Property tax solutions

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Last week, I got a random query about using private grants to offset rising property tax bills for long-term residents. A response, outlining some fairly simple, low-cost ways to structure a targeted property tax relief program:

Private grants typically wouldn’t be of sufficient size to address a need as large as property tax relief over the long term — even if only $20,000 is disbursed this year, within a decade (assuming ever-higher valuations), half a million dollars will have been spent.

I can think of two ways in which such a program could be structured, though. Locally, Cook County is willing to “defer” (with interest) property taxes until a property’s sale, by placing a lien against the property in the amount of the unpaid taxes (provided the property owner meets certain requirements: over 65, low income, etc.). The lien is written such that it can’t be used to, say, force a tax sale, but “lien” sounds sufficiently scary enough that few people are willing to try it. The program also doesn’t do anything to hold down valuations after the sale.

Private money could be used to place second mortgages against the properties in question: the second mortgage would generate cash up front to pay the tax bill, grants would pay the interest (and administrative costs — it would be cheaper if the taxing body were administering), and the principal would be repaid in a balloon payment upon sale of the property. Again, some long-time homeowners may object to the idea of having debt on their paid-off houses, even if it doesn’t materially affect them.

The other, more durable, way to go would be to use the grant to set up a land trust. Since the land is rising in value and thus causing the property taxes to rise, the private grant could fund a nonprofit to purchase the land out from under the houses. (The homeowners would still own the structures, which, I assume, are depreciating with age.) The nonprofit would hopefully qualify for a partial or full exemption from property taxes. If a TDR program exists, excess development rights could be sold to an adjacent parcel, simultaneously funding the program and reducing the market (and thus taxable) value of the property.

Like the lien system, this would involve the property owner losing some degree of control over their property. However, my own feeling is that property ownership comes with pros and cons; one of those cons is responsibility for things like taxes.

Property tax panic

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The arrival of new property tax valuations last year sent many Chicagoans into a panic, with assessed property values spiking in many communities since the last assessment cycle three years ago. Of course, the panic was largely without merit — a decrease in rates typically offsets any assessment increase, resulting in a complete wash.

Outraged messages filled bulletin boards (“My mother’s tax bill in Lake View just went from $7,500, which was obscene, to $11,500. That’s a FIFTY-THREE percent increase”) and I was left to wonder whether my tax bill had gotten lost in the mail or something. No, of course not — I got a bill two weeks ago which was substantially the same as the ones issued last year. (How, exactly, these people managed to buy houses without understanding how property taxes work is what mystifies me.)

In an effort to squelch calls for various elected officials’ heads, County Assessor Houlihan released estimated tax bills for the city and many suburbs, which naturally showed only an incremental increase in taxes paid:

“Houlihan, who lives in the Lakeview neighborhood, saw the assessment on his three-story greystone increase 30 percent. But his projections indicate his tax bill would only rise by less than 6 percent, to $18,129…

“The assessor’s estimates show the city’s tax rate dropping to 6.021 percent from 7.277 percent. The multiplier is shown as declining to 2.41 from 2.4689.”

Furthermore, property tax revolts always struck me as being at least a bit unfair. Sure, there are some groups which are genuinely impacted by rising property taxes — seniors in particular. Yet the overall thrust of much of the complaining is that public policy needs to be tilted even more in favor of homeowners, who already have secured massive entitlements from all levels of government — home mortgage interest deduction, “nest egg” capital gains exemption, and in Cook County, a lower “equalized assessed value” on residential property (such that residential pays half the property taxes of commercial uses, including large apartment buildings).

All of these government incentives for homeownership have the overall effect of raising housing prices beyond what they would be without said incentives. Ever-higher housing prices are considered by many homeowners to be their god-given right, for some reason, and those people who expect to profit on their homes eventually should relish paying their rising property taxes.

