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List of municipalities that doesn’t levy a property tax may soon be one fewer

Pension costs force suburban Illinois village to weigh new property tax

Rising pension costs could force suburban Carol Stream to impose a property tax for the first time in five decades.

The suburban village of Carol Stream is one of only a handful of Illinois communities that does not impose a local property tax. But that may change soon, thanks to the village’s rising pension costs.

Carol Stream levied a property tax only temporarily in the 1970s, but local officials say the village needs a new property tax to make up for declining local sales tax revenue, which has fallen 2.4% between 2017 and 2018, according to the Daily Herald. The village last raised its sales tax in 2018 to 8%, where it stands now.

But sales tax revenue would need to increase by 1.9% to pay for rising pension costs. The village’s required police pension contribution will be $2.8 million for fiscal year 2021, a $224,850 increase from fiscal year 2020.

Those increased pension costs, coupled with the decline in sales tax revenue, are placing pressure on Carol Stream’s budget. At this rate, officials project, the village would run out of capital funds during the third year of a five-year infrastructure plan without new revenue. The village used to transfer surpluses from the general fund into the capital fund to finance those projects – but it hasn’t generated a surplus in two years. Carol Stream started charging drivers a local gas tax in 2018, which also funds road improvements.

The village estimates Carol Stream homeowners with a median property value of $231,400 would owe $61 annually in property taxes, according to the Herald. Residents across DuPage County – where Carol Stream is located – pay some of the highest property taxes in the nation.

Across the state, local communities are seeing pension costs eat into spending on public services. Only 14% of property tax dollars received by local police departments in DuPage County went to public safety services in 2016 – the rest when to police pensions.

Carol Stream is not the only municipality searching for additional revenue as pensions strain local budgets. In 2018, the southern Illinois city of Carterville hiked its property tax levy by over 30% – the largest in its history – while north suburban Highland Parkraised their levy by nearly $1 million to pay for pensions.

Illinois spends nearly double the national average on pensions, measured as a percentage of all state and local government spending – more than any other state in the nation. Without meaningful reform, local governments in Illinois will continue to ask taxpayers to foot the bill for rising pension costs.

Lawmakers must amend the constitution to address this problem, and to protect taxpayers as well as the retirement security of those enrolled in the pension systems.

Carol Stream will host a forum Sept. 30 for residents to ask questions about the property tax proposal.

Cook County commission exploring property tax hike despite depressed home values

Average home prices in Cook County are 31% lower today than in 2007. Meanwhile, property tax bills have increased by 22%.

Cook County’s chief financial officer is floating the possibility of future property tax hikes, according to WBEZ. And a spokesman for Cook County Board President Toni Preckwinkle said she expects an independent commission “to review this matter in the near future.”

Discussion of property tax hikes should be especially concerning for Cook County homeowners, who have yet to recover much of the home value they lost after the 2007 housing market crash.

Average home prices in Cook County are 31% lower today than in 2007, adjusted for inflation, according to the most recent data from the Federal Housing Finance Agency. And even though homes are worth less than they were prior to the Great Recession, property tax bills in Cook County have on average jumped by 22%, after adjusting for inflation.

Cook County’s poor housing recovery is a national outlier: While home prices nationwide still have yet to return to their pre-recession peak, they are down just 5% since 2007. To put Cook County’s housing plight in perspective, its current decline in average home values is an alarming 500% worse than the nation as a whole.

The biggest factor driving rising property taxes? Unsustainable growth in pension costs for government workers. Pension liabilities have risen faster than taxpayers’ ability to pay, forcing state and local governments to constantly scramble for new sources of revenue – often in the form of property tax hikes.

This diminishes homeowners’ standard of living, and potentially their home equity, while jeopardizing government workers’ retirement security.

With constitutional pension reform, Illinois can protect workers’ already-earned benefits while slowing the accrual of future benefits not yet earned – and eliminate the need for endless property tax hikes.

U.S. Real Estate Peaked?

Overseas Investors Unload U.S. Real Estate

In the second quarter, foreign investors pulled more money out of the U.S. commercial real-estate market than they put in

In the second quarter, Ivanhoé Cambridge sold its stake in Ritz Plaza, a 479-unit rental apartment building in Midtown Manhattan. PHOTO: BESS ADLER FOR THE WALL STREET JOURNAL

A strong appetite among foreign investors for office buildings, apartments, malls and other real estate has in part fueled the long-running bull market in U.S. commercial property.

