Cook County, Illinois Considers an Expansion of Its Incentive Programs
John P. Fitzgerald and Brian S. Maher

Copyright 2000 John P. Fitzgerald, Ltd.

THE COOK COUNTY incentive classifications were scheduled to expire at the end of 1999 if not renewed by the Cook County Board of Commissioners. Cook County Assessor James M. Houlihan requested that the County Board both extend and revise the incentive classes. In his report to the Cook County Board in November 1999, Assessor Houlihan included an analysis of the effect of these incentives over the five-year period from 1993 to 1997. By his estimations, the combined effect of the Class 6 (industrial), Class 7 (commercial) and Class 8 (blighted) incentives added $60 million in assessed value and $15.6 million in added taxes during this five-year period. In addition, an estimated 8,071 new jobs were added, bringing the total number of jobs associated with incentive properties to 49,372. The Class 6 incentives accounted for more than 75 percent of the increased revenues and 98 percent of the jobs.

As pointed out in the report, Cook County has nearly six times the number of industrial firms and dollar earnings as the largest of the surrounding counties and five times the number of jobs. Despite these impressive numbers, however, Cook County trails the collar counties in rate of growth in several strong economic indicators. During the five-year period reviewed, the number of manufacturing establishments in Cook County grew by 5.6 percent, but the number in the collar counties grew by almost 24 percent and in the rest of the state the number grew by more than 24 percent. Manufacturing jobs increased by less than 1 percent in Cook County while the collar counties experienced increases of 4 percent to 12 percent.

Similar patterns were evident for commercial properties. The number of nonmanufacturing jobs grew by 11 percent in Cook County while the number in the collar counties grew by more than 24 percent. The number of service sector jobs increased by 14 percent in Cook County while the collar counties experienced increases of 18 to 24 percent. Earnings in the service sector were up 24 percent in Cook County during this period compared with 36 to 45 percent increases in the collar counties. The aggregate commercial equalized valuation (EAV) grew 5.2 percent in Cook County while the EAV in the collar counties grew 14.2 percent and in the rest of the state grew 16.5 percent.

TAX POLICY FORUM

During the summer of 1998, Assessor Houlihan assembled a group of more than 285 individuals, including representatives from government agencies, community groups, civic groups, and housing, economic development, and business organizations. The participants included The Civic Federation, Metropolitan Planning Council, Suburban Mayors Action Coalition of Cook County, and Taxpayers' Federation of Illinois. These groups were selected on their long-standing commitment to tax reform and the fact that they previously commissioned reports on various aspects of the property tax process. These organizations helped structure the review and ensured that the forum had representation from a variety of organizations and individuals with a diversity of interest and expertise. Together they comprised a tax policy forum that spent several months studying Cook County real estate tax policy and procedures, including the real estate tax incentives.

The forum participants were organized into three work groups identified as Fairness and Neutrality, Efficiency and Simplicity, and Economic Growth and Neighborhood Stability. The Fairness and Neutrality group examined the overall mix and relative tax burdens of various property classes, suggesting approaches for sharing that burden more evenly. The Efficiency and Simplicity group reviewed ways to streamline the system and make it more understandable. The Economic Growth and Neighborhood Stability group discussed ways to mitigate negative aspects of the property tax, create incentives for investment, strengthen schools and neighborhoods, and reduce the tax burden on low-income residents. The work groups collectively identified three major areas of weakness in the property tax system in Cook County:

1. The classification system may have an adverse impact on the County's competitive position.
2. Overdependence on the property tax creates disparities among communities.
3. Complexity and bureaucracy foster frustration and confusion.

The findings of this forum were summarized in an executive summary that was submitted to Assessor Houlihan in December 1998. The forum organized its findings into four categories and made suggestions for implementing changes in each of them.

