Chicago now may be a hot marketplace for apartment developers, but with the dark cloud of skyrocketing real estate taxes hanging on the horizon the boom soon may fizzle.
In 2018, the entire City of Chicago was reassessed and a spot survey by The Home Front column found assessment increases of 40% to 112% on a group of small North Side and Northwest Side “Ma and Pa” apartment buildings.
Cook County Assessor Joseph Berrios currently is mailing reassessment notices to all Chicago property owners, township by township. The notices surveyed reflected increases in market value of homes, along with two-flats and small apartment buildings with six or fewer units.
Many small apartment building owners are planning hefty double-digit rent increases next year to pay the expected sharply higher second installment of the 2018 tax bill when it comes due in August of 2019, experts say.
Mayor Rahm Emanuel says the city needs to raise hundreds of millions in new revenue to pay for pension shortfalls for teachers, police and firefighters.
The Illinois Policy Institute reports that statewide pensions account for 45 cents of every extra dollar levied by school districts and local government between 1996 and 2016.
Green Street Advisors, a real estate research firm, recently gave Chicago the worst “fiscal health” score among top U.S. metropolitan areas because of its hefty pension debt.
The report noted that steep real estate tax increases lead to outmigration and even higher taxes—a “death spiral” for investors.
Although Chicago and Illinois already have hiked property and income taxes to cover budget shortfalls, Green Street warns that investors should brace for more hikes, especially if Democrat J.B. Pritzker beats incumbent Gov. Bruce Rauner in the November election.
It’s time Chicago and Illinois face the inevitable catastrophic fiscal failure and think outside the box to raise the billions of dollars needed to balance the budget before small apartment owners are driven out of business.
Following are possible progressive solutions to the pension and real estate tax crisis in Chicago and Illinois:
• Real estate tax relief. Why not bring back the 7% property tax assessment cap? Originally proposed in 2004 by former Cook County Assessor James Houlihan, and enacted by the Illinois Legislature, the cap was designed to shield local property owners from excessive tax-assessments by increases in the homestead exemption. Unfortunately, the cap was phased out in 2008 when property values fell during the Great Recession.
• Pension debt relief. Billions of dollars in city and state pension debt should be renegotiated sharply downward by 50% or more, and those 3% cost-of-living increases need to be abolished. Detroit settled its pension debt at 47 cents on the dollar, but only after the city went into federal receivership.
• Bailout by Uncle Sam. When the pension money eventually goes bankrupt, Illinois and Chicago likely will need a federal bailout. The auto industry had one, so did Wall Street. The U.S. should cut back on federal military spending and foreign aid to pay for it, and “Help Americans First.”
However, any federal help to Democratic Chicago and the Blue state of Illinois is unlikely while President Donald Trump is in the White House.
• U.S. Pension Subsidies. Chicago’s local pension debacle could be partly subsidized by the Pension Benefit Guarantee Corp., a U.S. government agency that guarantees failed pension plans. Federal and state laws likely will need to be modified for this to happen.
• Casino cash. We need to build a world-class, Monte Carlo-style gambling casino in Chicago as a tourist attraction and tax it heavily. Many suburban gas stations, bars and golf club houses now have gambling machines in them. And, the casinos are everywhere but in Chicago. Why?
• Power of pot. We need to legalize marijuana personal use both in Illinois and Chicago, grow it in greenhouses on vacant city lots, and tax it heavily. Let’s transform all the vacant storefronts in Chicago into licensed retail pot shops and affordable housing for the homeless.
Legalizing and taxing marijuana could have both an economic and anti-crime benefit. It could create jobs and lessen drug turf wars and street killing on the South Side and West Side.
• Illegal weapons Crackdown. The city needs to stop the flow of illegal guns from Indiana to Chicago gangs. Chicago cops already have a computerized system of tracing gun activity in “hot” neighborhoods. What about National Guard checkpoints and searches for illegal guns at key intersections on the South Side and West Side?
• Red-light District tax. Chicago should zone and legalize prostitution like Nevada and Amsterdam, license it and tax both the service providers and the receivers. Heaven knows there are enough hotel rooms and Airbnb apartments in town that could provide space for this kind of taxable action.
For more housing news, visit www.dondebat.biz. Don DeBat is co-author of “Escaping Condo Jail,” the ultimate survival guide for condominium living. Visit www.escapingcondojail.com.