Cook County Assessor Kaegi promises ‘more flexibility’ on next year’s tax appeals after rejecting most complaints
Cook County Assessor Fritz Kaegi will relax requirements for next year’s property tax appeals process after his staffers rebuffed an overwhelming majority of the thousands of property owners who claimed the rookie assessor had over-valued their buildings.Kaegi hit homeowners and landlords in Cook County’s 13 north-suburban townships with a double-punch this year when his valuations team hiked their assessments — sometimes more than doubling them — and then rejected most of their pleas for reductions. Kaegi’s office delivered its last round of appeals decisions on Dec. 7.
Kaegi granted breaks to about a third of the north-suburban homeowners who appealed this year — far fewer than his predecessor, Joseph Berrios, whose office reduced the values of 59 percent of residential appellants in 2016, the last time the north suburbs were reassessed, according to data provided by the assessor’s office.
But while reductions granted to homeowners fell, the number of breaks awarded to commercial and industrial property owners plummeted. Kaegi lowered assessments for just 13 percent of north-suburban landlords who appealed. Berrios, whom the Sun-Times reported is under federal investigation, approved 78 percent of commercial appeals.
Property owners are now turning to the Cook County Board of Review, which so far is issuing reductions on most appeals, according to records provided by the board.
The assessor’s office under Kaegi’s leadership rejected more appeals than his predecessor because his office had confidence in its original assessments, and because many property owners failed to meet a rigid new set of rules that created a “higher standard” for appeals, Kaegi told The Daily Line in an interview on Monday.
“We’re elevating our work, so the people practicing before us must also meet a higher standard,” the assessor added.
Others were rejected because they ran afoul of Kaegi’s new mandate that all appeals be filed anonymously, a measure some property tax attorneys said created confusion. Kaegi’s office issued new forms to clarify the process in June, three months after the first round of appeals were due.
The assessor’s office will be “tweaking the rules” so his valuation team is more lenient while processing appeals next year, Kaegi said.
Donald Meyer, the chief valuations officer in the assessor’s office, defended most of his team’s appeal rejections, but he said up to 10 percent of “no-change decisions” issued by the office could be chalked up to “overzealous enforcement of the rules.”
Kaegi also challenged the Board of Review to publish the methodology behind its decisions, which have so far pegged the value of most properties far below the numbers issued by Kaegi’s office.
A ‘higher hurdle’ for appeals
Kaegi has been on the defensive over his office’s assessment hikes since the spring, when he shocked real estate investors by cranking up valuations across the board, especially for luxury commercial buildings.
The assessor, who on Dec. 3 marked a full year in office, has toured the suburbs and spoken before business groups in repeated attempts to convince jittery property owners that it was Berrios, not Kaegi, whose valuations missed the mark. Those efforts culminated in last week’s first-ever Market Analyst Day, when Kaegi invited hundreds of real estate pros to the South Loop for a look at the data his office uses to determine values.
The office is scraping data from third-party real estate services companies like CBRE, Cushman & Wakefield, CoStar and Trepp — generating “a lot more assumptions” about commercial properties that landlords must refute during the appeals process, Kaegi told The Daily Line.
“We invested a lot in making sure we were using uniform assumptions at the outset,” Kaegi said. “So if someone is trying to demonstrate a lack of uniformity in the appeals process, that’s harder…it makes the hurdle for appeals higher.”
That did not stop 104,335 homeowners and 10,906 commercial property owners in the north suburbs from filing appeals, often pointing to specific circumstances that affect each building’s value. But many of them got caught up in one of the 23 rules the assessor’s office issued in February, before appeals were accepted.
The long list of rules was cumbersome and not always clear to the attorneys who filed appeals, according to Molly Phelan, a partner at the law firm Siegel Jennings.
“There were some growing pains at the assessor’s office,” Phelan said.
Under the rules, owners had to submit four different forms documenting sales, or they would be rejected. And in order to claim vacancies on their properties, landlords had to submit photos and copies of utility bills going back for a year.
