Homeowner exemptions raising tax rates, undercutting savings in some towns, Cook County report finds
A new report from Cook County leaders comes with a warning about expanding property tax breaks for homeowners: What seems good for one taxpayer can backfire on a whole town.
Countywide, those exemptions remove $1.6 billion in annual tax revenue by lowering taxes for specific categories of homeowners. But the report found that in some municipalities, they don’t provide as much relief as people think.
And in some cases, they contribute to soaring property tax rates across the board. The higher rates can scare away prospective homebuyers or businesses that could help lower the overall tax burden.
Palatable solutions are in short supply. Doing away with a popular and straightforward way to knock down homeowners’ bills is a political third rail, especially with older residents who qualify for them, who are more likely to take out their aggravation during elections. And city, county and state officials have often been at odds about the causes of rising property tax bills and the best ways to grant relief.
Those unintended consequences also aren’t the case everywhere. The effects of homestead exemptions are negligible in cities and villages with a bigger industrial property base, like McCook and Bedford Park, with a concentration of more valuable properties like Winnetka or Kenilworth, or with a lower share of homeowners who qualify, like Chicago.
But in places where property values are low and where there aren’t other property types or high-value buildings to make up the difference — including the Southland and parts of the western suburbs — each tax break chips away at the total taxable value of an area, forcing governments to boost their levies to help cover their costs, the report found.
In communities like Park Forest and Phoenix that are already burdened by high tax rates, homestead exemptions pushed up that rate on everyone by double digits, according to the analysis.
The findings come from the county’s Property Tax Reform Group — which includes the offices of Cook County Board President Toni Preckwinkle, Cook County Assessor Fritz Kaegi, Treasurer Maria Pappas and others — with help from the Chicago Metropolitan Agency for Planning and the University of Illinois Chicago’s Government Finance Research Center.
Preckwinkle’s team said they have no plans to try to eliminate so-called homestead exemptions, but do want to use the findings to provide more effective relief in places where such breaks have an outsize adverse impact. And in a rare show of unity, Cook County officials are generally aligned about the problems that tax breaks for homeowners can present and a desire to come up with a fix.
UIC professors David Merriman and Rachel Weber, experienced researchers on property taxes and government finances who led the report, said this is one of the first attempts to measure the impacts of exemptions on the county as a whole. In total, $15.8 billion worth of property value in Cook County was unavailable for governments to tax in 2021 because of those breaks, their research found.
That translates into about $1.6 billion in tax revenue, which governments simply shift onto other property owners.
Property taxes are a zero-sum game. Savings for homeowners who claim the breaks come at the expense of those who don’t or can’t, like renters or owners of certain offices or businesses.
“That something that we take for granted could have as large of an effect on property tax rates in particular municipalities, to me, is the most concerning aspect of exemptions,” Weber told the Tribune.
“Exemptions may make sense for an individual homeowner. ... But what’s the expression? What’s good for the goose isn’t always good for the gander,” Weber said. “From the perspective of the taxing jurisdictions, municipalities, school districts, that’s just going to make them have to increase their tax rates more.”
Using data from the 2021 tax year, researchers developed a model that eliminated homestead exemptions in 132 municipalities across Cook County.
In Dolton, for example, a hypothetical home valued at $150,000 would have a property tax bill of $9,368 including general homestead exemption savings of $2,792. But accounting for the higher tax rate caused by everyone else’s exemptions, that cut is only really worth $311, according to the report.
In Park Forest, the composite property tax rate with all exemptions in place was 41.36% in 2021. Without them, the rate would be just under 27%. It’s a similar situation in Phoenix, where the tax rate would be 13% lower without exemptions in place.
Addressing high tax rates in those south suburban municipalities could help spur much-needed economic development, Merriman said. Bringing in more businesses and homeowners ultimately spreads out the burden to more taxpayers.
“The property tax rates for nonresidential property certainly can be a discouragement, locating jobs there, locating commercial activity there. So lowering those property tax rates could certainly help,” he said.
Homeowner tax breaks are only one piece of the puzzle that determines what each individual pays in property taxes, though. The two biggest factors are an individual property’s assessment and the levies set by taxing bodies like cities, schools and park districts. Special economic development districts like tax increment financing districts and special service areas can also shift tax burdens or boost tax rates.
The report didn’t delve into other tax breaks for commercial and industrial properties, but county officials said that is the focus of the reform group’s next report. Generally left out of the exemption discussion, Weber notes, are the impacts on renters.
To respond to tax spikes or inflation, state lawmakers have expanded breaks over the past half century. They now include eight types of homestead exemptions: homeowners, seniors, veterans, people with disabilities and those making improvements on their home. Exemptions typically cut down the taxable value of a home to provide relief.
The political upside of those kinds of moves is obvious: Elected officials earn plaudits from the groups whose bills they are lowering, without having to deal with substantial blowback from other property owners, who often don’t realize they’ll end up with higher bills down the line.
There have been several recent proposals to broaden the exemptions, including eliminating property taxes for World War II veterans and boosting the income threshold for the current senior freeze up from its current rate — $65,000 — given rising Social Security payments. The possible financial fallout of more or broader exemptions should give expansion proponents pause, the county reform group argues.
“We’ve got to do our work of trying to educate folks about this,” Cook County Board President Toni Preckwinkle told the Tribune. “The caution is, let’s look at the potential impacts of legislation before we enact it, rather than afterwards. Things might sound good and beneficial, then it turns out they have all kinds of unanticipated consequences.”
Given these effects, the county “is now questioning if and how the use of exemptions might change,” the report said. “Options could include reforms to their eligibility requirements, benefit calculations, administration, funding sources, geographic availability, and applicable taxes.”
Reform proposals are as simple as spelling out the purpose of an exemption in the first place (there’s no stated purpose for the most popular exemption for owner-occupied homes, for example) or creating performance metrics and sunset clauses for new or existing ones.
“Some of the more exciting examples are places that essentially try to refund those municipalities that are most affected by exemptions so that the effects are not as great and so that they don’t have to raise their tax rates as much,” Weber said of other states that have tackled exemptions.
Which governments could afford to pony up the money would be a key question. One potential solution is a circuit breaker — essentially, if the amount an individual paid in property taxes exceeded a certain threshold percentage in income, that person could receive an income tax credit or refund.
Other options would be contributing more state funding to local schools to reduce the need for local districts to raise their levies. Several states, including Maine, Texas and New York, offer examples of how to tackle those issues.
The goals, Preckwinkle policy adviser Rachel Ruttenberg said, are making sure property tax relief is as valuable as it purports to be on bills, while reversing the “negative spiral” of escalating tax rates forcing out or scaring off businesses and new residents. “Understanding what doesn’t work is just as important as understanding what does work.”
