The City is one of several taxing districts reflected on a typical Chicago property tax bill. There are over 800 units of local governments located in whole or in part in Cook County with taxing power. The major local government units that have taxing power over property within Chicago are the City, the Chicago Park District, the Chicago Board of Education (CPS), Community Colleges of Chicago (Community College District No. 508), the Metropolitan Water Reclamation District of Greater Chicago, Cook County, and the Forest Preserve District of Cook County.
Calculating Property Taxes
Cook County administers and collects property taxes on behalf of all taxing districts based on the amount of each taxing district’s levy. A taxing district’s levy is the fixed amount of property tax revenue that the taxing district requests for the year. For many taxing districts, including the Chicago Board of Education, this levy amount is limited by State legislation that places a cap on the amount that the taxing district can request and extend; this is called the Property Tax Extension Limitation Law (PTELL). The City, however, is not subject to this state-mandated cap on the amount that it levies. Currently, approximately 25 percent of a property taxpayer’s total bill is allocated to the City and Chicago Public Libraries, and approximately 54 percent is allocated to the Chicago Public Schools and the Chicago School Building and Improvement Fund.
The County determines the amount billed to an individual taxpayer on behalf of a taxing district based on the taxing district’s final extension, the value of all property in the taxing district, and the value of the taxpayer’s property.
The County reassesses all property values every three years, based on three prior years of sales. The last City of Chicago reassessment occurred in 2015, which was first reflected on the property tax bills paid in 2016. The assessed value of a property is adjusted using a state equalizer, which determines the final value of the property for purposes of taxation. This final value is referred to as the Equalized Assessed Value (EAV).
The County divides the taxing district’s levy by the taxing district’s aggregate EAV (subtracting the value of any property tax exemptions and incremental EAV for property located in a TIF), in order to determine the district’s tax rate.
Taxing District’s Tax Rate = Taxing District’s Requested Levy / Aggregate EAV of Taxing District
The County determines a tax rate for each taxing district, and the sum of these tax rates for all taxing districts is the composite property tax rate, or the total rate that a taxpayer sees on their property tax bill.
This composite tax rate is applied to the EAV of each taxpayer’s property, and the result is the dollar amount that the taxpayer must pay in a given year. Property tax bills are sent and paid one year in arrears, so the bills received by taxpayers in 2017 reflect 2016 tax extensions, tax rates, and valuations.
Amount of Property Taxes Owed = Composite Tax Rate * EAV of Taxpayer’s Property
Authorization of the City’s property tax levy occurs through bond ordinances and property tax levy ordinances in connection with the City’s annual appropriation ordinance.
City Property Tax Levy
Chicago’s EAV, which reflects the taxable value of property located in the city limits, grew steadily from 2007 to 2009, declining in 2010 due to the recession and the process of reassessment. As the City’s levy remained relatively constant and the aggregate EAV of property in city limits increased during the mid-2000’s, the property tax rate for Chicago taxpayers steadily decreased. However, after 2009, the aggregate EAV decreased with the decline in the real estate market brought on by the recession. The property value decline was first reflected in the 2010 property tax bills due to the timing of reassessments by the County. This caused an increase in the city property tax rate and the composite tax rate.
This fluctuation in EAVs and tax rates, however, does not impact the amount of property tax revenue the City receives in a given year. The City’s levy remained relatively constant over the past decade, with the exception of an increase in 2008 dedicated to the library system and the passage of a four-year levy increase dedicated to meet the required Police and Fire pension fund contributions beginning in 2015.
As the real estate market continued to rebound, 2015 showed an increase of over $6 billion or a 9.3 percent increase in the citywide equalized assessed value, based primarily on the recent triannual reassessment. In 2015, the City increased its property tax levy by $318 million to fund the City’s increased contributions to Police and Fire pensions as required by Public Act 99-0506. Although the City’s property tax levy increased, the City’s tax rate grew by less than 1.0 percent in 2015, due to increasing property values.
In 2016, the City’s levy increased by an additional $109 million to fund required contributions to Police and Fire pensions, causing the City tax rate to increase slightly to 1.752 percent. While the impact of the City’s levy increase for first responders’ pensions is a flat percentage increase, the actual impact on the individual homeowner will depend on the change in their home’s value as a result of the recent reassessment.
In recent years, the City has captured increases in EAV due to the addition of new property through construction, economic development, and expiring TIFs, which generates additional revenue without increasing property taxes for existing taxpayers. The 2017 property tax levy reflects an increase of $7.4 million as a result of this practice, which is being applied to the City’s debt service payments as discussed in the expenditure section.
While the Chicago Board of Education is a separate taxing body and government entity, it is worth noting that the new property tax levied by the Chicago Board of Education to help fund Teachers’ pensions is the primary driver behind the overall growth in the composite tax rate within the City of Chicago in 2016. The levy was authorized by the State of Illinois Public Act 99-0521, allowing the Chicago Board of Education to levy an additional $272 million beginning in 2016 solely to pay for teachers’ pensions. With the City and CPS levy increases, the composite tax rate in Chicago increased from 6.867 percent to 7.145 percent
Tax Increment Financing (TIF) Revenue
In addition to the revenue the City receives from its general property tax levy, the City derives property tax revenue from the City’s TIF districts. Chicago’s TIF program is governed by a State law that allows municipalities to capture property tax revenues derived from the EAV growth above the base EAV that existed before an area was designated as a TIF district. The baseline EAV at the time the TIF district was designated is still a part of the tax base for the purposes of the City’s levy, but revenue from the incremental EAV above that baseline must be reinvested into the area. The intention is that the effective use of tax increment financing helps expand the tax base, thus increasing the amount of tax increment generated in the district for re-investment within the district, ultimately increasing the property tax base after the TIF district has expired. Taxpayers in a TIF district can see the percentage of their property tax payment dedicated to the TIF on their tax bills.
When a TIF district expires or terminates, the incremental EAV of the district becomes part of the aggregate EAV that is available to all taxing districts. Taxing districts, including the City, have the ability to recover their portion of the revenue from the incremental EAV by adding it to their levy following a TIF district’s dissolution. By doing so, the City increases the resources available to support citywide expenses without increasing the tax burden on Chicago residents.