On June 25th, 2013, the Cook County Clerk’s office released the 2012 property tax rates. In comparison with the 2011 property tax rates, the 2012 property tax rates are significantly higher. For example, the property tax rate for a majority of properties located in the City of Chicago increased by 17% from 5.455% to 6.396%.
The 2012 property tax rate hike is primarily caused by a substantial decrease of equalization assessed value (EAV) for most properties in Cook County. The property tax rate is determined by both the approved property tax levy and the combined EAV of all properties (Property Tax Rate = Tax Levy / EAV), while EAV for each property is determined by the property’s assessed value (AV) and an equalization factor issued by the State (EAV = AV x Equalization Factor). Because the 2012 State equalization factor was reduced by 5.55% from 2.9706 to 2.8056 and most property AVs become lower, reflecting a market value decrease, an across-the-board property EAV reduction resulted. For example, the overall EAV decreased by approximately 13% in Chicago with some residential property EAV dropping up to 20%.
Although the property tax rate increased significantly, the 2012 tax levied on a property in Cook County may not necessarily rise. Because the amount of property tax is determined by the property’s equalization assessed value (EAV) and the tax rate (property tax amount = EAV x Tax Rate), the amount of property tax levied on a property may actually remain the same or even become less if the level of the property’s EAV decrease exceeds the tax rate increase.
On the other hand, the EAV decrease may negatively impact the 2012 TIF district performance especially for those districts with a relatively large TIF EAV base. When a TIF district is established, the total EAV of all properties within the TIF district is recorded as the TIF EAV base. Only the property tax attributed to EAV growth above the EAV base is collected as TIF dollars and can be used to assist public infrastructure and development projects. Because the TIF EAV base is fixed, the TIF EAV reduction may negatively impact TIF dollars even if the overall property tax generated by the TIF District increases due to the property tax rate rise. For example, TIF District A has a base EAV of $1,000,000 and its current total EAV is $1,500,000. Under a tax rate of 1%, TIF District A can generate $15,000 ($15,000 = $1,500,000 x 1%) in property tax, of which $5,000 can be collected as TIF dollars ($5,000 = ($1,500,000 – $1,000,000) x 1%). Suppose the overall TIF EAV decreases by 30% from $1,500,000 to $1,050,000 but the tax rate increases by 50% from 1% to 1.5%, the overall property tax generated by the TIF district will increase by 5% from $15,000 to $15,750 ($15,750 = $1,050,000 x 1.5%). However, the TIF dollars generated by the TIF EAV increment will decrease by 85% from $5,000 to $750 ($750 = ($1,050,000 – $1,000,000) x 1.5%).