This seems to be another tax gimmick (is not everything about the income tax a tax gimmick?), that can be used by owners of agricultural land. It’s called a “legacy nutrient deduction,” and if I understand it correctly, when you buy farmland, your purchase includes the fertilizer resident in the soil. Over time, the quality or quantity of fertilizer degrades, so you can deduct the loss in value. It’s not exactly “land” as Henry George envisioned it*, and it does open some opportunities for clever and affluent folks. Who otherwise might be engaged in productive tasks.
I do wonder whether, if glyphosate leeches out of the soil, that might increase its value and perhaps should be taxed.
*Or maybe it is. “Your land itself is not quite so good. You have been cropping it, and by and by it will need manure.”
Continuing our exploration of land values and real estate taxes in Cook County …
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:
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.
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.
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.
This new book by Strong Towns head Chuck Marohn (and Daniel Herriges) is worthwhile for anyone who wants to understand where America’s “housing crisis” came from. The history is important: How did we get here? He goes thru how housing was financed a hundred years ago, federal programs enacted in response to the 1929++ economic depression and subsequent disruptions, subsequent federal programs, and the dilemma we have today.
About 2/3 of American households are homeowners, they have (or hope to obtain) “equity” in their property, and they really don’t want to see the economic value of their holdings decline. Many of them are already stressed by the cost of paying their mortgages, taxes, maintenance expenses, and other costs of living. Not to mention the cost of owning and operating automobiles, as in most communities life without one is quite inconvenient.
The remaining third are renters (plus the unhoused). Many of them are also under economic pressure, as rents in recent decades have outpaced incomes. They might like to see housing prices decline, or more precisely to see the housing they want become easier for them to afford.
So there are big interests who want housing costs to decline, and who don’t want the price of housing to decline.
Part of the problem, as Marohn sees it, is that nowadays housing is built, financed, and often managed at a national scale. These folks are professionals who can deal with complex zoning and building code requirements. So part of the remedy is for local governments to make it easier for small-scale, local builders to make housing. This would include allowing an increase in density by right, such as backyard cottages, accessory apartments, or a two or three unit building in areas which have been restricted to single family.
This isn’t wrong, and I have enough personal experience dealing with building and zoning officials in a “progressive” community to know that improvements would be helpful. Even Brandon Johnson claims to be aware of the problem.
Working thru the book, I kept wondering what happened to the land value tax, which I know Marohn has supported. When I got to the example on “Financing Backyard Cottages” where he notes that one advantage would be additional property tax revenue, it sure looked like LVT has been tossed aside. Finally, toward the end of the penultimate chapter, he says “the land value tax… is perhaps the best mechanism to overcome neighborhood stagnation and decline.” Well it was nice he was able to fit this in.
I do recommend this book to anyone interested in realistic ways to get more housing built, or just in finding out how we got where we are. However, if you want to know how the whole problem could have been avoided by getting public revenue primarily from the value of land and other privileges, you’ll want to look elsewhere.
Of course Henry George, writing in the 1890s, explained how sinister forces are able to manipulate the opinions of the public against our own interests.
Credit: Chris Piascik (CC BY-NC-ND 2.0)
The power of a special interest, though inimical to the general interest, so to influence common thought as to make fallacies pass as truths, is a great fact without which neither the political history of our own time and people nor that of other times and peoples can be understood. A comparatively small number of individuals brought into virtual though not necessarily formal agreement of thought and action by something that makes them individually wealthy without adding to the general wealth, may exert an influence out of all proportion to their numbers. A special interest of this kind is, to the general interests of society, as a standing army is to an unorganized mob. It gains intensity and energy in its specialization, and in the wealth it takes from the general stock finds power to mold opinion. Leisure and culture and the circumstances and conditions that command respect accompany wealth, and intellectual ability is attracted by it. On the other hand, those who suffer from the injustice that takes from the many to enrich the few, are in that very thing deprived of the leisure to think, and the opportunities, education and graces necessary to give their thought acceptable expression. They are necessarily the “unlettered,” the “ignorant,” the “vulgar,” prone in their consciousness of weakness to look up for leadership and guidance to those who have the advantages that the possession of wealth can give … This is of human nature. The world is so new to us when we first come into it; we are so compelled at every turn to rely upon what we are told rather than on what we ourselves can discover; what we find to be the common and respected opinion of others has with us such almost irresistible weight, that it becomes possible for a special interest by usurping the teaching province to make to us black seem white and wrong seem right. … [W]e have but to look around us to discover in operation today the great agency that has made falsehood seem truth.
