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 Should Illinoisans take heart? Has
the property tax pain subsided?
Unfortunately, no.
Government data show average property taxes paid in Illinois grew more than 6
times faster than household incomes from 2008-2015. And more recently, those
property tax bills have risen as returns to investment in home equity have
declined in Illinois – meaning property taxes are too often sucking away the
savings of middle class families.
A January report by the Civic Federation makes the case that increasing property
values caused effective property tax rates to decline in communities surrounding
Chicago from 2014 to 2015. And the Cook County Assessor’s Office cited a 2017
study by the Lincoln Institute of Land Policy and the Minnesota Center for
Fiscal Excellence in stating that Illinois’ property tax system lowers the
relative tax burden of low-income families in Chicago. Further, the assessor’s
office claimed Chicagoans face lower effective rates than homeowners in many
other American cities.
But effective property tax rates don’t reveal the true pain of property taxes
for Illinois families. That’s because even if those rates go down, Illinoisans
can still see a larger and larger share of their incomes eaten up by property
taxes.
And that’s exactly what’s happening. Illinoisans’ real property tax burden –
property taxes as a share of income – jumped nearly 38 percent from 2008-2015.
The facts are clear: Property taxes are stretching the budgets of Illinois
families and diminishing their ability to prosper.
ILLINOISANS SEE HIGHER PROPERTY TAX BILLS, BURDEN
Over the recession era (2008-2015), average property taxes paid in Illinois grew
by nearly 48 percent, according to the U.S. Census Bureau’s Current Population
Survey, or CPS. From 2014 to 2015 alone, average property taxes increased 17
percent.
But average household income increased by only 7 percent from 2008-2015,
according to the CPS. In other words, property taxes grew more than six times
faster than household incomes in Illinois.
This means property taxes are taking up a larger share of income, squeezing the
household budgets of Illinois families.
The real property tax burden – the percentage of household income paid in
property taxes – increased by nearly 38 percent from 2008-2015. Since
Illinoisans’ average household income did not grow in 2015, the real tax burden
increased by 17 percent from 2014 to 2015 alone.
PROPERTY TAXES SAPPING SAVINGS
Home equity is one of the main vehicles by which middle class families save for
retirement. But in Illinois, those savings are being sapped as property taxes
keep marching upward.
The U.S. Census Bureau’s CPS also provides an estimate of the value of investing
in home equity.1 For most people buying a home, they expect the value of that
investment to increase over time. But if this “return to home equity” measure
declines, it means families’ savings are vanishing before their eyes.
 According to the CPS, the average return on investment in home equity increased
14 percent over the recession era in Illinois. But from 2014 to 2015, the return
to home equity decreased by 2.4 percent.
A key reason for the decline in the return on investment in home equity that
year is higher property taxes. This is concerning because it means that even in
a time of increasing home equity, homeowners can still see the return on their
investment in their homes diminish if property taxes rise high enough.
WHY THE EFFECTIVE TAX RATE DOESN’T SHOW THE WHOLE PICTURE
Illinoisans should be careful not to read too much into studies showing a low or
declining effective tax rate for property owners.
The effective property tax rate is the percentage of a property’s value – either
its assessed value or in some cases its estimated market value – paid in
property taxes during a given year.
Under an effective tax rate calculation, if the magnitude of a property tax
increase is smaller than an increase in the property value, then the effective
tax rate decreases.
But this calculation has some important limitations.
First, a calculation using properties’ assessed value uses information on the
median level of assessment within a given geographical area. However, this
property value assessment is highly subjective and prone to mistakes. A recent
study by ProPublica Illinois and the Chicago Tribune accused Cook County
Assessor Joseph Berrios of failing taxpayers by producing valuations for
thousands of commercial and industrial properties in Chicago that did not change
at all from one reassessment to the next.
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Even aside from the
egregious example of the Cook County Assessor’s Office, problems
inherent generally in property value assessments mean Illinoisans
have reason to be skeptical of assessed value as a reliable way to
measure changes in the property tax burden.
Second, a good measure of a given tax burden should reflect how much
a tax constrains a household’s budget and distorts economic
decisions. The effective tax rate doesn’t completely capture that
reality. This is why even studies that calculate the effective tax
rate based on a property’s market value – not its assessed value –
still can’t fully describe the burden shouldered by Illinois
families.
The real property tax
burden should account for the effect of property taxes on monthly
housing costs, directly affecting a household’s ability to prosper.
For those reasons, researchers can use data from the Annual Social
and Economic Supplement of the Current Population Survey to
investigate: How much of a household’s income is used to pay
property taxes in Illinois?
The CPS is one of the oldest, largest and most well-recognized
surveys produced by the U.S. Census Bureau, covering 1962 to the
present. Data include individuals’ responses about demographic
information, employment, program participation and supplemental data
on topics such as taxes paid, voter registration, food security and
more.
Property tax payments are only available up to the year 2015. Over
the recession era (2008-2015), average property taxes paid grew 6.6
times faster than household income in Illinois.
ILLINOISANS NEED SOLUTIONS, SECURITY
Surging property tax burdens as Illinois loses people to other
states in record numbers is a toxic mix. Indeed, local governments
across the state continue to hike property taxes while the state is
shrinking.
The General Assembly should take immediate action to address rising
property tax burdens for Illinois families.
Passing a property tax freeze on homeowners’ actual bills (not just
the levies of local governments) and requiring voter approval for
property tax hikes are two powerful reforms that would go a long way
for Illinois families dealing with stagnant incomes.
To be clear: A property tax freeze should only be a first step –
freezing taxes at their current unaffordable rate is not a permanent
solution. The permanent solution is to reduce property taxes and
return financial security to Illinois families.
After giving families greater security in their homes through a
property tax freeze, lawmakers must act to rein in the cost drivers
that push those bills higher and higher, thus reducing property tax
burdens.
First, leaders must move to consolidate scores of Illinois
governments. The Land of Lincoln is home to more units of local
government than any other state, by far. That drives up property
taxes. A great place to start is in Illinois’ duplicative school
district administrations.
Furthermore, addressing the stacked deck of government union
negotiations is a crucial step in providing long-term stability for
homeowners. Unlike in every neighboring state, government worker
unions in Illinois currently have the power to hold taxpayers over a
barrel, which results in unaffordable contracts. It’s no wonder
residents are stuck paying some of the nation’s highest property
taxes.
Illinoisans deserve security in their homes when planting roots in
the state. But growing property tax burdens are robbing them of that
security.
ENDNOTES
The CPS home equity calculation is constructed as follows: First,
only dwellings in the CPS where the householder is the owner are
included. Second, using the common variables of householder’s age,
number of people in the household, total household income and
location variables (i.e., statistical area, state, central city
indicator or region), a survey respondent record from the American
Housing Survey is matched with each CPS homeowner. Once the match is
made, the CPS dwelling is appended to include home values, land
values, property taxes and housing debt from the survey respondent
record. The home equity is calculated by taking the reported value
of the property and subtracting the remaining home debt. The final
value of “return to home equity” is then calculated by multiplying
home equity by the annual Standard & Poor’s high-grade municipal
bond yield and subtracting property taxes.
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