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Biz tax load gets lighter
Housing boom shifts property-tax burden; city turns competitive

Monday, August 14, 2006
Crain's Chicago Business
by Greg Hinz

After decades of shouldering one of the most onerous property-tax loads in the country, Chicago's business community is emerging as a big winner in the dramatic reshuffling of the city's real estate market.
 
A new study being released Monday by the Civic Federation reports that the effective property tax rate on Chicago office towers, retail buildings and factories dropped by more than half between 1999 and 2004, the most recent year for which data is available.
 
The effective tax rate — the percentage of a property's market value paid in annual taxes — dropped by a much smaller fraction on homes, meaning that business's collective share of the property tax bill has significantly declined.
 
Individual businesses' tax bills still likely have risen, in some cases a lot, depending on property values. But the study of northeastern Illinois communities suggests that businesses are far better off than they used to be, and that Chicago is in a more competitive position than it was compared with surrounding communities.
 
Business leaders briefed on the report by Crain's say the tax bill is still too high and hurts job growth here, but concede that the trend is favorable.
 
"The property-tax field is getting more even," says Jon DeVries, director of the School of Real Estate at Roosevelt University.
 
ASSESSOR 'NOT SURPRISED'
 
The new report likely will be helpful to Cook County Assessor James M. Houlihan, whose efforts to renew a law imposing a 7% annual cap on residential tax hikes have stalled in Springfield.
 
"I'm not surprised" at the Civic Federation findings, Mr. Houlihan says. "There has been a shift in the relative tax burden from commercial and industrial property to residential." He estimates homeowners now pay half of all property taxes, up from roughly a third a decade ago.
 
For nearly half a century, Chicago business has bitterly complained about a plan pushed through by Mayor Richard J. Daley that effectively set taxes on business property at twice the rate of single-family homes. That plan, known as tax classification, required taxes in Cook County to be based on as much as 40% of the market value for factories and commercial property, but only 16% for homes.
 
The classification system remains on the books, but its impact has been overtaken by the explosive growth of home values throughout Chicago. Combined with a slower relative growth in business property values, and tax caps — which limit how much government can levy — effective tax rates on business property have plummeted.
 
For instance, according to the Civic Federation study, an average office building owner paid 4.61% of its value in annual property taxes in 1999, but only 2.25% in 2004. The decline in industrial property was even greater, from 4.34% to 1.90%.
 
In comparison, the effective tax rate on residential property slipped only from 1.51% to 1.29%.
 
STILL TOPS SOME SUBURBS
 
Effective tax rates on business property in  Chicago still are higher than in some suburbs. For instance, the rate is 0.87% in Oak Brook, which is in DuPage County. The rate is 1.15% in Lake Forest in Lake County.
 
But Chicago compares favorably to other suburbs, especially those that have seen explosive development, according to the federation data. The effective tax rate is 2.09% in Naperville, 2.2% in Joliet and 2.62% in Elgin.
 
Chicago commercial-property taxes are also cheaper than other Cook County communities, such as Evanston (3.93%), Buffalo Grove (4.02%) and Schaumburg (3.72%).
 
Federation President Laurence Msall emphasizes that the study focuses on how the tax bill is divided — not on how much individuals pay. However, he says the evidence is clear and calls the news "positive. Chicago is getting more competitive compared to other municipalities."


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