Another rule mandated that “nothing filed shall be put on a law firm’s letterhead or contain the attorney’s name.”
The result was that Kaegi “denied claims that were pretty straightforward,” Phelan said.
Kaegi’s office introduced two new forms in June for property owners to fill out to help his staff track anonymous appeals. But attorneys did not appreciate the change in the protocol for accepting appeals months after the first filings were due, Phelan said.
“The Assessor’s Office made alterations to their required forms subsequent to filing deadlines,” Phelan said. “Appeals were denied due to the fact forms were not filed which were not required, or even in existence, at the time of the deadline.”
Scott Smith, a spokesperson for the assessor’s office, countered that the new forms were “not a change in the rules; it was a change in process meant to help those who practice before the office.”
The forms were added because “we found…that the process of submitting forms anonymously was difficult for both practitioners and staff,” Smith said.
‘They were used to owning the place’
Kaegi unveiled the seven-page list of rules to more than 600 attorneys during a meeting he held at the Thompson Center in February, he said. The lawyers present were not happy with the rules, but “they were made aware,” the assessor said.
However, many of the attorneys who filed appeals outright ignored the rules, Kaegi said.
“As evinced by some of the behavior of those folks in the room, [there was] a little bit of not believing that we were actually serious about these new rules for submitting appeals,” Kaegi said. “They were used to owning the place, to be honest. That was the attitude that some people have had.”
Kaegi’s office also rejected many appeals because they included appraisals that did not comply with the Uniform Standards of Professional Appraisal Practice — the standard typically used by banks, he said.
“There’s been a little bit of adjustment of, ‘No, we really mean your appraisals have to be USPAP compliant,’” Kaegi said. “And we saw a lot of appraisals that were not USPAP compliant.”
However, Kaegi’s staff acknowledged that they “made mistakes” in some cases.
Meyer estimated that between 7 percent and 10 percent of the appeal rejections “may have been driven by overzealous enforcement of the rules where revising the rules for next year could make a change.”
“Did we get our values right every time? No,” Meyer said. “But do I believe that we got our values pretty close to right? Do I believe our values were much more consistent with the current market than they had been? I absolutely believe that.”
The assessor’s office will “amend” its rules next year “based on feedback from local bar associations and others,” according to Smith.
For example, the office likely will not require property owners to submit income and expense reports on Schedule E forms if they submit the same details through other means, Kaegi said.
“We heard of several different cases where people were rejected because of very minor technical violations in the rules,” Kaegi said. “So we are tweaking the rules for next year so that there is more flexibility on the part of the analyst not to flat-out reject things if there’s a minor violation…so we have a little more running room so that when people submit data, it’s useful.”
Board of Review’s burden
Property owners whose appeals were rejected by Kaegi’s office are finding a friendlier audience in the Board of Review, which is scheduled by Friday to have made its decisions on properties in 21 of the county’s 38 townships.
The board lowered assessments on about 79 percent of the 477 commercial property owners who filed appeals in Norwood Park Township, according to data provided by the board. Kaegi’s office approved just 17 percent of commercial appeals in Norwood Park.
The disparity is even wider in Evanston Township, where Kaegi’s office granted reductions for 26 percent of commercial appeals while the board offered breaks to 92 percent of landlords who asked.
The chasm between the two county offices was smaller for residential assessments.
However, the Board of Review valued all commercial properties in Evanston at approximately $400 million — nearly 33 percent less than Kaegi’s valuation of $597 million, according to Board of Review data.
Kaegi challenged the board on Monday to show its work, saying that the yawning disparity in valuations is “not helpful to people’s confidence in the system, and not helpful for people trying to predict what rates will be.”
“If we are documenting all of our valuations and then there’s a process taking place over at the board that’s changing that, people could legitimately wonder, on what data is the board making these decisions?” Kaegi said. “We think the board should try to meet the same kind of standard for how they’re coming up with their numbers.”
The Board of Review has more tools than the assessor’s office at its disposal to make sure it’s getting each assessment right, according to William O’Shields, chief deputy commissioner for the Board of Review.
