EFFECTIVE PROPERTY TAX RATES for 89 Illinois Communities

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Taxpayers Federation of Illinois 64 4 July/August 2011 EFFECTIVE PROPERTY TAX RATES for 89 Illinois Communities By Kurt Fowler Kurt Fowler is an undergraduate at Northwestern University, majoring in

1 Taxpayers Federation of Illinois 64 4 July/August 2011 EFFECTIVE PROPERTY TAX RATES for 89 Illinois Communities By Kurt Fowler Kurt Fowler is an undergraduate at Northwestern University, majoring in Political Science and Urban Studies. This summer he is interning at the Illinois Tax Foundation. INSIDE THIS ISSUE Notes from the inside...6 Homestead Exemptions: Reducing Taxable EAV, Increasing The Rate...6 TFI Tax Conference...11 A home's effective property tax rate is the percentage of home value paid in property taxes on an annual basis. The Illinois Tax Foundation, in association with the Taxpayers Federation of Illinois, is pleased to release its effective tax rate calculations for 89 communities throughout Illinois for property taxes paid in This is the most recent data available. Most counties provide the data to the Illinois Department of Revenue about a year after taxes are paid, and County data is often not available until several months later. When we began releasing these calculations, we had data available for 60 communities. Starting with our analysis of property taxes paid in 2006, we were able to include information for 29 additional communities where data had become available. The data from all 89 communities has now been compiled together. These communities have been chosen for their size, as well as to provide an accurate representation of the entire state. The calculation of an effective property tax rate for a community requires the following data analysis: CONTACT US: 430 East Vine Street, Suite A Springfield, IL V F tfi@iltaxwath.org

2 Step 1 Obtain the adjusted median level of assessment for residential property for the township in which the community is located from the Department of Revenue. Step 2 Multiply this value by the county s multiplier to determine the community s equalized assessment level for residential property. The Department of Revenue assigns a multiplier to each county to equalize assessments across the state, correcting for variations from the required median level of 33 1/3%. When assessments in a county are within 1% of the required level, they do not need to be adjusted and the county is given a multiplier of 1. Step 3 Multiply the equalized assessment level by the full fair market value of the home to determine the equalized assessed value (EAV). Step 4 Subtract the general homestead exemption, $5,500, from the equalized assessed value in all counties other than. In County, the median alternative homestead exemption for the appropriate triad, which ranges from approximately $2228,000, is used. The result of this calculation is the adjusted equalized assessed value. Step 5 Obtain the community s aggregate tax rate. This information is provided by city in the Department of Revenue s annual property tax report. The aggregate tax rate is the sum of property taxes extended for cities, counties, townships, fire protection districts, park districts, school districts, sanitary districts, airport authorities, and a host of other governmental entities. Step 6 Multiply the adjusted equalized assessed value by the aggregate tax rate. This is the tax bill on the property. 2 Tax Facts July/August 2011 Step 7 Divide the tax bill by the full fair market value of the home to find the effective tax rate. This report reflects the percentage change in effective tax rates between 2005 and for all 89 communities, as well as the percentage change between 1998 and for the original 60 communities for which data was available. In the chart on page 3, we reflect the effective tax burden on a home with a $250,000 fair market value. This value was chosen for our analysis of 2006 property taxes because it was close to the median home value at the time. While the median home value has decreased, the same value is used for consistency. It is important to note that this value may not reflect the median home value in particular communities. Varying home values have an impact on the effective tax rate because of the general homestead exemption. For example, a $100,000 home taxed by the statewide average rate of 6.41% would see a savings of $353 because of the homestead exemption, or a 1 reduction. A $700,000 home taxed by the same rate receives the same savings of $353, but that amounts to only a 2% reduction of the overall tax bill. Because the general homestead exemption, used in all counties other than, is constant for all home values, it gives the same savings to all homeowners at the same tax rate. Tax rates of course vary between communities but the same rate is applied to all properties, taxed by the same governmental units, regardless of value differences within a community. County is the only county that utilizes the alternative homestead exemption, which varies by property value, and thus savings are not constant. The chart also reflects the effective rates for, 2005, and in the 60 original communities where data was available in The percentage change to accompanies the 2005 and 1998 data.

