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3 ways Illinois can improve its property tax assessment system

Madison County Record

Thursday, August 2, 2018  |  Commentary  |  By Vincent Caruso, Illinois Policy Institute

Taxes, property (87)
The method by which local governments calculate Illinoisans’ property tax bills is broken. Here’s how Springfield can fix it.

In a state that shoulders some of the highest property taxes in the nation, Illinoisans are no stranger to daunting property tax bills. Worse, those bills have continued to grow without any sign of tempering. Between 2008 and 2015, for instance, property taxes grew 6 times faster than Illinoisans’ household incomes.

But property tax pain runs deeper than just the cost, in Illinois. It’s the nature of the system itself that can be cause for concern.

A new report from the Illinois Policy Institute sheds light on the state’s labyrinthine property tax system, examining assessment processes in some of Illinois’ most populous counties. The report found that while the degree of inefficiencies varied across counties, one key cause is universal: a needlessly complex appraisal system often resulting in unfair or inaccurate property assessments.

The universality of these issues points to a deep-seated problem with Illinois’ property valuations. But it also means that lawmakers can apply solutions across the board. Included in the report are three ways state lawmakers could repair Illinois’ broken property tax system.

1) Replace fractional assessment with assessment at full market value

Illinoisans’ property tax bills are made needlessly complicated by assessing parcels of property at a fraction of their full market value. State law requires property to be assessed at 33 1/3 percent of its market value outside of Cook County; in Cook County, property is assessed at 10 percent and 25 percent of market value for residential and commercial property, respectively.

This “fractional assessment” system adds an unnecessary step in the calculation of assessed property value, and makes property tax bills more difficult for homeowners to understand. By mandating this additional step, state law increases chance of error in the assessments process. And in turn, a more confusing bill can obscure those errors from homeowners, heightening the risk of overassessments – and, therefore, an unfairly high property tax bill. This especially hurts low-income property owners who lack the resources needed to challenge their property tax bills.

States such as Virginia, Wisconsin and Massachusetts require assessments at full fair market value. The International Association of Assessing Officers, or IAAO, has reaffirmed those requirements, stating “[n]umerous studies indicate that appraisal equity … improves significantly when governments eschew fractional assessments and classification schemes for full market value.”

By assessing property parcels at full market value, lawmakers would make property tax bills more transparent and accurate, which would bring more fairness to an often uneven system.

2) Require more frequent assessments and more recent sales data

Previous Illinois Policy Institute reports have revealed how many homeowners in Illinois get stuck paying property tax bills out of proportion with the value of their property. And an unfair distribution of high property taxes can result or be exacerbated when assessed values don’t keep pace with changes in the housing market that may occur between general assessment years.

The irregularity with which assessments are calculated breeds inefficiency in Illinois’ property tax system. General assessments are conducted every four years in all counties outside of Cook County, and every three years in Cook County. However, housing market fluctuations occur far more frequently than just once every few years. This means that, when the price of a home falls after its value has been assessed, the house’s property tax bills can nonetheless continue to reflect the higher market value at which it had been assessed.

Conducting assessments on an annual or biannual basis, and utilizing the most recent sales data, would help ensure property tax bills more accurately reflect current home values. To boot, it would protect taxpayers in times of a declining housing market.

Michigan, for instance, performs general assessments annually, while states such as Missouri and Iowa conduct assessments every other year. IAAO has endorsed more frequent assessments of property parcels. “The longer the period between reappraisals, and the more rapidly market conditions are changing,” the organization stated, “the greater the inequity and the larger the potential magnitude of changes in appraised value.”

3) Limit relief programs to homeowners who need help the most

Illinois local governments administer a number of homestead and non-homestead property tax exemptions and other programs that offer relief for taxpayers who meet certain criteria. Such criteria may include the property owner’s age, category of property – such as recycling or recreational facilities – and length of occupancy. Additionally, the state authorizes local governments to establish special economic zones, such tax increment financing, or TIF, districts that affect local taxpayers’ property tax burden, and distort the allocation of revenues.

Relief programs should be specifically targeted at property owners who might not otherwise be able to afford their property tax bills. Tailoring exemptions in this way could help struggling Illinoisans while not unduly complicating the property tax system, making it less clear who pays what, or severely distorting the distribution of the burden.

Focusing the state’s exemptions and property tax assistance programs on struggling residents could be one step in introducing broad-based property tax relief for all taxpayers.

Bringing property tax relief through fairness and accuracy

When polled, residents who’ve considered leaving the state cite taxes as the main motivating factor. And for those who’ve already left, migratory patterns show an alarming number of Illinoisans resettling in states that offer more temperate property tax climates. More residents exiting for other states than arriving from other states is the primary source of Illinois’ population shrinkage, which culminated in its inglorious fall to sixth- from fifth-most populous state in the nation.

Taxpayers deserve a property tax system they can navigate and understand with relative ease. Simplifying the state’s overly complex assessment process would foster greater fairness and accuracy in property appraisals – and empower Illinoisans to more easily spot unfair and inaccurate property tax bills.

Establishing a more transparent and simplified property tax system would complement other future reforms, and help pave a path toward relief Illinoisans desperately need.