The assessor’s office does not have “as robust a hearing process” as the board, where in-person hearings can unearth “certain nuances that may not jump off the pages of the pleadings,” O’Shields said.
Kaegi’s office takes a “macro view, where with the Board of Review is taking a micro view,” O’Shields said. “We’re looking at a particular storefront, versus applying a standard leasing rate to every storefront in the neighborhood.”
O’Shields also rebuffed Kaegi’s call for the board to be more transparent, noting that all of the body’s decisions are available through Freedom of Information Act requests.
“Are we releasing a PowerPoint presentation after each township? No,” O’Shields said. “But in regards to transparency, all our decisions are available on a case-by-case basis.”
The board’s staff is on pace to decide nearly 270,000 appeals this year — a new record, O’Shields said. The number has been steadily trending upward since 2015, when 184,000 appeals were filed.
The ballooning volume of complaints adds pressure on valuations staffers, who are required to work overtime. But it also raises the stakes for property tax attorneys whose clients were spurned by the assessor’s office, Phelan said.
“I think attorneys who understand valuation and the law will be able to get reasonable results,” Phelan said. “But if they don’t, the property won’t receive the proper valuation it deserves by law, and the owner will get hit hard with higher taxes.”
“Nobody is trying to shock the system. Nobody is looking to scare away investment from Chicago,” the mayor said, adding that she knows how important predictability is to investors. But “Predictability can not be about enshrining the status-quo.”
‘California’s assessable property is now worth $6.5 trillion with just last year’s increase resulting in $75 billion in revenue.’
Despite California’s record budget surplus of $7 billion in reserves, the Proposition 13 “split roll” property tax ballot initiative could end up being a tax windfall for state government coffers. With the state sitting on a sizable surplus, opponents ask why the attack on businesses?
The ballot initiative, referred to as “tax reform” by proponents, qualified for the November 2020 ballot, and is currently gathering signatures.
Proponents of splitting Proposition 13, which keeps escalating property taxes in check, are also selling the initiative as “higher funding for education.” Proponents have long claimed that because of Proposition 13, public schools have been robbed of necessary revenue, and that businesses have not been paying their fair share of property taxes.
While public education would receive more funding from higher property taxes, the real outcome is that commercial property owners would be forced to pass the increased costs to tenants, opponents say. And since most of the businesses in California are small businesses, whether they rent or own, they will be hit with this tax increase.
Backers of the property tax split roll include labor unions, social justice groups, teachers unions, environmental groups, housing advocates, Democratic Mayors of California cities, Democratic Presidential candidates, and Silicon Valley and San Francisco Bay Area philanthropic organizations: The Chan-Zuckerberg Initiative, East Bay Community Foundation, Liberty Hill Foundation, Northern California Grantmakers Association, The San Francisco Foundation and Silicon Valley Community Foundation.
Yet many government employees, organizations and labor unions could be hit in the retirement pocket book, as public employee retirement managers like CalPERS and CalSTRS and labor union pension accounts also invest in California real estate properties.
What is a ‘split roll?’
Under Proposition 13, a residential property’s overall tax rate is limited to 1 percent, with commercial and industrial property tax rate limited to 2 percent.
A “split roll” applies a different tax rate to commercial properties than to residential properties, removing the protections of Proposition 13 from commercial properties, allowing a higher tax rate on these properties.
All previous attacks on Proposition 13 have come up short. But now, “proponents of the infamous ‘split roll’ initiative are on the streets collecting signatures for their new $12 billion property tax increase on Californians,” said Jon Coupal, President of the Howard Jarvis Taxpayers Association. Coupal explains Proposition 13 HERE.
“Although split roll is described by its proponents as ‘tax reform,’ it really is just a targeted tax increase on business,” the Cal Chamber recently reported. “Since the goal of government unions and progressive advocacy groups is a large tax increase, their strategy is to target increased taxes on businesses as more politically viable than general tax hikes on California residents.”