3 Effective tax rates and estimated property taxes (collected in 2009) on a $250,000 home in 89 Illinois cities City East St. Louis Cairo Kankakee Watseka Zion Danville Kewanee Park Forest Benton Freeport Galesburg Waukegan North Chicago Rockford Virginia Belleville Rock Island Sterling Macomb Lincoln Ottawa Decatur Greenville DeKalb Lawrenceville Charleston Moline LaSalle Canton Sullivan County St. Clair Alexander Kankakee Iroquois Lake Vermillion Henry Franklin Stephenson Knox Lake Lake Winnebago Cass St. Clair Rock Island Whiteside McDonough Logan LaSalle Macon Bond DeKalb Lawrence Coles Rock Island LaSalle Fulton Moultrie Median EAV As a % of Fair Market Value After Homestead Exemption 45.90% 25.41% 31.15% % % 19.12% 31.69% % % % % 32.44% % 29.94% % 31.04% 30.61% 31.79% 31.61% 29.8 Aggregate 13.19% % 10.85% 9.69% 10.51% 16.81% % 8.75% 9.44% 10.91% 9.31% 9.44% 9.39% 9.33% % % 8.42% 8.92% 8.70% 8.80% % 8.72% Tax Bill on a $250,000 Home $15,138 $10,898 $8,939 $8,614 $8,559 $8,503 $8,333 $8,034 $7,902 $7,851 $7,732 $7,704 $7,510 $7,449 $7,439 $7,218 $7,208 $7,151 $7,052 $7,036 $6,915 $6,846 $6,820 $6,816 $6,756 $6,749 $6,733 $6,722 $6,580 $6,511 Effective Tax Rate as a % of Fair Market Value 6.055% 4.359% % 3.401% 3.333% 3.214% 3.161% 3.140% 3.093% 3.082% 3.004% 2.980% 2.975% % 2.861% 2.821% 2.814% % % 2.700% 2.693% 2.689% 2.632% 2.604% 2005 Effective % 3.311% 2.784% 3.164% % 3.523% 2.729% 2.920% 3.033% 2.490% 2.313% 3.069% 3.082% % 2.471% 2.659% 2.415% 2.134% 2.634% 2.820% 2.529% 2.363% % change in Effective % 45% 24% 30% 21% 9% 1 2% 24% 30% 3% 3% 5% 3% 3% 15% 12% 3% 13% 2 3% 4% 14% 2% 1% 1998 Effective 2.865% % 2.392% 2.360% 2.544% 2.993% % 1.942% 3.380% 2.033% 2.220% 2.380% % 2.340% 2.151% 2.339% % 1.77 % Change in Effective % 63% 33% 44% 45% 34% 19% 6 59% 12% 42% 30% 20% 14% % 23% 2 4 Tax Facts July/August

4 Effective tax rates and estimated property taxes (collected in 2009) on a $250,000 home in 89 Illinois cities City Woodstock Princeton McHenry Urbana Aurora Lockport Peoria Mt. Vernon Carbondale Pontiac Cicero Vandalia Yorkville Paris Oswego Oregon Elgin East Peoria Dolton Olney Plainfield Crystal Lake Carmi Alton Taylorville Jacksonville Vienna Bloomington Geneva Springfield County McHenry Bureau McHenry Champaign Kane Will Peoria Jefferson Jackson Livingston Fayette Kendall Edgar Kendall Ogle Kane Tazewell Richland Will McHenry White Madison Christian Morgan Johnson McLean Kane Sangamon Median EAV As a % of Fair Market Value After Homestead Exemption 32.43% 31.49% % 33.50% 33.95% 30.02% % 29.82% 26.30% 27.75% % % 32.70% % 30.14% 33.54% % 31.00% 27.79% % % 30.2 Aggregate % 8.22% % 8.41% % 8.35% 9.42% 8.92% % 7.15% 7.69% 7.42% % 8.02% 7.09% % % % 7.64% 7.20% 7.5 Tax Bill on a $250,000 Home $6,454 $6,379 $6,370 $6,339 $6,336 $6,315 $6,309 $6,281 $6,230 $6,224 $6,197 $6,190 $6,170 $6,152 $6,145 $6,066 $6,065 $6,057 $6,053 $6,043 $5,942 $5,912 $5,871 $5,869 $5,848 $5,833 $5,787 $5,762 $5,746 $5,718 Effective Tax Rate as a % of Fair Market Value 2.581% 2.552% % 2.534% % 2.513% 2.492% 2.490% 2.479% % % 2.421% % % 2.333% 2.315% 2.305% Effective 2.144% 2.311% 1.832% % 2.331% 2.759% 1.860% 2.509% 1.820% 2.461% 1.869% 2.079% 2.273% 2.345% 2.343% 2.290% 1.921% 2.114% 2.030% 2.142% 2.485% 2.185% % % % change in Effective % 39% 34% 1 5% 33% 1% 3 0% 32% 1 3% 3% 24% 12% 1 14% 1% 2% 1998 Effective % % % 2.063% 2.203% % 2.379% 1.925% % 2.172% 2.322% 1.855% 2.050% 2.149% % Change in Effective % 1 24% 1% 1% 20% 12% 4% 22% 2% 2 13% 2 1% 2 12% 4 Tax Facts July/August 2011