Create A Simpler, More Accurate System

Under the first category, the recommended changes were as follows:

1. Reflect accurate full market values on tax bills.
2. Revise the reassessment notice to incorporate information on how the tax is computed.
3. Redesign the tax bill to make it easier to understand, incorporating new information, graphics, definitions, and a glossary of terms. implement use of a tax accountability and budget (TAB) notice to inform taxpayers annually of proposed tax levies and budget hearing dates.
4. Adopt a full market value system so that a property's value is accurately depicted on property tax bills.
5. Adopt a uniform fiscal calendar for governments supported by property taxes.
6. Streamline and compress the assessment cycle to improve efficiency and reduce delays in tax billing and collection.
7. Revise the "green sheet" transaction form to increase accuracy of sales-ratio studies.
8. Eliminate the "sticker shock" of second-installment tax bills by using the prior year's EAV when computing the tax levy.
9. Use the three main approaches to computing property values in sales-ratio studies.
10. Statutorily limit actions that are subject to tax rate protests.
11. Statutorily permit class action relief for a defined list of tax objections.

Help Communities, Property Owners, and Working Families

The forum suggested the following changes under the second category:

1. Provide property tax relief to low-income taxpayers through expansion of the "circuit-breaker" program to all ages.
2. To protect fixed-income and working-class homeowners in areas of rapid escalation of property prices, extend the Homeowners Assistance Program to other gentrifying areas.
3. Expand rental housing construction by lowering Class 3 (apartment) assessment levels.
4. Allow existing properties to apply for Class 9 (affordable housing) status and eliminate time limits to encourage creation and maintenance of affordable housing.
5. Encourage development of affordable housing with a new exemption proportionate to the percentage of low-income residents in new or substantially renovated housing.
6. Include renters as beneficiaries of any proposal for property tax relief.
7. Clarify assessment practices for properties funded by the low-income housing tax credit.
8. Create a Cook County economic development fund to support industrial and commercial development in severely blighted areas.
9. Create a tax anticipation loan program to provide short-term funds to local governments in anticipation of future property tax collections.

Restructure Classification to Increase Competitiveness

Under the third category, the forum recommended theses changes:

1. Amend the classification ordinance to narrow the spread of assessment levels and to improve business competitiveness.
2. Apply "multipliers" within property classes in Cook County to improve uniformity and prevent further erosion of assessment levels.
3. Lower the assessment level on industrial properties from 36 percent to 33.3 percent to match levels in all other counties in the state.
4. Create a Class 6d, Dinosaur Class with lower assessment levels to encourage reuse of outdated industrial properties.

Address Needs of Resource-Poor Taxing Districts

The recommended changes under the fourth category were as follows:

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1. Reduce local property taxes for education and replace them with income tax or other revenues and remove certain functions from the property tax.
2. Create comprehensive state-level tax relief that addresses Cook County's needs, including school funding and reduction of the tax load on commercial and industrial properties.
3. Change the Illinois income tax structure to increase its progressivity and to support education funding and reduction of property taxes more effectively.
4. Establish a statewide or regional pool of revenue and a structure for fair distribution to resource-poor districts.
5. Create a guaranteed tax yield to resource-poor school districts.
6. Evaluate the effectiveness of all incentive classes as well as homeowners and senior citizen exemptions, and consider other methods of encouraging development.
7. Support continued negotiation and implementation of reforms to tax increment financing legislation. /ol>

   1999 CHANGES TO CLASSIFICATION ORDINANCE

   After the completion of the initial review and report by the Tax Policy Forum, Assessor Houlihan organized 14 small discussion groups of ten people, each representing diverse backgrounds and points of view. These groups met with staff from the Assessor's Office and discussed the effectiveness of the existing incentives and made suggestions for making the incentives more effective. After reviewing the findings and recommendations of these groups, the assessor formulated his recommendations. On November 23, 1999, the Cook County Board of Commissioners, following Assessor Houlihan' s recommendation, amended the Cook County real property classification ordinance for the 19th time. Highlights of the changes include the following:

   Class 6b - Industrial

   For Class 6b, the forum suggested these changes:

   • Reduction in assessment level from 36 percent to 16 percent extended from eight to ten years at full incentive level
   • Incentive renewable with municipal resolution
   • More flexible municipal resolution process
   • Definition of industrial expanded to include high-tech industries

