Mayor Rahm Emanuel thinks that the solution to Chicago’s record debt crisis is a big increase in property tax revenues – to the tune of an extra $544 million a year by 2018. Not all residents are happy about his proposed plan for shoring up the city’s unfunded pensions, but for some homeowners it may actually mean saving a little money come tax time.
Why Rahm Wants Taxes to Increase
It’s no secret that the city of Chicago is having money troubles – according to the Illinois Policy Institute, Chicago’s total debt has surpassed $63 billion. Between police and firefighter pensions alone, taxpayers are on the hook for more than $10 billion in owed payments.
The problem has become so bad that in May, financial firm Moody’s downgraded Chicago’s credit rating to junk status. To put it in perspective, Detroit is the only other city in the United States with a population of more than 500,000 that has a junk rating.
Just like if you were trying to get a loan with a bad credit score, cities with poor credit ratings have few options for borrowing money and are likely to have to pay outrageous interest rates. Apart from increasing taxes, the city has few other options left for meeting its upcoming debt obligations.
The Affect on Chicago’s Average Homeowner
If Mayor Emanuel’s proposed tax plan is approved on October 28th, many homeowners will see their property tax bills stay the same. An even greater number will wind up paying less when taxes come due next year.
“Homeowners living in homes valued at $250,000 or less will see little or no increase and most – nearly 290,000 – will see a decrease in their overall bill,” noted the mayor’s office in the general overview of the proposed tax plan.
Based on current assessed values, much of that savings will be realized by residents in the west and south sides of the city. Under the mayor’s plan, approximately an additional 245,000 properties with values around the $250,000 mark will see their taxes stay roughly the same over the next four years, assuming the mayor can get the state to sign off on a new homeowner exemption he’s pushing.
Defending the decision to decrease taxes for low-value properties, the mayor’s office commented, “Mayor Emanuel believes that the necessary property tax increase for our police and fire pension funds should be borne by those who can best afford it and should not hurt middle- and lower-income families and seniors.”
So Who’s Paying the $544 Million?
While commercial real estate taxes are slated to increase across the board, most of the new tax burden is going to be put on the shoulders of Chicago homeowners who own properties worth more than $250,000.
According to KIG Analytics, this will impact an estimated 194,000 Cook County homes – primarily in the Lakefront, north, and northwest regions of the city. According to the Chicago Tribune’s property tax increase calculator, a home valued at $500,000 would see property taxes jump up nearly $1,200 a year by 2018, or about an extra 0.25% of its total value. By the same measure, a $1 million home would see taxes rise by just over $2,400 a year.
But if there’s one silver lining here, it’s that even with this new increase – and despite residential property taxes having grown by more than 50% in the past five years – Chicago will still have one of the lowest effective tax rates in Cook County. So if you’ve been thinking about leaving the city to avoid the tax hike, you may want to reconsider.