5 Tax Facts July/August City Champaign Belvidere Lake Zurich Normal Joliet Frankfort Pekin Effingham Edwardsville Morris Chicago Heights Quincy Libertyville Robinson Oak Lawn Lombard Oak Park Wheaton Addison Monmouth Naperville Elmhurst Streamwood Palatine Des Plaines Evanston Glenview Northbrook Chicago County Champaign Boone Lake McLean Will Will Tazewell Effingham Madison Grundy Adams Lake Crawford DuPage DuPage DuPage Warren DuPage DuPage Median EAV As a % of Fair Market Value After Homestead Exemption 31.31% 33.33% % % % 31.45% 30.60% 19.03% % 27.93% 22.25% 32.05% 21.71% 32.05% % 31.75% % 19.91% 22.12% 18.33% 23.13% 20.75% 16.2 Aggregate 7.30% 6.84% 7.12% 7.53% 6.85% 6.82% 7.30% 7.35% % 10.69% 6.82% 6.09% 7.02% 8.55% 5.92% % 5.43% 4.63% 7.42% % % Tax Bill on a $250,000 Home $5,710 $5,698 $5,652 $5,592 $5,580 $5,560 $5,448 $5,375 $5,254 $5,230 $5,088 $5,059 $4,906 $4,898 $4,755 $4,743 $4,650 $4,549 $4,460 $4,361 $4,312 $3,782 $3,769 $3,472 $3,469 $2,993 $2,985 $2,579 $1,995 Effective Tax Rate as a % of Fair Market Value 2.284% 2.279% 2.261% % 2.224% 2.179% 2.150% 2.101% 2.092% 2.035% 2.023% 1.962% 1.959% 1.902% % 1.819% 1.784% 1.744% 1.725% 1.513% % % 1.032% Effective 2.141% 1.945% % 1.860% 2.175% 2.031% 1.821% 1.894% 1.990% % 2.395% 1.690% 1.685% 1.621% 1.654% 1.465% 1.655% 1.579% 1.369% 1.373% 1.275% 1.124% 1.254% 0.951% 0.912% 0.89 % change in Effective % 1 20% 0% 15% 2% 0% 1 13% 13% 15% 22% 5% 9% 11% 9% 23% 5% 2 13% 11% 1998 Effective % 1.815% 1.921% 1.813% 1.670% 1.769% % 1.525% 1.770% % 1.511% 1.093% 1.255% % Change in Effective % 13% 19% % 0% 25% 5% 4% 21%

NOTES FROM THE INSIDE... By J. Thomas Johnson This issue explores property tax issues that we have covered before in our Tax Facts, however with more recent data.

6 NOTES FROM THE INSIDE... By J. Thomas Johnson This issue explores property tax issues that we have covered before in our Tax Facts, however with more recent data. Every three years or so we calculate the effective property tax rate in various communities throughout the state for a typical homeowner. Kurt Fowler, one of our interns this year, performed the current analysis. His report ranks the highest effective tax rate in Illinois and compares that ranking to previous studies. It is notable that the community with the lowest effective tax rate for a homeowner is again Illinois largest city, Chicago. Obviously, Chicago has significant commercial and industrial property value that shares the tax burden (although less and less over time as more of the city s and in fact the state s value is in the residential class). It is curious that most of the media discussion of property tax burden in the Chicagoland area is focused on the residential tax burden in Chicago, but as a measurement of market value of homes the facts are quite something else. The second article, written by our intern Joe Sculley from the University of Illinois in Springfield, reports on the expanded use of homestead exemptions in the state to shelter from taxation some of the growing (not so much anymore) value of residential property value. There is much discussion in Springfield on how to assure that those that deserve these exemptions get them and those who do not, in fact, do not. We are working with the Illinois Department of Revenue to review the current method of documenting exemption eligibility that could produce a more streamlined method. We will report on these findings in future reports. HOMESTEAD EXEMPTIONS: REDUCING TAXABLE EAV, INCREASING THE PROPERTY TAX RATE By Joe Sculley Joe Sculley is a graduate student in the practical track of political science at the University of Illinois at Springfield. He served as a Legislative Intern for Taxpayers Federation of Illinois during the spring legislative session and has continued as a Research Assistant over the summer months. Homestead exemptions reduce the equalized value of property to which one s aggregate tax rate is applied, which in turn determines the property s individual tax bill. Rates are determined at the county level to meet the budgetary needs of each unit of local government. The intent of the homestead exemption is to offer some property tax relief to those taxpayers who are eligible. The exemption process does not generally impact the total property tax revenue of a district. However, it does increase the property tax burden on property not eligible for the various types of homestead exemptions. Over the past decade the number and different types of homestead exemptions has increased significantly. This is having a direct impact on the amount of EAV that is used in the property tax formula which affects tax rates and makes the property tax system less transparent and much harder to understand. There are 6 Tax Facts July/August 2011

