How Cook County Takes the Benefit Out of Taxpayer Incentives
The Cook County Board of Commissioners may have dealt manufacturing districts in South and Southwest Cook County, Illinois, their final blow.
The use of property tax incentives has increased over the past several decades and has been a vital economic development tool in this manufacturing belt. The industrial corridor suffered a one-two punch during the Great Recession and is still hanging onto the ropes, trying to recover while the rest of Cook County thrives.
Cook County property tax incentives reduce assessed values used to determine a property’s tax bill. Assessors normally set taxable value at 25 percent of a property’s market value, while assessing real estate qualifying for the incentive at 10 percent of market value. This yields a taxable value 60 percent lower than the asset would carry under the standard calculation.
The recession gutted Cook County’s manufacturing belt. Numerous manufacturing companies either closed their doors for good or relocated to nearby Indiana, recruited with the promise of a feather-weight tax burden. The migration left a glut of vacant facilities in its wake, driving market values and the assessment base into a downward spiral.
As the market and occupancy rates plummeted, local tax rates spiked, exceeding 35 percent in some suburban municipalities. Without reinvestment in their communities, these municipalities could never recover, and the tax rate would not recede. The most valuable economic development tool available to these municipalities was the property tax incentive.
Over the past several years, the Cook County Board of Commissioners has suffocated the utility of the incentive program by imposing wage and other labor requirements on owners and operators of incentivized real estate. Most recently in March, the Commissioners imposed a “prevailing wage requirement,” which mandates that any property that receives an incentive after September of this year must “pay all laborers, workers and mechanics engaged in construction work not less than the prevailing wage paid for public works.”
The new rule is expected to increase construction costs by 30 percent. Additionally, the new ordinance mandates participation in federally approved apprenticeship programs. Moreover, the change adds burdensome administrative costs to the incentive holder, which must keep detailed records of employee wages, contractor wages and other minutia. They must make quarterly reports to municipal agencies, or else live under the threat of having the incentive taken away.
But why would the Cook County Board of Commissioners impose mandates that effectively eliminate any incentive benefit? The decision is even more remarkable given the strong opposition it drew from the affected communities. Thirty mayors from the south and southwestern suburban municipalities testified in front of the county commissioners against the most recent ordinance. Local news media, which typically refrains from dive deeps into nuanced economic development issues, came out against the proposed ordinance.
Cook County elections were March 20. Commissioners in thriving districts were not going to risk their re-election prospects on an issue that didn’t affect their constituents. So, the ordinance passed.
For entities looking to take advantage of the incentive program in Cook County, the most important task is to file the incentive application with the municipality and/or Cook County Assessor’s Office prior to Sept. 1. Any taxpayer who is attempting to sell or lease their property should apply for an incentive now instead of waiting for a prospective tenant or buyer. If the application is filed prior to Sept. 1, the prevailing wage mandate will not apply to any construction.
It is critical to note that the expansion of a facility will also trigger the prevailing-wage mandate for the additional square footage, even if the property already has an incentive. The property owner must apply for an additional incentive for the new space. Thus, any property owner considering such an expansion should make the required filing before Sept. 1.
Most property owners in manufacturing districts that rely heavily on incentives for economic development only protest tax assessments when the property is reassessed. They would be wise to appeal their taxes every year, however.
The unpredictability of the incentive program itself is enough to drive up cap rates by two basis points, which will lower market values across the board. That creates the opportunity to achieve a lower assessment on appeal. The ability to quantify these issues is critical in an appeal, and failure to do so further diminishes the value of the real estate.
Most likely, due to the unnecessary restrictions imposed on the current incentive programs, the entire existing incentive program for Cook County may be scrapped. It is unfair that certain municipalities struggling with economic development are now political carnage. Any new incentive program should put the authority in the local municipalities’ hands, rather than leave it under the political machinations of the rest of Cook County.
Molly Phelan is a partner in the Chicago office of Siegel Jennings Co. LPA, the Ohio and Western Pennsylvania member of American Property Tax Counsel (APTC), the national affiliation of property tax attorneys. She advises clients on a broad spectrum of real estate taxation matters and can be reached at [email protected]