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My house is worth how much? Fixes to tax assessments bring dramatic changes for Chicago homeowners

Chicago Tribune

Thursday, November 8, 2018  |  Article  |  Hal Dardick

Taxes, property (87)

With all residential property reassessments now mailed out in Chicago, homeowners across the city are seeing dramatic changes in the estimated value that will be used to determine their property tax bill next year.

Improved methods of valuing single-family homes, compounded by rapidly shifting housing prices in some areas, have triggered “sticker shock” in affluent or gentrifying neighborhoods like North Center and Logan Square, where the median assessed value of residential properties was boosted by as much as 50 percent and many individual assessments rose even more.

At the same time, a number of areas with less expensive housing — such as Englewood and New City — saw nearly equal declines in the assessor’s median value estimates.

The new assessment methods were developed to address long-standing problems exposed last year by the Tribune, which found that the Cook County assessor’s office under Joseph Berrios tended to overestimate the value of single-family homes in poor or working-class neighborhoods while underestimating the value of homes in wealthier areas. Those problems put a disproportionate share of the county’s property tax burden on less affluent homeowners, whose tax bills often were inflated while others got an undeserved break.

The newspaper’s investigation, “The Tax Divide,” also found that the office did not check its own work for fairness and accuracy using standard statistical methods used by assessors around the world. Last month, Berrios told county commissioners that his new residential valuation system meets “all the criteria that were requested by the Tribune.”

“Our values are coming out a lot better than they have in the past,” the outgoing assessor added. “It’s a lot fairer than it was before.”

Unaddressed and unacknowledged by Berrios, however, are significant defects in the assessment system for commercial properties that were subsequently detailed by the Tribune in collaboration with ProPublica Illinois. Reporters showed that inequities in commercial assessments shifted the tax burden unfairly onto smaller business owners, and undervaluation of commercial and industrial properties as a class added to the burden for owners of residential property.

“The most glaring problem with the assessment system is commercial, and that remains untouched,” said Assessor-elect Fritz Kaegi, who defeated Berrios in the Democratic primary after vowing to fix the problems identified by the series. “And without giving commercial assessments the same careful consideration that the residential has gotten, we’re going to have this glaring disparity of assessments that will remain: massive underassessment in some parts of the city and then massive overassessments in others to make up the difference.”

THE TAX DIVIDE: Cook County property tax system helped wealthy homeowners at others’ expense »

Still, Kaegi and another harsh critic of Berrios, Christopher Berry of the University of Chicago’s Harris School of Public Policy, say progress has been made in the effort to fix the residential assessment system. Both say the system is now better at determining accurate home values, in part because it makes better comparisons between homes with similar characteristics within neighborhoods.

Kaegi also said it’s a positive step that Berrios has made public his methodology and data on the residential side of the system — after repeated requests from the Tribune.

But they also agreed that far more work is still needed. Insufficient data on the condition of individual homes, their precise location and other factors are fed into the new assessment model, they say, and Berrios’ office has not looked at how much disparities have been reduced citywide, rather than just by township. Kaegi also said the methodology does not adequately account for high numbers of foreclosures that depress neighboring property values in some struggling areas of the city.

So the changes remain a work in progress. But for now, some of the dramatically higher assessments are causing pocketbook anxiety in parts of the city where Berrios’ staff had previously tended to undervalue homes — often areas where the real estate market is booming.

READ MORE: Embattled incumbent Joseph Berrios concedes to Fritz Kaegi in Cook County assessor's race »

Realtor David Hanna said homeowners in affluent or increasingly popular areas suffered from “sticker shock” as they received their assessment notices in recent months. “They’re unhappy,” he said, for fear that the dramatically higher assessments will lead to big jumps in tax bills that already have grown because of recent property tax increases by the city.

Assessments determine how much of the overall real estate tax burden is paid by each individual property owner. If an assessment goes up, and other properties don’t keep pace, that results in a higher tax bill for the property owner.

Ald. Proco “Joe” Moreno, 1st, whose near Northwest Side ward includes a portion of the Near West Side community where the median assessment rose by 46 percent, said the increases in valuations outpaced the area’s actual appreciation.

Residents understand that the value of their homes is indeed rising rapidly, he said, but that doesn’t mean they have “more dollars in their pocket” to cover any resulting tax increase. He also said they are skeptical of how the estimates were determined.

Kaegi was elected assessor Tuesday, defeating a little-known Republican opponent. In the primary, when he won handily over Berrios and another challenger, Kaegi drew strong support from areas where assessments increased the most.

“Under this assessor, there’s a huge trust factor, whether accurate or not,” said Moreno, an early backer of Kaegi in the assessor’s race. “And I think that’s a big thing that plays into people’s concern. … The trust has been worn off for many, many years. I hear that a lot actually.”

That unhappiness is reflected in huge numbers of assessment appeals being filed both with Berrios’ office and the arbiter of next resort — the Board of Review, which has the power to lower assessments determined by the assessor.

Nearly 123,000 appeals of city property assessments were filed with Berrios’ office. That’s about 14 percent of nearly 883,000 city properties. Three years ago, the last time all city properties were reassessed, 101,000 appeals were filed — up from about 83,000 six years ago.

The Board of Review is still accepting appeals in most parts of the city, but initial numbers indicate appeals to date are up from three years ago by 45 percent, to more than 67,000, according to board Secretary James Thompson.

All those appeals, depending on how they turn out, could end up altering the overall effects of the reassessments across the city. But the initial reassessment notices mailed to property owners suggest that more of the overall city tax burden will be shifted to owners of more expensive homes.