7 various justifications for the numerous exemptions such as home ownership, home improvement, veterans, disabled persons, seniors, etc. These exemptions are all laudable, or at least politically necessary, especially in a time when the inflating value of residential property outpaced the value of nonresidential property resulting in a shifting burden onto homeowners. The end result, however, is a more complex tax system with so many different exemptions it is hard to ensure that all intended beneficiaries obtain the benefits that they are entitled. Before analyzing the effects of the exemption process there are a couple aspects of the property tax equation we should review. First, a unit of local government establishes the amount of property tax revenue that needs to be raised to fulfill its budgetary needs through the tax levy process for each taxing district, which is then filed with the County Clerk. The County Clerk then determines the tax rate for the district by dividing the target tax levy by the total taxable EAV of the district. The following formulas show how property tax rates are determined with and without exemptions: PROPERTY TAX FORUMULA (without exemptions) Local Government s Tax Levy Equalized Assessed Valuation of all property located in local government PROPERTY TAX FORUMULA (with exemptions) Local Government s Tax Levy ( ) Equalized Assessed Valuation of all property located in local government Exemptions = = Property Increased Property Higher tax levies by the district add to the numerator, whereas exemptions subtract from the denominator, both of which increase the local government s property tax rate. The amount of EAV being eliminated from the denominator through homestead exemptions has been growing at a dramatic rate thus leading to higher rates for everyone. Equalized Assessed Valuation (EAV) Property in Illinois is required to be assessed, for property tax purposes, at 33.3% of fair market value, with the exception of farmland which is required to be assessed on its productivity value. If the Illinois Department of Revenue determines that a county does not, on average, achieve that level of assessment then they certify to the county an equalization factor (county multiplier) to bring the average to that level. All assessed value of the county is then multiplied by that multiplier to produce the equalized value of the property (EAV). Most counties outside of equalize at the township level to avoid a state multiplier. Local equalization generally improves the equity of assessments within a county. County uses a classification system that is different from the rest of the state in that they assess residential property at of its fair market value and commercial and industrial property at a rate of 25% of the fair market value, which is then subject to the state multiplier. As a result of this classification system, County cannot achieve the average level of 33.3%, thus the IDOR annually certifies a significant multiplier to County. In it had reached , resulting in EAV s close to 3 times the amount of the original assessments. Tax Facts July/August

8 Taking EAV out of the property tax formula increases the rate for the remaining taxable base. In 2000, the amount of EAV exempt from property taxes through homestead exemptions was $14.3 billion and has grown to $43.9 billion in. This is a $29.6 billion increase of annual untaxed property value since 2000, representing a growth of 20 in eight years. In 2000, homestead exemptions represented a 6.5 reduction in total state EAV which jumped to 11.34% in. County s total EAV reduction increased from $5.7 billion in 2000 to $27.2 billion in (375% increase). The collar CHART 1. Reduction Through Homesteads, 2000 ($ in billions) Source: Illinois Department of Revenue counties had a total EAV reduction increase from $3.2 billion in 2000 to $6.8 billion in (112% increase). In 2000, the rest of Illinois had a total EAV reduction $5.4 billion and in their EAV reduction totaled $9.9 billion (84% increase). See Chart 1 for increases in EAV reduction over time. It is important to note that although there have been dramatic differences in the growth rate in total exempt value in different parts of the state, it does not impact the geographical distribution of the property tax burden. The property tax is a local tax and therefore the shifting burden in a community is transferred onto the classes of property not benefited (i.e. commercial and industrial) and onto those in the benefited class (i.e. residential) that are not eligible for the exemption or to a lesser exemption. In 2000, the average EAV reduction through general homestead exemptions for County was $4,464 which has since increased to $20,835 in (36 increase). The collar counties average reduction in 2000 was $3,490 which increased to $5,495 in (5 increase). The rest of the state had an average $3,333 in 2000 and in the average reduction was $5,395 (62% increase). The increases in EAV reduction that is observable in general homestead exemptions is mirrored in the senior citizens homestead exemption, and even further in the senior citizens assessment freeze homestead exemptions (SCAFHE) where average EAV reductions in County have grown from $7,214 in 2000 to $46,215 (540% increase) in. The collar counties EAV reduction through SCAFHE has grown from $6,234 to $23,291 (273% increase) and the rest of the state accounting for increases from $4,142 to $8,456 (204%) in the same period of time. Chart 2 reflects the growth in EAV reduction through homestead exemptions. The growth in the overall amount of EAV being exempt can be explained through the growth of the housing value bubble and by the different types of homestead exemptions that have been created over the past decade. The 8 Tax Facts July/August 2011