Historic Proposition 13
The latest onslaught on California’s historic Proposition 13 is now in full gear. Passed by 65% of California voters in 1978, Prop. 13 put a Constitutional cap on annual property tax increases. Prior to Prop. 13’s passage, there was no limit to how high an assessor could increase a property’s value in any year. Homeowners and commercial property owners were being taxed out of ownership of their properties by tax bills they could no longer afford. “Californians were angered by government’s inability or unwillingness to solve this problem and channeled their frustration into overwhelming support for Prop. 13 at the ballot box,” the Cal Chamber wrote.
Dressed up with a dishonest ballot title, the “California Schools and Local Communities Funding Act of 2020” would remove the limitation on annual commercial property tax increases. The initiative would provide an exception from reassessment under the new rules for businesses with property value up to $3 million.
The Orange County Register wrote a blistering editorial about the ballot title: “Xavier Becerra rigs ballot with biased split roll summary. It’s the most disreputable ballot description we’ve seen.”
Jon Coupal recently explained in an op ed just how California already reaps the financial benefit with property owners’ tax increases, even under Prop. 13:
“During this past summer there were dozens of media stories about big increases in property tax revenues. Orange County was typical. The taxable value of real estate went up $33 billion to over $600 billion. Assessments increased in all of Orange County’s 34 cities.
Further north, San Mateo County saw a 7.1% increase in its assessment roll for 2019-2020, the ninth consecutive year of increases. County Assessor Mark Church, in a press release, said there was record growth in commercial and mixed-use development which helped to push the total roll value to a new high.
Other counties showed similar gains: Santa Clara County, up 6.79% to $516 billion; Sacramento County, up 6.53% to $179 billion; Alameda County, up 7.13% to $321 billion; Fresno County, up 5.84% to $90.46 billion; and even Sonoma and Napa Counties saw big increases in assessed values notwithstanding losing over 5,600 structures to the horrific fires of 2017.
All told, statewide assessable property is now worth $6.5 trillion with just last year’s increase resulting in $75 billion in revenue.
“When Prop. 13 was passed in 1978, the local property tax assessments were $6 billion,” the Cal Chamber reports. “Local property tax levies are now projected to have grown $19 billion over the last decade alone—from $50 billion in 2008–2009 to $69 billion in 2018–2019.”
With this 15-fold increase since 1978, the argument by progressives that Proposition 13 starves local governments and schools for revenue is disingenuous.
Enshrined in the California Constitution Under Proposition 13, the ballot initiative also:
- prohibits the state legislature from enacting new taxes on the value or sale of properties.
- requires a two-thirds vote of the state legislature to increase non-property taxes.
- requires local governments to refer special taxes to the ballot and require a two-thirds vote of electors.
- makes the state government responsible for distributing property tax revenue among local governments.
Why would voters even consider another tax hike?
California ranks relatively high in property tax rankings, 17th out of the 50 states, even with Prop. 13.
California also ranks right up at the top of the 50 states in nearly all taxing categories: income taxes, corporate taxes, gas taxes, sales taxes, wealth taxes, utility taxes… and lawmakers are looking at imposing estate taxes and even exit taxes for people trying to move out of California.
As the Cal Chamber notes, Californians are even paying 48% more for electricity than the rest of the nation.
The Cal Chamber listed several concerns about the repercussions of a Prop. 13 split:
Split Roll Will Increase Costs for Consumers
Split Roll Will Hurt California’s Economy
Small Businesses and Their Employees Hardest Hit
Initiative Includes No Accountability Measures for New Revenue
Problem of Budget Volatility Will Be Exacerbated
Massive Additional Revenue Not Necessary
“As for the stated justification for higher taxes, there is a fake reason and a real reason, neither of which is particularly compelling,” Jon Coupal said. “The fake reason is that government needs the additional funds for critical programs. Given the inordinate amount of existing revenue coupled with waste in government, taxpayers would rather see elected officials prioritize the revenue we already give them.”
Mary Kate Fitzgerald was among a small contingent of Chicago lawyers and government officials that attended the recent IAAO conference in Phoenix, Arizona.