   Class 6c - Brownfield - Commercial and Industrial

   The forum's recommendations for Class 6c include the following:

   • Reduction in assessment level from 36 percent to 16 percent extended from eight to ten years at full incentive level
   • Incentive renewable with municipal resolution
   • Elimination of vacant and abandoned requirement
   • Incentive applicable to all land and improvements
   • Now known as Class C

   Class 7- Commercial

   For commercial properties, the forum's suggestions were as follows:

   • Reduction in assessment level from 38 percent to 16 percent extended from eight to ten years at full incentive level
   • Streamlined process (elimination of hearing officer requirement) Class 8- Commercial/Industrial

   For Class 8, the forum made these proposals:

   • Streamlined process for designating areas in need of substantial revitalization (formerly called blighted areas)
   • Eliminate application process for municipalities located in enterprise communities
   • Incentive renewable for industrial properties

   PROPOSED CHANGES TO CLASSIFICATION ORDINANCE FOR 2000

   In addition to the incentive class changes approved by the Cook County Board of Commissioners during 1999, a number of other recommendations are to be considered during 2000. These suggested changes are reflective of Assessor Houlihan's attempt to implement additional remedial measures as recommended by the Tax Policy Forum with some modifications. The assessor's proposals are summarized below:

   Class 8-South Suburban Tax Reactivation Pilot Project

   Five of the south suburban townships, Bloom, Bremen, Calumet, Rich, and Thornton, exhibit extreme economic distress that is evidenced by a number of economic indicators. Compared with the 33 other townships, these townships demonstrate slower growth in property values, the lowest-valued properties, greatest population losses, highest tax rates, more tax delinquencies, more scavenger tax sales, and more vacant land (excluding farmland). In response to the dire situation in these townships the Assessor is proposing a pilot program in these that would be administered by the Cook County Department of Planning and Development. This project would use the no-cash bid process to acquire tax delinquent commercial and industrial properties. Municipalities in which these properties are located would enter into an intergovernmental agreement for the acquisition, marketing, promotion, and development of the property. Properties included in this project would automatically receive the Class 8 incentive. The Illinois Department of Commerce and Community Affairs (DECCA) has promised a $5 million grant to this program.

   Class 9- Affordable Housing

   This incentive is for multi-unit rental buildings and rehabilitated or new construction serving low- or moderate-income households at affordable rents. These properties would be eligible for a reduction from a 33 percent level of assessment to a 16 percent level for ten years. The proposed changes would also reduce the percentage of units required to maintain the affordable rent schedule from 50 percent to 35 percent. The incentive would also be renewable beyond the current 30-year maximum period.

   Class L - Landmarks

   This incentive is for substantially rehabilitated commercial and industrial properties designated as landmarks by local preservation commissions. The proposed changes would extend the incentive from eight to ten years at the full incentive and streamline the local authority approval process.

   Class 5b - Industrial

   This incentive would reduce the level of assessment for regular (nonincentive) industrial property from 36 percent to 33 percent of market value.

   Storefronts/Apartments-Multi-Use Properties

   Small commercial properties consisting of a mix of commercial and residential uses would have assessment levels reduced from 38 percent to 16 percent of market value. The proposed standards would apply to buildings less than 20,000 square feet above grade with fewer than six units (combined residential and commercial). The purpose of this new class of property is to assist small mom-and-pop commercial properties that are typical in neighborhood commercial districts.

   CONCLUSION

   These significant changes reflect an attempt to address the most glaring inequities of the Cook County tax system.

   They are designed to provide relief to those areas most in need of assistance. A continued review of the overall tax system in Illinois is appropriate to determine whether there is an effective way to implement other changes or modifications to the system. Assessor Houlihan, the Cook County Board of Commissioners, and the state legislature must continue to review ways to improve the efficiency and equity of the overall taxing scheme in Illinois.

   References

   Report of the Governor's Commission on Property Tax Reform (Dec. 1998).
   Executive Summary of the Tax Policy Forum (Dec. 1998).
   Report and Recommendations on the Cook County Real Property Tax Incentive Program (Nov. 1999).

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