Friday, March 27, 2009
Chicago Daily Law Bulletin
by Leonard F. Amari and Vesna Marusic

In these difficult economic times, the Cook County Board, at the encouragement of Assessor James M. Houlihan and other interested entities, recently amended the county ordinance lowering the level of assessment for single-family residential properties (Class 2), as well as levels of assessment on other use properties.

Homes, for example, will now have an assessment level of 10 percent of the full market value, down from 16 percent.

In order for the reader to better understand this significant revision in the assessment of homes and other real property in Cook County, a basic understanding of the classification system, as found in the Cook County Real Property Classification Ordinance, is needed.

Under the Illinois Constitution, counties with 200,000 or more inhabitants are authorized to classify property according to its use.

With the intention of shifting the property tax burden away from the residential class and toward other classes, particularly the commercial and industrial classes, the Cook County Board of Commissioners passed the Real Property Assessment Classification Ordinance in 1973. The classification system specifically assesses residential property at a lower level than other properties to show its designed intent to shift the tax burden away from homeowners.

The different property classes are assessed at varying percentages of market value under the ordinance, which was applicable for 1973 and subsequent tax years, and is the only ordinance of its kind in Illinois. Prior to the adoption of the ordinance, all real property in Cook County was assessed at 33.33 percent of its market value, which was the same assessment formula utilized by the rest of the State of Illinois. In fact, at present, all counties outside of Cook County continue to assess all real property at 33.33 percent of market value.

The Illinois Constitution requires that the rate of tax of the highest class may not exceed 2½ times the rate of tax of the lowest class and that real property used in farming may not be assessed at a rate higher than residential property.

Since the ordinance's original adoption, it has been amended more than 20 times. A majority of the amendments, as here, dealt with real estate taxes on single-family residential properties, while others dealt with different classes of property.

In 1973, pursuant to the original ordinance, Class 2 residential property was assessed at 22 percent of market value, Class 3 (apartment buildings with seven or more units) were assessed at 33 percent of market value, while Class 5 (commercial and industrial) were assessed at 40 percent of market value. Residential properties seemed to receive the most tax breaks in subsequent years. In 1976, Class 2 residential properties were assessed at 17 percent, as opposed to 22 percent. In 1977, that percentage was reduced even further, to 16 percent, where it remained until Ordinance No. 08-0-51 was passed just last year.

Over the years, the levels of assessment for commercial and industrial properties were reduced from their highest levels, 40 percent, to their present levels, 25 percent, with the motivation being to make Cook County real estate taxes competitive with other Illinois counties, especially the collar counties.

The current ordinance divides real estate into nine classes and three sub-classes assessed at varying percentages of market value. There are also three additional classes identified by the letters C, L and S. The classes are currently organized in the following manner:

• Class 1 (vacant land)

• Class 2 (residential)

• Class 3 (apartment buildings with more than six units)

• Class 4 (nonprofit)

• Class 5a (industrial) and 5b (commercial)

• Class 6b (industrial)

• Class 7a (commercial, under $2 million of development costs) and 7b (commercial, over $2 million of development costs)

• Class 8 (commercial and industrial development in areas of severe economic stagnation)

• Class 9 (low income multi-family)

• Class C (contaminated commercial and industrial)

• Class L (landmark properties, commercial and industrial)

• Class S (multi-family, Section 8 Housing)

Class 6 was adopted later in 1978, and has since undergone many changes. During the last economic down turn in 1984, Class 6, for example, was discontinued and replaced with Classes 6a and 6b, whereby for Class 6a, the property was assessed at 30 percent of market value for eight years, while Class 6b property was assessed at 16 percent for eight years. In 1990, Classes 6a and 6b were rolled into one incentive classification, Class 6b, to be further explained below, where it remains to the present.

Another assessment classification change was instituted in 1995 for Class 6b, whereby the property was assessed for eight years at 16 percent of market value; the ninth year would bring an assessment at 30 percent of market value. In the 10th year, the property is assessed at 16 percent of market value for up to three years.