Now, amid a maturing property market cycle and rising uncertainties in geopolitics and the global economy, foreign investors have sold more U.S. commercial real estate than they bought in a quarter for the first time since 2013.

After years of amassing huge portfolios, investors from abroad sold $13.4 billion worth of property in the second quarter of 2019, according to data firm Real Capital Analytics. During the quarter, foreign investors purchased $12.6 billion of real estate.

European and Canadian investors have been active sellers recently, along with some high-profile investors from China. “U.S. real estate is priced very high right now, and people think we’re close to the top of the market,” said Matt Posthuma, a partner in Ropes & Gray’s asset management practice.

The waning appetite of foreign investors for U.S. property contrasts with their intensifying interest in other asset classes. Foreign money managers still see U.S. assets as a haven and have been piling into U.S. stocks and bonds, buying nearly $64 billion in these assets in June, the largest sum since August 2018, according to data from the Treasury Department.

Cutting BackIn the second quarter, foreign investors soldmore U.S. commercial real estate than theybought.

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What’s the difference? Compared with buildings, stocks and bonds are easier to buy and sell. If a recession hits, property owners may find it more difficult to sell their assets.

“For someone looking out three to five years, their investments may not be worth as much as they are today,” Mr. Posthuma said. “That’s the fear.”

Some domestic investors in commercial property also are moving to the sidelines. Overall, sales volume of commercial U.S. property fell 9% in the first quarter of this year from one year ago and rose a modest 2% in the second quarter to $127 billion.

For decades, sovereign-wealth funds, insurers, pension funds and family offices across the world have sought assets in the U.S. to diversify their investments and seek steady returns. Many also are drawn to the market’s relative stability, vast pool of consumers and deep and liquid market.

But, with the dollar strong, overseas investors unloading U.S. assets can chalk up foreign-exchange gains against weaker local currencies along with profits from higher prices. The strong dollar also means buying U.S. property has become more expensive for them. Some investors are shunning investments in flood-prone areas, as rising sea levels and hurricanes amplify costs to mitigate damages, particularly in older buildings.

Finding good deals also has become trickier in the U.S. as a possible recession looms and other regional and economic trends—including the impact of e-commerce on the retail sector—cast a shadow over some property types.

One of the biggest foreign sellers during the second quarter was Ivanhoé Cambridge, the real-estate arm of Canadian pension fund Caisse de dépôt et placement du Québec, which completed the sale of $2.2 billion worth of properties, according to Real Capital.

In the second quarter, Ivanhoé Cambridge sold two office towers in Seattle and its stake in Ritz Plaza, a 479-unit rental apartment building in Midtown Manhattan.

“It’s investment discipline,” said Sylvain Fortier, chief investment and innovation officer at Ivanhoé Cambridge. “When you reached the level you set out at the beginning, don’t get greedy. Get out and recycle your money into something else.”

The Quebec pension fund is focusing more these days on industrial real estate and less on other property types. Late last year, Ivanhoé Cambridge invested in IDI Logistics, an Atlanta-based developer and operator of warehouses.

In another megadeal in June, Singapore-based investment manager GLP agreed to sell a U.S. network of industrial warehouses, totaling 179 million square feet, to Blackstone GroupLP for $18.7 billion, the largest private real-estate transaction ever. GLP has said it would keep a small footprint in the U.S. and is still looking to expand but didn’t provide a timeline.

Overseas investors still interested in the U.S. real-estate market are also starting to structure their acquisitions differently.

They are choosing to invest in debt rather than equity, which is seen as a safer bet, if the economy slides closer to a recession. They are also taking on more minority stakes to lower the chances of triggering a review by the Committee on Foreign Investment in the U.S., the country’s national-security panel that vets foreign investment in U.S. businesses.

Last year, Congress expanded the authority of the panel, known as Cfius, which has hindered some real-estate transactions if they include land located near a military installation or other sensitive U.S. government property.

New PropertyTax.com Platform

PropertyTax.com has been moved to a new platform. This version has a geo-location feature that allows some readers to view information that is relevant to their jurisdiction, if applicable.

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