-household amount rises further, to $393,000 and $2,022,000 respectively.

Here’s their chart: pension debt chart

Of course this doesn’t consider land values, nor businesses. If prime Chicago land is worth $1,000/sq ft, that’s 5.38 sq miles. But more typical land value is much less, probably no more than $25/sq ft. (it seems that nobody has tried to estimate citywide values). That would be 112 square miles. Once we subtract land owned by governments, churches and other exempt nonprofits, we might be approaching the total value of all land in Chicago. And that’s just for pensions, not bonded debt, nor needed capital improvements. Real estate buyers know, or certainly should know, about these encumbrances.

Of course money can be raised from business taxes, but that’s hardly a way to grow economic opportunity for Chicagoans. I would consider any tax revenue from “gaming” as a kind of business tax.

The lesson Wirepoints draws from this is that pensions have to be downsized somehow, which required amending the state constitution. And they go further, comparing government salaries to those of the private sector:

some local gov't salaries compared to average workers

So it looks like we’re going to have to confront a large number of people with guns and firehoses and control over our children, who have been getting a lot of money from us for years and may prefer not to moderate their demands.

Tho I don’t know how, this problem will be solved. Maybe MMT will yield a continuing stream of funds to bail us out. Maybe inflation will accelerate such that the fixed 3% compounded pension increase isn’t a burden. Maybe Chicagoans will decide that they just don’t want so many government “services.” Maybe politicians will decide to remove all taxes from productive economic activity, taxing only the value of land and other privileges (such as the private monopoly over street parking fees), which will grow the economy (while reducing the need for emergency services) sufficient to make pensions a non-issue.

And when it is solved, those who own land and other privileges will benefit most.

Tribune clarifies how TIF’s work

Great story by Hal Dardick in today’s Tribune explaining the real reason the Lincoln Yards TIF had to be Rahm’d thru the City Council before the new Mayor took office. The area just barely qualified as a TIF, and pending new assessments were going to rise enough that it would no longer be eligible. According to the story, it’s uncertain whether the new Mayor could have stopped the project, but she settled for what appear to be minor concessions.

Of course, the whole idea behind TIF’s is that money can be pulled from general revenue into giant slush funds, which the Mayor (and others) can manipulate with little oversight. Meanwhile, there’s little left for routine maintenance, replacement of infrastructure and funding of government schools and other services. Which increases the “need” for TIF’s.

Dardick’s article goes into considerable detail, includes a link to a recent report by Lincoln Institute (no relation to Lincoln Yards, afaik). He does say “land” when I think he means “land + improvements.”

One counterfactual that Dardick doesn’t bother with: What would have happened if Joe Berrios was still Assessor? Would he have nudged down some values to keep the area eligible? Or, to look at it the other way, suppose the current Assessor, who appears to be more conscientious, had been in office since 2013. Perhaps the earlier figures would have been higher, so the increase would be less?

We’ll never know, and it shouldn’t matter. In a well-run city, TIF’s wouldn’t be needed, and a well-informed electorate wouldn’t tolerate them.

About those corporate tax rates…

We hear that corporate tax rates, at 35% (federal), are too high and need to be reduced so U S companies can be competitive. I remain confident that the best way to fund public services is thru a tax on land value and other measures of privilege, but if any kind of corporate tax is to be retained, here are a few things to consider:

The statutory rate is 35%, but there are all kinds of credits and deductions a corporation can take, so typically the effective rate is much less. Here’s a U S Treasury report (pdf) claiming that effective corporate tax rates were 20% in 2011, the most recent year calculated. Major corporations have the ability to obtain special tax favors. (Just scan thru the tax code (big pdf) to find some of these special favors, available only to individual projects or corporations which reached specific milestones on specific combinations of dates.)
Enterprises in most countries, but not in the United States, have to pay a national value-added or sales tax. The rate and details of course varies by country, but is typically about 19% as indicated by this OECD spreadsheet. Scroll down to the second half of this article to get some more perspective from John Hussman.
Most U S states impose an additional corporate income tax, with varying rates and rules. Illinois takes 9.5%. I have no knowledge about other states nor subnational jurisdications outside the US. However, this table from Deloitte (pdf) provides some detail, including an assertion that the total national+local corporate tax rate in Germany is about 30-33%.
Some commentators complain about “double taxation” of corporate earnings, because corporate dividends are paid out of after-tax earnings. However, incorporation, with its perpetual life and limitation of liability, is a privilege, for which it’s reasonable to expect corporations to pay. I don’t suppose that taxable income is the best measure of the value of this privilege, perhaps a small percentage of total expenditures would be better, but certainly the appropriate fee is greater than zero. Furthermore, a considerable percentage of corporate stock is owned by various kinds of entities which do not pay tax, such as universities and other nonprofits, and Roth IRA’s.

Another outrage that a land value tax would eliminate

One of many sophisticated dogs named “Wrigley” Image credit: Liz CC BY-NC 2.0

Expanding on a subject covered here nearly six years ago, Tim Novak of the Sun Times writes about assessment deals in Wrigleyville. Actually, not just 32 properties in Wrigleyville, but apparently on 13,984 parcels countywide, each of which reportedly contains commercial use along with at least one, but no more than six, apartments.

Because Cook County taxes residential (and vacant) property at 40% of the rate applicable to commercial property, and because, 17 years ago, the Cook County Board decided to pretend that commercial property containing one to six apartments is residential, taxes on these 32 Wrigley-area properties (and, presumably, on all 13,984 parcels) are only 40% of the amount they would otherwise be. Furthermore, Novak visited some of the properties and found evidence that they don’t contain any apartments at all. Which Assessor Berrios thanked him for reporting.

Novak also visited an auto repair shop across the street from Wrigley, whose owner owes $78,000 in back taxes and claims to fear losing his property. Of course I don’t know the owner’s personal financial situation, but given high land prices in the neighborhood, it seems he could sell his site for a couple million dollars, take the money and buy (or buy land and build) a better facility a mile or two away. Across from Wrigley may have been a good location for car repair in the 1970s, but not so today.

Three conclusions:

(1) Sun Times needs to sell papers (and attract web traffic) and putting “Wrigley” in the title probably doubles or quadruples the number of people who’d read an article about “tax break.” But the issue is taxes, not commercial baseball.

(2) Once again, let’s be thankful that real estate tax and assessment data is (mostly) accessible to the public. Who knows what kinds of scandals there are on the income tax and sales tax returns filed by the politically-connected property owners, their accountants or attorneys? Unless Wikileaks takes an interest, we’ll never see them.

(3) All this would be solved with a land value tax. Everybody pays the same rate — a big rate — based on the value of their land, exclusive of improvements, and perhaps no other taxes are needed. If there were inequities, the Sun Times — or the Civic Federation — could publish maps making them readily visible.

More jobs –> less recidivism

Click this image of Abashiri Station, Hokkaido to learn how it relates to recidivism. Image credit: David McKelvey .license: Attribution-NonCommercial-NoDerivs 2.0 Generic

Many of us have long assumed that a strong demand for labor results in less crime. At least, less of the kind of crime people get imprisoned for. And of course we assume this works most strongly for people at the bottom of the economic ladder, a category which includes most of those released after serving time in prison.

Now we have a study (or more precisely, a report on a study because the original source is behind a paywall) which confirms this assumption. Basically, those released into a strong economy are less likely to return to prison than those released in slack times. Because the study was apparently done at the county level, there would be enough cases that it’s not a statistical artifact. From the abstract:

[B]eing released to a county with higher low-skilled wages significantly decreases the risk of recidivism. The impact of higher wages on recidivism is larger for both black offenders and first-time offenders, and in sectors that report being more willing to hire ex-offenders. These results are robust to individual- and county-level controls…

So, since taxing privilege rather than production is an economic development tool, we can also assert that it is an anti-crime measure.