Kaegi thwarted in reform efforts

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Cook County Assessor Fritz Kaegi is now 0-3 in his efforts to push through Springfield a piece of legislation that he says is key to his property tax reform agenda: the data modernization bill.

His ultimate goal is to require certain commercial property owners to disclose their income and expenses to his office each year. It’s the same data Kaegi says building owners often use when they appeal his valuations. But attempts to get versions of the data modernization bill—and a 2021 companion bill that would have only mandated disclosures of a property’s physical characteristics—have failed to pass in the General Assembly since 2019.

Kaegi’s office says the lack of income and expense data makes it harder for him to make his valuations more objective, transparent and up to date. With disclosures in hand, he argues, the office can get commercial assessments right the first time. That would reduce the number of appeals and increase confidence in the office.

He blames powerful real estate and property tax appeals interests for tanking discussions at the end of the spring legislative session, arguing they benefit from preservation of an opaque, appeals-driven system susceptible to their influence. After so much time and what he describes as opponents trying to insert poison pills into counterproposals, Kaegi suggests he’s done trying to reach a compromise.

"If (opponents) think they can get to a point where they are in the driver’s seat, they’ll drive the bill off the side of the road every time," Kaegi says. The General Assembly passes legislation over opponents’ objections "if it’s considered important enough, and property taxes are important. Property tax reform is important. Equity is important."

Kaegi’s setback this session happened in spite of two leaders with ties to the property tax appeals industry—former House Speaker Mike Madigan and Senate President John Cullerton—leaving the Legislature.

Springfield insiders close to the negotiations agree pushback from business and tax groups did help sink the bill but weren’t the only culprit. Property tax reforms are inherently "heavy" bills—complex and with a wide impact—making them more difficult to pass, especially in Springfield, where negotiations tend to go down to the wire, if not into overtime. But some of those insiders say Kaegi’s desire to maintain a white knight reformer image that propelled him into the office in 2018 didn’t help.

"All our attempts at well-researched and thoughtful cooperation have been met with a ‘my way or the highway’ response," read a letter from a coalition of business groups to the lead negotiator on the bill, Rep. Mike Zalewski, and its sponsor, Rep. Will Davis. That coalition included the Building Owners & Managers Association of Chicago, the Illinois Retail Merchants Association, the Chicago and Illinois chambers of commerce and the Taxpayers’ Federation of Illinois.

There’s little doubt the system needs reforming. A series of outside reports—including a joint series from the Chicago Tribune and ProPublica, as well as from the International Association of Assessing Officers—concluded that Cook County’s tax system generally undervalued commercial property and overassessed homes, particularly in heavily minority neighborhoods. Kaegi ran on correcting it.

But trust was low between the two sides heading into negotiations. It is arguably even lower now. The property tax burden has shifted substantially toward commercial property owners under Kaegi’s watch. Some, like Chicagoland Chamber of Commerce President Jack Lavin, believe Kaegi is doing it "purposely and intentionally . . . without any reservation for what is happening to property values or the economy."

"Business folks went in thinking, ‘This guy is trying to stick it to us,’ " says Carol Portman of the Taxpayers’ Federation.

With the Chicago assessment underway, many fear being walloped by the 70 to 80 percent valuation increases seen in some of the suburbs.

One of the biggest sticking points has been whether disclosures should be mandatory or voluntary. Opponents are leery of being forced to turn over proprietary information about leases, rents and expenses, worrying competitors or tenants could get their hands on it. If Kaegi wants better data, they say, he could use a mix of commercial databases, appeals documents from past years and other property tax bodies like the Board of Review, and Kaegi’s own voluntary disclosure portal, called RPIE, for Real Property Income & Expense.

The problem is, Kaegi says, uptake of RPIE has been low. If response rates were closer to 30 or 40 percent, he might be able to build a better model. But they’ve been closer to 4 percent so far. That’s in part because some real estate attorneys have discouraged their clients from using it. HMB Legal Counsel, for example, warned real estate clients in a February 2020 alert that what they disclosed could be kept for a "potentially indefinite amount of time" and "may be used against you in a future tax appeal."

Kaegi’s own former data officer, Rob Ross, says the office could get a statistically representative sample with a lot less than that—5 to 10 percent—as long as outliers submitted, too.

Commercial databases have decent figures for big investment properties but far less on smaller mom-and-pop businesses that can vary widely depending on the neighborhood, Kaegi says. Besides, other big cities like New York, Seattle and Boston have programs that require submission of commercial data annually.

Kaegi says he’s committed to anonymizing that data to protect businesses’ competitiveness and pledged in return to share calculations of how his office reached assessments so that property owners could better predict how their bill might change in the future.

Portman and others in the negotiating coalition deny purposely putting up roadblocks. Portman still thinks there’s room for a deal and that a voluntary system would get more participation with some privacy guardrails in place.

"Things get kind of heated. There’s been a lot of misunderstandings," she says. "We want transparency; we want to understand what he’s doing better."

Davis and Zalewski both want to reach an agreement, possibly in the fall veto session. By then, temperatures may have cooled.

Laurence Msall, the head of the fiscal watchdog Civic Federation, has been repeatedly disappointed by Springfield’s failure to untangle the county’s complicated tax system, and he doesn’t place all the blame on Kaegi. "Every reformer has a difficult time in Springfield," Msall says. "(It’s) more difficult to be the outside pushing in than the inside pushing out, but we don’t have much history of inside pushing out."

via Crain’s Chicago Business

July 2, 2021 at 03:43PM

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