A property tax “revolt” won’t necessarily get anyone anywhere, either. In California, Proposition 13 was passed in the late 1970s, an era of high and rising property valuations — yet its passage did not do anything to slow the pace of gentrification there since. It has, however, resulted in severe cuts to local government spending, rising sales taxes and often regressive “user fees”, budget crises during recessions, incredible tax base competition between municipalities (resulting in suburban sprawl), and wealthy long-term property owners (including landlords!) getting off scot-free — essentially paying the same in taxes as they did in 1978.

Just because some people pay less in property taxes doesn’t mean that the taxes won’t come from poor people in another way — higher sales taxes, more gambling, a higher income tax (which would be okay if the state constitution didn’t require a flat rate), or regressive fees. Make no mistake about it: almost every “property tax relief” option you’ve seen floated in recent months will benefit multimillion-dollar Gold Coast mansions as much as (if not more than) they’ll benefit abuelitas in Back of the Yards.

At the same time, many of the same put-upon taxpayers I’ve heard from naturally want to have their cake and eat it, too: complaints about a lack of city services seem directly tied to complaints about one’s tax bill. The complainants typically point at their neighborhood’s lack of services and contrast that to what they see as money being spent downtown — which is a farce, since nearly two-thirds of all Cook County’s property taxes are paid just by downtown Chicago. (Some services, like daily street sweeping, are paid for through supplementary property taxes paid only downtown.) Sure, downtown gets more services, but shouldn’t services be roughly proportionate to taxes paid?

Then again, pretty much the whole city has been getting shortchanged for decades. For instance, Chinatown’s only park was eliminated by the freeways, and its replacement (Ping Tom) wasn’t built until a few years ago — and even then, it was only with TIF money. (Its expansion will only happen thanks to the residential boom in the South Loop; impact fees paid by all those new condos will underwrite the park.)

Or, to take another example, the Bloomingdale Trail is an expensive ($10M, at least) proposition. How did/will Paris and New York City paid/pay for their elevated trails? First, through breathtakingly high taxes. Second, their city cores are packed to the gills (population densities four to eight times as high as in “crowded” north side Chicago!) with rich people, all of whom pay high taxes. Third, the federal government pays most of the bills, anyways. And fourth, something of this scale takes a long time to get to fruition. Millennium Park, every neighborhood activist’s favorite whipping boy, was first proposed back in the 1970s.

On a grand scale, part of the city’s fiscal problem is that Chicago is getting shortchanged by Illinois, and Illinois by Washington. Urban areas almost always generate more wealth for government than they get back in services. (This is particularly interesting because a state’s propensity to vote for the “small government” Republican party is inversely proportional to the federal largesse it receives.)

For instance, in 1999, Illinois was the second largest “donor” state to Washington in dollar terms and the fourth largest in per-capita terms. Almost all of the wealth in Illinois is in the metro area, and again, much of that is generated just by downtown businesses.

Furthermore, anger over property taxes is usually fundamentally misplaced — people look past the “Cook County Treasurer” and assume it’s still the city’s fault. Property taxes only account for 15% of city revenue. Property taxes go to pay for city pensions (42%) and to pay back bonds (58%), not for general government. General government is paid out of an assortment of taxes: sales, income, utilities, “miscellaneous.” Most of your property tax bill goes to the school and park districts or to the county, not to city government.

As a result, complaints about city corruption are often interwoven into complaints about taxes. The continuing hired truck scandal shows that we still have a long way in getting true accountability and transparency from city government — much less Cook County government or Illinois or the feds or even corporations. More efficiency and better responsiveness is something all organizations should be striving for, and something that we deserve as citizens. But good government or bad, there genuinely is a fiscal crisis going on everywhere, and there has been ever since the Nixon era. Governments at all levels in the U.S. and elsewhere are having to make tough decisions about where to spend their money right now, and Chicago is no exception. (Nor are other governments — say, in Washington or New York or Paris — exempt from charges of corruption, nepotism, or malfeasance.)

