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.

 

 

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.

Notes on Cook County Assessments

Selection from Olcott’s Land Values Blue Book, 1936 edition, Numbers represent values per front foot, to be adjusted as described in the book.

Assessor Fritz Kaegi appears to seek assessments that are more consistent with applicable laws and ordinances, and easier for taxpayers to understand. This might be a good thing, tho one hopes that, once taxpayers understand how assessments are done, they’ll demand a more helpful system, one which doesn’t punish homeowners and businesses for building or improving.

Traditionally, Continue reading Notes on Cook County Assessments