9 CHART 2 Source: Illinois Department of Revenue Tax Facts July/August

10 General Homestead Exemption was created in 1977, in addition to the Senior Citizens Exemption which was created in 1971 and the Homestead Improvement Exemption which was created in Since 1977 the homestead exemption program has been expanded to include the following: Senior Citizens Assessment Freeze Homestead Exemption 1994 Alternative General Homestead Exemption 2003 ( County Only) LongTime Occupant Homestead Exemption 2007 ( County Only) Disabled Persons Homestead Exemption 2007 Disabled Veterans Standard Homestead Exemption 2007 Returning Veterans Homestead Exemptions 2007 The implementation of these exemptions has had a direct impact on the increase in the amount of EAV exempt in the property tax formula. The alternative general homestead exemption is, by far, the largest contributor to the dramatic increase in EAV reduction visible in County. County s large increase in the amount of EAV exemptions compared to the rest of the state, is due primarily to the alternative homestead exemption enacted in This exemption puts a cap on the amount of EAV increase subject to tax each year. Any increase in EAV in excess of the cap is the amount of the alternative homestead exemption, subject to a maximum exemption value which varies 1 For more information on the alternative homestead exemption and any variations of the exemption by district please visit dependent upon the tax year. 1 What this does is cause an increased tax rate on all EAV, including on those who qualify for the exemption (although they now have a lower taxable EAV so the impact is less). The reason County was able to adopt the alternative homestead exemption is because they have a large enough nonresidential tax base to accept the tax burden shift. The value of residential, commercial and industrial property grew at a different pace during the housing bubble. This is most apparent in County where between the years 2000 and, the residential EAV increased by 184% compared to increases in commercial property EAV of 5 and 124% for industrial property. In the same time period the collar counties residential property EAV increased by 105%, commercial increased by 6 and industrial EAV increased by 6. The remaining part of the state realized increases of 70% in residential value, commercial of 53% and industrial of 39% (Chart 3 on page 12). County s residential EAV grew at a much faster rate than any other class of property anywhere in the state and the implementation of the alternative homestead exemption helps explain why County s average reduction has increased by much more than any other area in Illinois. In summation, homestead exemptions shift the property tax burden away from those who receive their benefit and onto properties that are not eligible for the exemption. Any decrease in the amount of taxable EAV will create a higher tax rate, thus shifting the burden to different types of property or within the residential class for those who are ineligible or are receiving a smaller exemption value. Those who do not qualify for exemptions, such as rental (Cont d. on page 12) 10 Tax Facts July/August 2011

11 Tax Facts July/August

12 Taxpayers Federation of Illinois 430 East Vine Street, Suite A Springfield, IL V F Return Service Requested NONPROFIT ORGANIZATION U.S. POSTAGE PAID Springfield, IL Permit No. 890 (Cont d. from page 10) property owners and commercial and industrial businesses suffer most of the burden shift because they are paying a higher property tax rate on their full taxable value. Even those who do qualify for the homestead exemption do $160.0 not get the full tax reduction $140.0 since the tax rate applied to their taxable value is higher as a result of the total exempt $120.0 $100.0 value through homestead $80.0 exemptions. We should be mindful of these facts in $60.0 $40.0 further discussions and $20.0 expansions of homestead exemptions. Helping those $ who could really benefit from an EAV reduction in their property tax formula is an 12 Tax Facts July/August 2011 admirable goal, but we must remember that the end result of these exemptions is a higher property tax rate for everyone. CHART 3. EAV by Class, ($ in billions) Source: Illinois Department of Revenue 2000

Mike Klemens, President of KDM Consulting Inc., does tax policy research for the Taxpayers Federation

Taxpayers TAXPAYERS Federation FEDERATION of Illinois OF ILLINOIS 70 71 31 January MARCH 2017 2018 INSIDE THIS ISSUE By Mike Klemens Notes from the inside.....2 Mike Klemens, President of KDM Consulting