Chicagoans are used to dealing with one level of government — the city — for everything. Maybe it’s conditioning under the ward system, or maybe it’s because the city takes credit for anything and everything (and therefore sets itself up to take the blame as well). But government goes much, much further than just City Hall: not only what you pay in taxes but also what you get back are determined more by what goes on in Springfield or Washington, or even by the county — and, by extension, the rest of the metro area (suburbanites free-load all sorts of services paid for by city dwellers), more so than by City Hall.

Crate takes over Clybourn

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Crain’s reports that Crate & Barrel is opening a fourth store at North & Clybourn, replacing its C&B Outlet at the northeast corner with a larger version of its hip CB2 concept. The outlet will move two blocks up the street, to Clybourn Galleria. The Crate & Barrel flagship and Land of Nod children’s stores will remain at the northwest corner.

I’m not entirely sure whether Crate’s presence there has been all that good for the corner’s emergent urbanism. CEO Gordon Segal has substantial ownership interests in three of the four corners of North and Clybourn: every corner but the CTA station, including the land under the Home Depot Expo. A proposal by Segal and residential developer Bill Smith for two 28-story residential towers around the Home Depot has been stalled in court while the developers fight the anti-residential zoning placed there to protect manufacturers between Clybourn and the river. (Interestingly, Smith is also the largest industrial developer on Goose Island.)

Add that ownership to C&B’s substantial customer draw to the area and Segal emerges as the corridor’s biggest player. But the chain’s urban design is simply better than average. The building which now houses the Outlet was the first retail development on North, which was then a sketchy industrial street best known for prostitution. The building is an architecturally graceless stripmall with a small parking lot facing the crucial North & Clybourn corner; most of the bulk is at the eastern edge, along Halsted.

At the North & Halsted corner, the building does fill out the corner with display windows, but the entrance to the Outlet faces the parking. The apartments above don’t have windows facing south — possibly to block any views of Cabrini-Green, just a few blocks south. The presence of two parking-lot curb cuts on such a small site considerably complicates traffic flow at the three-way North-Clybourn-Halsted intersection. Furthermore, I doubt that the parking lot does anything to help business; instead of heading to one of the new parking garages nearby, shoppers jostle for space in the tiny lot out front. Nor does there have to be a loading zone in front; the site backs up to the Brown Line elevated, which would make an ideal loading zone.

By the time the C&B flagship store was designed, the area had become sufficiently upscale to justify higher grade materials. The store filled out the acute angle well, but the entrance again faced the parking lot in the middle of the block. Late last year, an entrance was finally added along North, to capitalize on the growing foot traffic.

A while back, I remember reading something about Segal funding a rehab of the North/Clybourn CTA station — which, thanks to the neighborhood’s changing fortunes, has seen daily ridership double since 1995 (and Saturday ridership go from 0 to 8,000 passengers). Nothing new on that front.

Accounting gimmickry

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Gene Sperling at the Center for American Progress calls the Bush tax-cut sunsets “Cinderella tax cut accounting”: since the tax cuts, like Cinderella’s lovely gown, will supposedly disappear with a poof. (Disappearing gowns — now that’s a real “wardrobe malfunction.”)

The Center on Budget and Policy Priorities lays out much larger accounting gimmicks hidden in the 2005 budget:

  • cutting off the forecasts at 2009, conveniently before the ticking Social Security-Medicare time bomb is set to explode
  • creating tax giveaways (especially the tax-advantaged savings accounts) which spiral in cost after 2009, but have minimal or negative short-term costs
  • taking the costs of war in Iraq, Afghanistan, and terrorism and evil everywhere off-budget
  • never mentioning the potential cost of Alternative Minimum Tax reform
  • overstating 2004 deficits, to make 2009 deficits look better by comparison
  • putting a cap on all discretionary spending — but understating defense spending growth, thus forcing larger cuts in domestic programs (at least 15.2% by 2009, adjusted for inflation and population)
  • increasing funding for certain domestic programs in 2005, but cutting in 2006
  • identifying various “miscellaneous” savings, like “waste, fraud, and abuse” and “we’ll work with Congress to find a way to pay for the medical savings accounts”
  • rewriting “pay-as-you-go” rules to specifically apply only to government subsidies to poor folks, while specifically exempting subsidies for rich people and corporations from further budgetary scrutiny
  • similarly, “baselining” the Bush tax cuts so that CBO can no longer track how much they’re costing — and hiding the cost of extensions past their sunset
  • inflating even the paltry 0.5% increase in domestic discretionary spending by including foreign aid and other programs; the real increase is 0.1% before inflation