Henry George Science of Political Economy Book II Chapter 2 source
Ugandan Anti-Corruption Sign (credit: futureatlas.com, CC BY 2.0)
There’s been some concern about government insiders demonstrating great skill at choosing investments, at the presumed expense of other investors (not just individuals, but pension funds and other entities on which we depend). At least they’re required to, ex post, report their trades, including those of their spouses. But there must be a better solution.
A lot could be accomplished by reducing the role of government, and government-backed monopolies such as the “Federal” Reserve, in our economy. This would reduce the leverage of gov’t insiders. But every government operation has a lobby behind it, so this will be a challenge to accomplish. And even a legitimate limited government is going to have an impact on the economy.
So I propose that government insiders be required to post all their trades in advance, let’s say at least an hour before executing them. Put them on an easily-accessible public website (insiders.gov might be a good URL) so folks can front-run them. It would create a whole new subindustry of forecasting market moves based on what the insiders are doing.
Of course all kinds of new hustles might develop to get around this.
Posting a trade and then not executing it
Having offshore trusts which they can claim not to control
Telling their friends a day ahead of time what they plan to do
But it would at least be progress. And it might discourage some of the wealthy from getting so directly involved in government.
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.
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.
Some land in Woodlawn (15 years ago). Image credit: Eric Allix Rogers CC BY-NC-ND 2.0
A D Quig reports in Crains that the City of Chicago’s Housing Commissioner says “everyone who lives in Woodlawn now should be able to stay in Woodlawn.” This can be a challenge as housing costs in the area rise. According to Crains (not corroborated by any press release I can find on web sites of the Department of Housing or the Mayor’s Office), support for housing affordabiity in the area will involve six strategies:
Right of refusal for large apartment building tenants if a landlord seeks to sell his or her building
Helping apartment building owners refinance properties to keep renters in place with affordable rates
Giving grants to long-term homeowners to help with home repairs
Financing the rehab of vacant buildings
Setting guidelines for how city-owned, vacant, residentially zoned land can be developed into affordable or mixed-income housing
Requiring developers that receive city-owned land to meet enhanced local hiring requirements
Details, of course, are yet to be defined, and the whole thing requires action by the City Council. Still, assuming that the program is effectively structured and implemented, what we have is the designation of a privileged class– people who live in Woodlawn– receiving benefits that might otherwise accrue to another privileged class — people who own land in Woodlawn, with a new layer of bureaucracy established (or repurposed) to administer it, including investigating and monitoring the reported income and behavior of the people who are granted permission to live in the area.
Whereas, under a land value tax, the area would now have little vacant land, presumably a lot more housing, probably quite “affordable.”
Of course if you’re the Mayor, you do what you figure is politically feasible and within your power, not what is morally right and economically efficient, but would require persuading a lot of uninformed voters and obtaining cooperation from quite a few other governmental actors.
This seems to be another tax gimmick (is not everything about the income tax a tax gimmick?), that can be used by owners of agricultural land. It’s called a “legacy nutrient deduction,” and if I understand it correctly, when you buy farmland, your purchase includes the fertilizer resident in the soil. Over time, the quality or quantity of fertilizer degrades, so you can deduct the loss in value. It’s not exactly “land” as Henry George envisioned it*, and it does open some opportunities for clever and affluent folks. Who otherwise might be engaged in productive tasks.