At present, for 2009 taxes payable in 2010, the assessment for a Class 6b property is quite different, 10 percent for the first 10 years and for any subsequent 10-year renewal periods; if the incentive is not renewed, 15 percent in year 11, 20 percent in year 12 and 25 percent thereafter.

Obviously, after the thoughtful analysis of then-Assessor Thomas C. Hynes, the County Board recognized the importance of these incentives to spur economic development in Cook County.

For example, the purpose of a Class 6b incentive is to encourage industrial development throughout Cook County by offering a real estate tax incentive for the development of new industrial facilities, the rehabilitation of existing industrial structures and the industrial reutilization of abandoned buildings.

Obtaining a Class 6b designation furthers the incentive's goal of attracting new industry, stimulating expansion, retaining existing industry and increasing employment opportunities. A number of requirements have to be met by any applicant prior to obtaining Class 6b status. When all requirements are met, the applicant obtains a resolution, from the municipality in which the real estate is located, that expressly states that the municipality has determined that the incentive provided by Class 6b is necessary for development to occur on that specific real estate, and that the municipality consents to the Class 6b application to the assessor.

The purpose of a Class 7b designation is to encourage, in areas determined to be ''in need of commercial development,'' commercial projects with total development costs, exclusive of land, over $2 million, that would not be economically feasible without the incentive. As with the Class 6b incentive, an applicant seeking 7b status needs to meet a number of requirements, and ultimately obtain a resolution from the municipality in which the real estate is located.

In 2002, the County Board unanimously amended the ordinance again, decreasing the level of assessment on apartment buildings of seven or more units beginning in the 2004 tax year from 33 percent on a graduating scale. The level of assessment changes were as follows:

• 2004: 30 percent

• 2005: 26 percent

• 2006: 24 percent

• 2007: 22 percent

• 2008: 20 percent

In 2008, Cook County passed Ordinance No. 08-0-51, which amended the real property classification system with new percentages for all classes of real property. Beginning in 2009, for taxes payable in 2010, all Cook County real property will be classified and assessed at the following percentages of market value:

• Class 1 (10 percent — formerly 22 percent)

• Class 2 (10 percent — formerly 16 percent)

• Class 3 (16 percent in tax year 2009, 13 percent in tax year 2010, 10 percent in tax year 2011 and subsequent years — formerly 20 percent for 2008)

• Class 4 (25 percent — formerly 30 percent)

• Class 5a (25 percent — formerly 36 percent)

• Class 5b (25 percent — formerly 38 percent)

• Class 6b (10 percent for first 10 years and for any subsequent 10-year renewal periods; if the incentive is not renewed, 15 percent in year 11, 20 percent in year 12 and 25 percent thereafter)

• Classes 7a and 7b (10 percent for first 10 years, 15 percent in year 11, 20 percent in year 12 and 25 percent thereafter)

• Class 8 (10 percent for first 10 years, 15 percent in year 11, 20 percent in year 12 and 25 percent thereafter)

• Class 9 (10 percent for an initial 10-year period, renewable upon application for additional 10 year periods)

• Class C (10 percent for first 10 years, 15 percent in year 11, 20 percent in year 12 and 25 percent thereafter)

• Class L (10 percent for first 10 years and for any subsequent 10-year renewal periods; if the incentive is not renewed, 15 percent in year 11, 20 percent in year 12 and 25 percent thereafter)

• Class S (10 percent for the term of the section 8 contract renewal).

In the recent changing of these levels of assessment, Houlihan has gone on record as saying, ''The current turbulence in the real estate and financial markets makes these measures especially urgent. People are angry and confused about their property taxes.''

The changes with the newly adopted ordinance, the enactors hope, would reduce for homeowners the significant burden of the cost of government, but, arguably, real estate taxes will still result in property owners experiencing property tax increases.

It is imperative to closely follow real property values and file annual assessment challenges to ensure reasonable taxation. Taxpayers have a host of remedies available in their attempt to reduce the assessment on their real property. To view the very informative Web site of the cook county assessor visit: www.cookcountyassessor.com.

Leonard F. Amari, Vesna Marusic and Katherine A. Amari are attorneys at Amari and Locallo.