Commercial property

Commercial property owners want the right balance

As Chicago attempts to recover from COVID, our County Assessor is determining assessments through political ploys that rock our local businesses. How else can you explain offering homeowners an overall “COVID” discount when the pandemic has created an increase in home values? The tactic was extraordinary – despite national appraisal standards organizations warning of the pandemic’s impact on real estate, the appraiser has created an entirely new, unauthorized appraisal system to benefit landlords , quickly followed by campaign-style direct mail. We don’t know of anything like it across the country.

The appraiser is dramatically raising commercial property appraisals across Chicago, many to triple digits, despite record vacancy levels and the well-known hardships businesses have endured. Even buildings that have returned the keys to the bank have seen drastic increases, all in service of the appraiser’s divisive rhetoric to pit owners against their own business community.

The public won’t get a full picture of the appraiser’s final damage until after the election. The failed deployment of a new database delayed final evaluations by several months. This delay will likely result in overdue tax bills and require municipalities to secure emergency loans to cover missing revenue, racking up avoidable fees and interest for taxpayers.

Property taxes are not a zero-sum game. While landlords may think they’re avoiding tax increases at the expense of commercial properties, closed or underperforming businesses lead to lost jobs and tax revenue — and landlords ultimately pay the difference.

Owners and businesses must recognize that we are in this together, and both must thrive for our communities to thrive. Commercial buildings subsidize property taxes for owners with a higher assessment rate, so we need to strike a balance that promotes commercial investment and makes taxes more manageable for everyone.

Finding this balance would benefit several tasks. First, we need to assess whether we can simplify Cook County’s property tax process. Between our unique classification system, the Equalizer, tax increase funding districts, and the many government agencies involved, it is nearly impossible for the public to understand property tax policies. Without clarity, there are too many opportunities for officials like the evaluator to develop questionable policies without any accountability.

We also need greater transparency in the evaluation process. The average taxpayer would be surprised to learn how subjective the assessor is in determining commercial property tax assessments, especially in bear markets with few transactions like the current market. We cannot achieve an objective assessment process if assessors are allowed to unilaterally manufacture new assessment methods, such as assessor Fritz Kaegi’s “COVID” reduction. We should design a robust system, with the necessary oversight, to ensure that evaluation policies meet national standards, use quality data and are free from political motivation.

Finally, the disproportionate distribution of the property tax, whereby businesses pay more than their fair share and subsidize residential taxpayers, should be reviewed. Every dollar of commercial property value reduces the tax burden of residential properties by $2.50, but we cannot maximize this subsidy without understanding how it limits business growth. Remember that business tenants pay the property taxes of a commercial building and 90% of them are small businesses, even downtown. As this burden increases, these tenants leave or stop growing, reducing the benefit of the subsidy for all ratepayers.

Chicago’s commercial property taxes are now the second highest in the nation, behind Detroit, and are a major weakness in Cook County’s investment case. Rather than shying away from property taxes for political reasons, we should regularly review the property tax system’s business subsidy and make periodic adjustments to ensure strong economic growth. Although property taxes have become a hotbed of political drama, we are conducting similar exercises for other industries without too much fanfare. State tax credits to attract additional film production here, for example, create new jobs and investments that we otherwise would not have had.

More importantly, we must move beyond political rhetoric that seeks to turn against ourselves. At BOMA/Chicago, we can speak for downtown office buildings: our industry members come to work every day to recruit investors and create jobs for all our region. They are not asking for special treatment, only that we create a property tax system that is transparent, fair and designed with the intention of fostering growth.

Farzin Parang is executive director of the Building Owners & Managers Association of Chicago (BOMA/Chicago).