    Hey, Enron Economics worked for the Texas Republicans before. No reason why it can’t work now, I suppose. (Speaking of which, why isn’t Kenneth Lay in jail yet?) And, at least for now, it looks like the investors are still buying, putting off a dollar collapse for another day. Hopefully, of course, after the election — just like the findings of the “Why No WMDs?” Commission and the 9/11 Commission and, well, anything else that might cause the slightest bit of embarrassment to the administration. (All this shifting of deadlines really makes me worry about what they’ve got planned for Term Two.)

    • City mouse, suburban mouse

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    From Tribune columnist Dawn Turner Trice’s article on the libertarian Manhattan Institute’s recent survey analysis on teenage delinquency, suburban and urban. The longitudinal survey found that teenagers in both cities and suburbs were familiar with sex and drugs.

    Surprised? That’s because we continue to idealize the more affluent suburbs and demonize the poorer sections of the city…

    Most of us recognize that there is no hermetically sealed place to rear youngsters. But some people still think so, says [Jay] Greene, [co-author of the study and] a graduate of New Trier High School on the North Shore.

    “A lot of the flight to the suburbs is still related to the perception that certain social ills are so concentrated in the city,” Greene said.

    That perception is reinforced by television shows and movies about city life; by the news. It’s so ingrained that we tend not question it. We take it for granted.

    The bottom line is that if parents and teens give up their responsibilities or are disengaged, no matter the reason, then these rates will continue to rise across the board.

    Combined with the higher accidental death rate of suburban teens — driving is the #1 cause of death for young Americans, and suburbanites drive far more than city dwellers — and the case for moving “for the children” falls apart.

    What’s more, a move to the socially alienated suburbs is a radical way to disengage from the public life of the city streets, a way to “give up the responsibilities” of being a citizen. Most obviously, it is a way to avoid paying city taxes, thus becoming a way to avoid the messy business of democratic cross-subsidization that comes with any large government with diverse interests to please. In the USA, suburbanites are fiscally disengaged from the real problem of fixing the social ills concentrated in cities: poverty, crime, deteriorating infrastructure.

    Rosty gets a rezoning

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    Former U.S. Rep. Dan Rostenkowski and members of his family have begun cashing in on property they own on Chicago�s North Side, property whose value in one case sharply increased after a rezoning was pushed through the City Council by a prot�g� of his…

    Breaking with his usual practice, [Alderman] Matlak did not notify the Bucktown [Community Organization] of the proposed rezoning of the Rostenkowski property, Mr. Lipe [president of BCO] says. In fact, when Mr. Lipe last summer asked Mr. Matlak�s office about the status of the long-vacant property, “They said, as far as they knew, nothing was going on.”

    [Crain’s this week]

    These doings are not quite illegal, but there’s no other way to explain the underhanded upzoning. The upzone increases FAR from 2.2 to 3.0, allowing 36% more floor area: four floors instead of three. Damen Avenue in Bucktown is solidly two to three stories, except for the southernmost reaches — five blocks south of the parcel in question.

    Ugh. At least the residents of that fourth-floor condo will have nasty views of the Kennedy Expressway from their front windows.

