Providing tax relief for some property owners is driving up costs for others, especially in two northern Illinois cities, according to a new report.
A report by the Lincoln Institute for Land Policy and Minnesota Center for Fiscal Excellence found that businesses in Chicago paid the third-highest tax rates in the nation on commercial property in 2018 largely because of tax breaks for homeowners shifted the burden to business properties.
“The city has a fairly classified property tax system that imposes a higher effective property tax rate on office buildings and other types of commercial properties,” said Adam Langley, associate director of tax policy and data initiatives at the Lincoln Institute of Land Policy.
Chicago, in tandem with Illinois’ programs, offers a host of property tax exemptions for homeowners, including senior citizens.
Levies from taxing bodies set property taxes, meaning the total amount of money to be collected isn't reduced when property owners get exemptions. Instead, the value of those exemptions is shifted to all other property owners who aren’t eligible for such relief.
Higher taxes across Illinois and elsewhere have been shown to reduce home values because the list price of a home may be unaffordable when taxes are factored in, Langley said.
At 3.65 percent, Aurora, Illinois, residents paid the highest effective tax rate as a percentage of the average home value among the nation’s largest cities in 2018, with a real bill that was also among the highest in the nation’s largest cities, according to the report.
“In Illinois, Aurora included, local governments are highly-reliant on property taxes,” Langley said.
The report focused on assessment limits for long-time homeowners and how that forced higher taxes on new home buyers. That phenomenon is especially prominent in California, the report said, due to the assessment limits placed on long-time property owners. That shifts the property tax burden to other homesteads and commercial properties.
“Of the 29 cities in this report that are affected by parcel-specific assessment limits, new homeowners face higher property tax bills than existing homeowners in 24 cities,” according to the report.