WHAT IS GOING TO HAPPEN TO OUR PROPERTY TAXES? You May Want To Brace For Impact As They Are Going UP Again – Probably By A Lot! Find Out Why & What You Can Do!
April 24, 2020
As the founder of multiple successful property tax businesses in both Lake County and Cook County and being a subject matter expert, I am being asked every day what I think will happen to our already outrageous property tax bills. This is a rather complex topic, but I will try to simplify what I think will happen, along with an example.
First, a bit of background. During the market crash of 2008 I owned the largest property tax appeal firm in Lake County and since selling that in 2014, I have worked for two of the largest Cook County property tax appeal firms. I currently own The Property Tax Department, LLC and have an understanding of what makes our dysfunctional property tax system in Illinois tick.
There has been a lot of discussion and chatter in the public forum about property tax relief. Contrary to the popular and hopeful sentiment spurred by the current health crisis, we are NOT going to see any property tax relief. Unfortunately, we will probably see another property tax increase.
Property taxes are a zero-sum game which means that if one person gets a reduction then everybody else has to pay more. (The sum of the taxes paid by property owners doesn’t change – just how the burden is distributed changes.) The reason for this is that the taxing bodies put together their budgets the year prior to tax bills being issued. The amount of money in the budget that comes from property tax dollars is called the “levy”. Once the tax levy for a taxing district (such as a library, school, public safety, etc.) is approved, the government calculates how much money each dollar in real estate value must pay to make sure that all the taxing bodies are fully funded. This is a vital piece of the property tax assessment equation.
Let me illustrate with an example: If Town A’s library needed $250,000, and the schools needed $500,000, and public safety needed $250,000 in property tax dollars to operate, Town A would have a tax levy of $1,000,000. Now let’s assume that town A has $5,000,000 in assessed residential real estate and $5,000,000 in assessed commercial real estate. Thus, Town A has $10,000,000 in real estate and needs $1,000,000 to operate so each dollar in real estate must pay $.10 in property taxes. Simple, right? Now, let’s see what happens when EVERYONE gets a blanket assessment reduction.
If the assessor dropped all real estate values by 50%, now there is a total of $5,000,000 in assessed value but Town A still needs $1,000,000 to operate, so what happens? Every dollar in real estate now needs to pay twice as much, or $.20 in property taxes to make sure that Town A can pay their bills. So even if everyone’s assessment is dropped equally, you WILL NOT PAY LESS in property taxes. Additionally, if the tax rate goes up, you would end up paying more even though your assessment dropped. But here is the bigger problem…
Let’s go back to our original assumption that there is $5,000,000 in assessed residential real estate and $5,000,000 in assessed commercial real estate. Now, let’s assume that all the commercial property owners appealed and won 50% reductions because their buildings were vacant or they were not collecting rent during the pandemic, so commercial values were reduced on appeal from $5,000,000 to $2,500,000. If you recall, Town A still needs $1,000,000 to operate but now there is only $7,500,000 total in assessed real estate in Town A because of commercial property owner’s appeals, so each dollar in real estate now must pay $.13 – or 33% more! The owner of a $100,000 house previously paid $10,000 in taxes ($100,000 x $.10) but now, because of all the commercial appeals, they must pay $13,333 in taxes ($100,000 x $.13) or a 33% increase! This is what I am concerned will happen as this is EXACTLY what happened in 2008 and why you did not see a property tax reduction even though your home was losing value.
The schools, fire departments, libraries, etc. all still need to be funded fully this next year even if our home values drop by 50%. The only way to make sure this happens is by raising the tax rate to make up any loss in real estate value to make sure that our government is fully funded. In addition, the pandemic is causing a major loss of funding for some government entities as there is very little sales tax coming in. This loss of funding will have to be made up in property tax dollars to keep the public entity fully funded.
It needs to be mentioned that the assessor is not the enemy in all this. The assessor’s only role is to value your property based on the PAST THREE YEARS of sales data. Most assessors do the best job they can to value your property correctly based on the parameters that they must follow from The State of Illinois. (I will write another piece explaining why the assessor must, by law, assess in a way that does not take into account the current market conditions so keep an eye out for that.) But, the assessor does not set tax rates or mail bills so they only affect one piece of the pie. On that note though, an assessor saying they are giving everyone a “COVID reduction” is being disingenuous at best. If everyone were to receive a blanket “COVID reduction”, as I explained above, the tax rate will simply go up which will do NOTHING for your property tax bill. On the other hand, to give all commercial properties a reduction will cause residential taxes to go up. And finally, I do not think it is possible to give reductions to business for COVID without looking at each property individually on appeal. My reasoning is that an oil change shop, next to a carwash, next to a car dealership, have all been affected differently by this pandemic and cannot be treated the same.
So what is the answer? First, everyone should keep a very close eye on their next assessment to make sure it is accurate. You can do this on your own, hire a company like mine, or hire a law firm. My company, The Property Tax Department, LLC, does not charge anything for this service! We will review your assessment and our computer algorithm can give us a pretty good idea if there is a basis to appeal or not as it looks at thousands of data points to search for the best comparable properties. You can do that for FREE by clicking here and we will check for you once the new assessments come out later this year. As the tax rate is expected to rise, it is all the more important to keep your assessment in check. The second thing to remember is that the assessor must assess based on the last three years of sales (this is to try and even out any large market changes so your assessment isn’t wildly fluctuating year after year) while appealing your value CAN take into consideration the more current market conditions such as vacancy, loss of rent, recent sales, etc. It is of my opinion that every owner should take a very close look at their assessment each and every year, but especially this year, to determine if they are entitled to any property tax relief. We are in a crazy time right now and making sure your assessment is accurate could save you thousands and thousands of dollars a year in property taxes.
I hope this helps to explain how the confusing property tax system works and I look forward to helping you keep your property taxes in check this year. You can do that for FREE by clicking here or you can always contact us at The Property Tax Department, LLC with any questions by clicking here.
Owner, The Property Tax Department, LLC
P.S. Our services are 100% Guaranteed – you don’t pay us a penny unless we save you money!
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