    Urban big box gallery

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    After many requests, I’ve started a gallery of photos of big-box retailers that have made a worthy attempt to fit into Chicago’s urban fabric. Many big boxes claim that they simply can’t have doors opening out onto the sidewalk, that they need to have a moat of parking out in front. That’s nonsense, especially in locations where many people arrive on foot, on transit, or on bikes. If you demand different designs, you’ll get them — and credit goes to the Department of Planning and Development for doing just that.

    The gallery will be updated as I take more shots. Rumor has it that the new ex-Ward’s, now-Target at Addison and California (another fragment of the old Riverside streetcar-company amusement park) is a multi-level store; the recent sub-zero temperatures have sapped my wherewithal to snap photos so far.

    The new store is just a mile away from the highest-grossing Target in the chain, at Logan, Elston, and Western. The multi-level Target on Colorado in Pasadena was also a conversion of an old department store (Broadway? Bullocks?), as is the Wal-Mart at Crenshaw Plaza in Los Angeles. One of Target’s first ground-up multi-level stores is on Nicollet Mall, the transit mall in downtown Minneapolis; it’s part of the corporate headquarters. The store under construction at Roosevelt and Clark will have one level, a corner entrance, and structured parking.

    With Wilson Yard, Target will join a growing number of boxes that have moved past the riverside industrial corridors and onto the walkable commercial streets. Home Depot opened its first multilevel store there; the Brooklyn mini-Home Depot is in a strip center and has only a token mezzanine. Best Buy and Circuit City also took ground-floor, sidewalk-fronting spaces last year.

    One reason why these chains are willing to adapt, besides (relatively) progressive management, is that the demographics of the market are too hard to resist. The new Target is within five miles of 1.5 million people — five or ten times more people than in the suburbs. (Typical population densities on the north side are about 20,000 per square mile.) The Home Depot on Halsted sits in a neighborhood where per-capita income is nearly twice the national norm. Retailers would be stupid not to jump through hoops to reach these customers. At the same time, it’s notable that these locations are not in downtown high-rises, but in real neighborhoods.

    The desirable demographics are one reason why upmarket chains like Whole Foods Market have been leaders at adapting to gentrified urban environments. Whole Foods has opened two sidewalk-fronting stores here, with another under construction; similar designs are in Portland, Manhattan, Brooklyn, San Francisco, Austin, Philadelphia, Washington, Boston, Cambridge, and Baltimore.

    Optimism: misguided

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    Well, as a campaign strategy for Democrats at least. It’s hard to be the sunny candidate when Karl, er, George is on the other side acting deliriously, lunching-on-‘shrooms happy. And who would blame them? After carelessly (or is that carefree-ly?) throwing all caution — fiscal discipline, the “very serious” words of the Security Council, etc. — to the wind, they had better be happy. The rest of us, on the other hand, had better not be.

    Polls consistently show solid support for cutting taxes, increasing spending, and balancing the budget. The only problem is that it can’t be done.

    But, even taken purely as a campaign strategy, there is a problem here: It’s hard to see how any Democrat could possibly outflank the incumbent as the candidate of wishful thinking. The president, after all, is the one proposing to make his current tax cuts permanent; increase domestic discretionary spending by 4 percent; and increase military, homeland-security, and entitlement spending by more than that — all while adding new tax cuts and balancing the budget. In the meantime, he thinks we can fly to Mars, take on $1 trillion in transition costs as Social Security is partially privatized, solve the health-care crisis with tax cuts, help people pay for college with more tax cuts, and further strengthen the retirement system with even more tax cuts. It’s utter nonsense, of course, but it’s certainly optimistic.

    Faced with Bush’s “candy for everyone!” politics, pessimism may be the Democrats’ only hope. If things look bad in Iraq and job growth remains weak through November, all the president’s promises will do him little good. But hoping for short-term failure isn’t very optimistic. It’s not a safe bet, either: Bush’s policies are calculated to maximize his short-term electoral prospects while pushing problems into 2005, 2009, or 2013 — when he won’t need to pay a price at the polls.

    [Matthew Yglesias in The American Prospect]

    And people wonder why I’m so dour.