Every new commercial and industrial development in Cook County should explore the feasibility of a tax incentive. As explained below, tax incentives are not appropriate for every project.
Cook County and many of it’s municipalities offer numerous tax incentive programs. Each of these programs are the result of a governmental initiative to stimulate certain types of development. Applicants are advised that merely applying for the program will not necessarily qualify the property for participation in an incentive program. Cook County applies the “But For” test to each application. Under that test, assessing officials must be made reasonably certain that the proposed project will not become a reality “but for” the existence of tax incentives. Potential applicants should know that the Cook County board is currently in the process of studying proposals which if passed, will limit the number of properties that qualify for participation in a tax incentive program. Additionally, in order to keep a property enrolled in the program, there are numerous requirements that must be met annually. The city of Chicago and other Cook County municipalities offer numerous types of other enticements that may be used in conjunction with some of the tax incentives listed below.
When applying for participation in a tax incentive program, we need as much lead time as possible. Applicants should expect a minimum time period of nine months from initial application to final approval.
Applicants are also advised that these tax incentives do not always make good economic sense. Personally, I question the wisdom of seeking a tax incentive in a municipality where the tax rate is already excessive (as compared to the average tax rate). The effect of such an excessive tax rate renders the tax incentive as nothing more than an illusion that will sooner or later, render the project economically unfeasible.
Cook County Tax Incentive Programs
Class 6B:
Class 7A:
Class 7B:
Class 7C:
Class 8:
Class C: (Environmental Contamination)
Class L: (Architecturally Significant commercial, industrial and multifamily buildings)
Tax Increment Financing “TIF”
Tax Increment Financing is a method of financing public and private improvements through the sale of municipal bonds. The bonds are secured by future tax revenues which are presumed will be derived by increased property values. TIF’s have been responsible for the revitalization and stabilization of many marginal and declining areas throughout Cook County. From a developers perspective, TIF’s are a way to monetize future value so that it can be used to construct the project.
Expenses eligible for TIF grants include:
-Land acquisition, clearance and site preparation
-Environmental remediation measures
Exceptional uses for TIF grants would be:
-Building rehab and repair
-Signage
-Remodeling of tenant improvements
-Professional fees (Architectural and Engineering)
-Up to 30% of the owners borrowing cost
The downside about TIF’s is that commercial and industrial real estate located in or near a TIF tend to be assessed at a higher market value after the TIF is put into place. This phenomenon seems to develop regardless of whether the property values have in fact increased. Since TIF bonds are guaranteed by the local municipality, all taxpayers located within the municipality are responsible for repayment of the bonds.
Until recently, TIF’s seemed to be viewed by every mayor as a means of inexpensive financing for a pet project. Such a perspective has lead to abuse, the cost of which will ultimately be borne by bond holders and other local taxpayers.
The Truth about Tax incentives and TIFs
The Cook County Tax Incentive programs have become the most heavily touted chant in the real estate industry. Within the city of Chicago and many suburbs, they have induced much development and created thousands of jobs. For many businesses, participation in these programs used to make good economic sense.
Some municipalities have enacted substantial application / renewal fees which tend to lessen the windfall tax savings which used to be available. Even more problematic, are the tax rates being imposed in the south suburban townships of Bloom, Bremen, Calumet, Rich and Thornton; and the west suburban township of Proviso. The average tax rate in these townships is 2.2 times higher than the city of Chicago tax rate. Finally, there are the practices of Cook County assessing officials who tend to view tax-incentive properties as being more valuable than non-tax incentive properties; and assess them substantially higher. Do the math and ask yourself how can such participation automatically makes good sense.
Tax Abatement
A written agreement between a taxpayer and a taxing body whereby a certain dollar amount is refunded to the taxpayer each year. This is a favorite of some municipalities but without local school district participation, the abatement is largely illusionary.
Updated: November 2023