Monday, February 18, 2008

IS IT TIME TO OVERHAUL COOK COUNTY’S ANTIQUATED PROPERTY TAX SYSTEM?

With Chicago homeowners reeling from the largest property tax increase in Windy City history, now may be the time to consider an overhaul of Cook County’s antiquated property tax assessment system, real estate experts say.

Even Mayor Richard M. Daley admits property tax reform is needed, and recently he urged creating a panel of experts to recommend overhauling an assessment system that penalizes long-term homeowners when a new neighbor buys a home for an inflated price.

With home prices declining in some city neighborhoods because of the real estate recession and high foreclosure rates, Mayor Daley also demanded the Cook County Assessor James Houlihan begin an “immediate correction” of property assessments in areas hardest hit by the 2006 reassessment.

Mayor Daley’s $83.4 million property tax increase is not reflected in the property tax bills due March 1. The increase won’t show up on Chicago real estate tax bills until 2009.

How should the current triennial property tax assessment system be changed? According to the Tax Reform Action Coalition (TRAC), a consumer tax-watchdog group, one solution could be acquisition-based assessing—a method of assessing property taxes that is tied directly to the actual purchase price of a property.

Acquisition–based assessing puts a limit on the increases of assessments until a property is sold. While you own your property, your assessment cannot go up more than 2 percent a year. So homeowners will never be slapped with assessment increases of 30 percent to 120 percent while they own the property.

TRAC predicts that if an acquisition-based assessing system is adopted property tax assessments will not automatically rise just because sale prices in your neighborhood escalate. An established homeowner’s assessment is stable because it is not tied to the price a neighbor receives when he or she sells their property.

The assessment increases are limited to 2 percent per year. Acquisition-based assessing applies to all types of properties—commercial, industrial, residential, owner occupied or not.

When a property is sold under an acquisition-based assessment, it will be reassessed based on the actual sale price. It will be a real number, clear and understandable. Increases for the new owner will be assessed on the actual purchase price.

In the following year the new property owner’s assessment increase will be limited to 2 percent just like everyone else. There will be some adjustments for commercial and industrial properties like the Sears Tower because they don’t come up for sale very often.

TRAC outlined the following benefits of acquisition-based assessing: • Your real estate taxes will be predictable. You will be able to do long-term planning for you and your family.

• You won’t be taxed on so-called increases in your property value—or unrealized capital gains—that are based on your neighbors’ sale price.

• Communities become more stable. Long-term owners will be protected. Even if new comers begin to drive up prices, current residents will not be forced from their homes by huge increases in their property taxes that are beyond their control. Renters and business will be protected too.

• New buyers will know what their taxes will be for many years into the future, before they buy the property. Fairness is maintained between neighbors with similar properties because the new purchasers will have chosen to buy with full knowledge and acceptance of the tax differences.

All owners will understand the property tax system better because the process for determining new assessments will be clear and transparent. Because the method for paying taxes will finally be clear, residents and the community will be able to focus their attention on the total size of government budgets and the objects of government spending.

How will this new assessment plan affect the amount of money going to city and county government from property tax