Chicago property taxes nearly doubled in a decade

Chicago property taxpayers face a nearly 5% hike this year after a decade in which their bills nearly doubled. The city failed to capitalize on the COVID-19 stimulus windfall like others did.

During the COVID-19 pandemic, monetary and government stimulus that disproportionately benefited the wealthy led to higher stock prices and housing valuations. Booming markets and growing housing values, coupled with federal aid, boosted tax revenues for states and local governments.

While Chicago could have used the windfall to freeze property taxes, Chicagoans will have no such luck. This year, the city’s gross property tax levy will increase by another 4.9%. This tax increase will disproportionately hurt low-income, cash-strapped homeowners and renters. This is because the city’s budget includes large increases in debt service and pension payments.

Pension fund contributions are increasing by 24.7% from the prior year. That adds up to nearly $1 billion in pension spending increases since Lori Lightfoot became Chicago’s  mayor. Over the decade, the city’s public pensions cost has increased 239%, despite spending for city services only growing 18% during that same period.

Although the city of Chicago, a home rule unit of government, is not subject to the Property Tax Extension Limitation Law, it has its own self-imposed property tax limitation. That annual property tax extension is limited to 5% or the increase in the Consumer Price Index, whichever is less. However, the city’s tax cap does not completely limit the total extension since some funds  – such as bond funds and pension funds  – and some of the tax base, such as new property, are excluded from the calculation.

With inflation topping 7% in 2021 – the highest in 40 years – the city’s property tax levy is likely to increase even more in 2022, and Chicagoans will face even larger property tax bills.

Historically, low-income families have paid an unfair share of property taxes. In addition, renters will also be negatively affected because landlords shift most of the increased tax burden to tenants. Given an 11.4% increase in housing values in 2021, due in large part to a shortage of housing units, many renters – and prospective buyers have been kept on the sidelines, and rents have increased. The increase in property taxes will push rents even higher.

Low-income Chicagoans are already feeling the inflation squeeze

For years, Chicagoans’ property tax bills have increased faster than home values and incomes, with lower income residents paying an unfair share of property taxes.

While the tax levy is set to increase by less than the increase in housing values this year, worker earnings adjusted for inflation fell in 2021.

Falling worker earnings mean that scheduled property tax increases will disproportionately hurt cash-strapped – liquidity constrained – families. In addition, it is renters who will suffer the most from the tax hikes because research shows that landlords shift most of the increased tax incidence to tenants.

In 2021, U.S. consumer prices rose by 7%. One third of that increase came from an increase in shelter costs, according to data from the Bureau of Labor Statistics. While housing prices increased by 11.4%, rents also increased by 8.5% in the Chicago area.

Pre-existing housing shortages and lagging construction contributed to bidding wars and rapid housing price increases that left many young families priced out of homeownership, resulting in them paying more rent.

Low-income households are already seeing a higher share of their income go to shelter, food and utilities. In addition, inflation has already wiped out any “excess” savings accumulated during the pandemic, and further price increases will disproportionately cause more pain for the have-nots than for wealthier Chicagoans.

Pension reform is progressive government policy

In 2022, Chicago’s pension costs will consume more than $2.3 billion of the city’s budget – 21.4% of the city’s own source revenue. Pension costs already exceed the city’s total property tax levy of $1.7 billion this year. Amending the Illinois Constitution to allow for adjustments to the future growth in pension benefits for current workers and retirees can accomplish at least one of two progressive objectives: increase city spending on its poorest residents, or stop further property tax hikes that disproportionately hurt low-income and middle-income families.

Orphe Divounguy

Chief Economist                                           FEBRUARY 3, 2022