The trend already was evident when the Tribune looked at results from three of the city’s eight townships in early July. Many homeowners from the Lake View and Rogers Park townships had been hit with big increases, and some South Side residents in Hyde Park township who saw significant decreases wondered whether they had been overbilled in the past.

READ MORE: Berrios tweaks formula; home assessments rise on North Side, fall on South Side »

In September, Berrios completed the rest of the townships, which include neighborhoods on the Northwest, Near South, West and Southwest sides.

In 43 of the 187 city areas defined by Berrios’ office, the median assessed value of a home went down. All but one of those areas were on the South and West sides of the city — where homes may have been overassessed in recent years and sales prices were stagnant or dropping.

Parts of the Englewood, New City, East Garfield Park, Washington Heights and West Pullman communities saw some of the biggest percentage drops in assessed values. The reductions in median assessed value ranged from 23 to 45 percent in those areas.

The biggest increases in assessed values, in percentage terms, were handed out in booming areas west of the Loop and on the Near North Side. They included parts of the Humboldt Park, Logan Square, Near West Side and West Town communities, where percentage increases ranged from 40 to 51 percent.

Other significant increases, of more than 30 percent, occurred on the North and Northwest sides, including areas in the Lincoln Park, Lincoln Square, Lakeview and Edgewater communities.

Hanna, the real estate agent, said the new assessments “for the most part seem rational.” They are “more in line” with the properties’ real value, he said. Nevertheless, the uncertainty over how the assessments will affect next year’s tax bills, plus rising interest rates and government uncertainty, are having an effect on the Chicago housing market, which took a downturn last month.

“People just don’t make big decisions unless they have to in an uncertain environment,” Hanna said. “It’s really hurting here.”

As the city’s reassessment notices went out, Berrios touted the changes his office has made to the residential assessment system in consultation with Tyler Technologies, a county contractor, and the Civic Consulting Alliance, a group commissioned by County Board President Toni Preckwinkle to evaluate the system after publication of the first parts of “The Tax Divide.”

Berrios’ news releases, and a subsequent report by Tyler Technologies, said their new model did a better job of removing outliers, or properties that don’t have much in common with others nearby and can skew results; made better comparisons with nearby properties; and used an underlying formula that met accepted assessment industry standards. In each of the city’s townships, “regression” was reduced, they said, using the technical term for overvaluing less expensive properties and undervaluing more costly ones.

“The sophistication of these state-of-the art techniques has resulted in a very significant improvement,” several of the releases stated.

Berry, who at one time helped develop a residential assessment model for the county that Berrios did not fully implement, was more stingy in his praise.

READ MORE: Flawed assessments under Assessor Berrios caused $2 billion shift in Chicago property taxes, study finds »

The methodology described in the Tyler report was “a substantial improvement over the methodology traditionally used” by the assessor’s office, Berry said in a series of email exchanges. However, he added: “None of the improvements to the modeling are particularly innovative or noteworthy. It’s just that the old model was so bad that any of these steps would improve it.”

Among other criticisms, Berry questioned the quality of the data being fed into the system. The Tyler report itself notes that the assessor had to “approximate the location” of some properties because not all are in the county’s Geographic Information System and that the office could not determine a property’s “effective age” — whether it had been “modernized” — because not all building permit information was accounted for in the system.

“It’s ridiculous that they don’t have good GIS integration and that nearly all the properties are rated as average (condition), or they don’t have modernization information,” Berry wrote. “Without good data, no statistical model will produce good results.”

Kaegi called the new model “a material improvement” and “in line with standard practices.” When he takes office next month, he will work to improve the model by tweaking it where necessary, using additional techniques to better account for the effects of foreclosure and feeding in better and fuller underlying data, he said.

He also said commercial assessments will “be the area that gets our first look. Why do we have some of the least accurate commercial assessments of any large assessment district in the United States?”

Kaegi has been looking at other large assessor’s offices, like New York City’s, to get ideas on how to improve that part of the system, he said. “We think we have a really good road map to becoming more accurate in commercial assessments through a very different approach.”

Berrios spokesman Tom Shaer has dismissed the idea of problems with commercial assessments, saying in June that “no such fact has been established.” His office responded similarly to initial Tribune reports on residential assessment issues, only to reverse course after the Consulting Alliance corroborated the Tribune’s work in that area, concluding that the county operates “a very regressive system” that causes “a wealth transfer from owners of lower-value homes to those of higher-value homes.”

Part of the problem at the assessor’s office, the report from Tyler Technologies suggested, is a small staff size in relation to the large number of properties in the county. Just two years ago, the office was authorized to have 342 employees, but the staff is now at fewer than 280 and only 264 are proposed for next year because of budget cuts. The county must assess nearly 1.9 million properties every three years.

Kaegi said he recognized those constraints and hoped to overcome them through better use of technology.

“The good news is that we’re in an era of big data and ever-cheapening computer power with many different databases out there,” Kaegi said. “So if we’re harnessing these correctly, we can do more and more than we ever could with the people that we have.”

In the meantime, Kaegi said he does not begrudge people who want to have their assessments reconsidered.

“We definitely feel for people who feel shell-shocked by the big changes, and we’re running up against the lack of trust, which is probably well-earned, by most taxpayers over many, many years,” Kaegi said. “We have a culture where people have been trained to assume all the numbers are wrong. So I can’t blame them. It’s going to take a long time for us to build trust.”

hdardick@chicagotribune.com

Twitter @ReporterHal