By Austin Berg / Illinois Policy Institute -
The first round of property tax bills from Chicago’s record 2015 property-tax hike hit mailboxes in July, and the average city homeowner saw an increase of 12.8 percent, or $400, on his or her tax bill.
This double-digit increase is unwelcome news to many Chicagoans who already suffer under some of the highest residential property taxes in the nation.
Illinoisans face the highest median property-tax rate in the nation at 2.67 percent. This means a typical Illinois homeowner with a house worth $200,000 will pay $5,340 in property taxes each year.
That’s double the national median, according to the study.
As property taxes continue to rise, Illinoisans are likely to take a closer look at their tax bill. More scrutiny from property owners means more business for the law firms specializing in lowering property-tax bills. And that means more money in the pockets of certain members of the state’s political elite.
The players
As the tax hikes hit Chicago families and businesses, a who’s who of the state’s political machine will continue to line their pockets off of a property-tax game in which their connections are priced at a premium.
Illinois House Speaker Mike Madigan and Chicago Alderman Ed Burke both run law firmsspecializing in the lucrative field of Cook County property-tax appeals, one of the most inefficient, corrupt systems in urban politics. Illinois Senate President John Cullerton is a member of a large law firm that handles a range of issues, including property-tax law. The three have held political office in Illinois for a combined 126 years.
The game
The property-tax-assessment process in Cook County is convoluted by design. But here’s how it works in simple terms:
First, the Cook County Assessor’s Office assesses the value of every property in the county. The value of any given property is reassessed once every three years. This “assessed value” is then used to calculate the property taxes owed by each property owner.
Property owners can then appeal that assessed value in a number of ways. They can file a request with the assessor asking for a reduction, appeal the valuation to the Cook County Board of Review, file a lawsuit in which a judge will decide the value, or the property owner and the Cook County State’s Attorney will enter into a settlement agreement over the value.
Flawed property valuations and the process required to fix them are a cash cow for law firms, including those of Madigan, Burke and Cullerton, which know what strings to pull. These law firms handle the ways in which the assessed value of a property is appealed: the request with the assessor, the appeal to the Cook County Board of Review, and lawsuits.
The Cook County Board of Review – which exists solely to field appeals for assessments by the Cook County Assessor’s Office – processed appeals for more than 400,000 properties in 2013.
What doesn’t add up is nearly two-thirds of those appeals were successful: an astonishing number that reveals a faulty assessment process ripe for savvy attorneys.
Any way you slice it, taxpayers lose.
Choose not to appeal your assessment and the government pockets the extra money. Choose to hire a politically connected law firm and that law firm typically pockets anywhere from 25 to 50 percent of the “winnings.” And each reduction for a politically connected business means an increase in property taxes for those lacking the right political connections.
Investigative reporting from the Illinois News Network revealed Madigan’s six-person firm,Madigan & Getzendanner, earned close to $10 million in tax refunds for its clients from April 2013 through April 2014. Madigan’s spokesperson Steve Brown has said that the House speakers’ law firm, which services mainly commercial clients, charges a flat fee for its services. The Chicago Sun-Times’ Tim Novak broke the story in 2014 that Madigan’s firm had saved Mesirow Financial Services $1.7 million dollars by slashing the valuation of its River North headquarters by 60 percent. Mesirow manages $300 million in state pension funds and employs Madigan’s son, Andrew.
Every year from 2010 to 2014, Cook County Assessor and Democratic Party Chairman Joseph Berrios declared the building that housed Mesirow was worth at least $330 million. In each of those years, Madigan’s law firm successfully contested that valuation to the tune of $5 million in tax breaks annually, according to Novak’s research.
That’s the game in a nutshell.
Unsurprisingly, the attorneys making millions on property-tax appeals donate heavily to the candidates for Cook County Assessor, the Board of Review commissioners, Cook County judges and the state’s attorney. That means at each level of the appeals process, law firms are likely to interact with someone they’ve helped get elected.
A 2014 Illinois News Network analysis of campaign donations found the bulk of top contributors to the campaigns of sitting Board of Review commissioners were either attorneys or property developers with cases before the board.
Cook is one of only six Illinois counties where the Board of Review is elected rather than appointed by the county board. Most Illinois counties don’t elect their assessor, either.
Fixing it
One major reason for the high number of property-tax appeals in Cook County is the fact that the assessor assesses a property’s value once every three years. This means swings in the market aren’t mirrored by changes in a property’s assessed value, leading to incorrect valuations. Chicago should assess property values annually, as is done in New York City. The increased costs of conducting valuations more frequently at the Cook County Assessor’s office should be offset with a right-sizing of government employees at the Cook County Board of Appeals as the number of successful appeals falls.
There are nearly 1.8 million parcels of property in Chicago, according to the Cook County Assessor’s website, while the New York City Department of Finance assesses the value of more than 1 million properties. While the number of individuals filing for an assessment reduction in Cook County and New York City are similar, a mere 16 percent of New York City appeals actually resulted in an assessment reduction in 2013, versus 66 percent in Chicago.
That said, annualized assessments would not solve the mass inefficiencies within the Cook County system.
Take the process that an average homeowner must go through to file an appeal, for example. This requires submitting to the county assessments of five similar neighboring properties, or getting an estimate from an outside appraiser who will look at the same information available to Cook County. This is a bizarre system, as this homeowner is simply giving the county information it already has on file.
The Cook County Assessor’s Office already has the appraisals of every neighboring property, and hundreds of thousands more, on record. The Board of Review should have access to this information as well. In other words, it seems the entire appeals process could easily be replaced with a computerized system that sweeps assessments of similar properties in microseconds.
Ideally, assessments would be calculated solely through a computer, confirmed solely by a computer and continuously updated with complete accuracy through the use of websites such as RedFin, Zillow and Trulia, along with the county’s own records.
These websites track every change and every sale every minute of every day, and if used properly could practically eliminate the entire appeals racket.
Furthermore, elected officials should not be permitted to sell their services in property-tax law. To anyone outside Illinois’ political machine, this is a clear conflict of interest that has gone untouched for too long.
