Civic Federation Questions Volatility, Structure, Fairness of “Real Estate Transfer Tax” Ballot Referendum

By Fran Spielman, Chicago Sun-Times | March 13, 2024


The Civic Federation is raising questions about the volatility, structure and fairness of Mayor Brandon Johnson’s plan to raise the transfer tax on high-end real estate transactions to generate $100 million annual revenue to combat homelessness.

The 25-page “data and policy analysis” does not weigh in on the legality of the binding referendum known as “Bring Chicago Home” that Chicago voters will be asked to decide Tuesday — now that the the Illinois Supreme Court has denied the real estate industry’s appeal.

Rather, the Civic Federation is raising questions and concerns that mirror the multimillion-dollar campaign being waged by real estate interests to defeat the graduated tax.

Among those concerns:

• The volatility and unpredictability of transfer tax proceeds rising and falling with a real estate market that depends heavily on interest rates and housing inventory. It’s possible the tax changes in Chicago won’t generate the $100 million Johnson hopes for. That could blow a hole in the city’s corporate budget, given “intense pressure” to spend the money quickly and the city’s failure to explain how “shortfalls” might be handled.

• The fairness of a three-tiered tax structure that slightly decreases the tax on property transactions valued at under $1 million while tripling the tax on that portion of the sale between $1 million and $1.5 million and quadrupling the tax the portion of the transaction exceeding $1.5 million.

• The city’s failure to articulate a plan for spending the tax proceeds and the lack of “oversight and accountability to ensure that funds will be effectively and efficiently utilized for the intended purpose.”

• The city’s capacity to spend the $100 million in proceeds “efficiently and effectively” considering the snail’s pace at which it has spent federal stimulus funds.

• The tax will “significantly shift the transfer tax burden” from residential to commercial property, with the potential for “precipitously negative impacts on an already struggling commercial real estate market that includes already depressed downtown properties as well as multi-family housing” citywide. Supporters should consider “evidence-based changes” to the tax structure that won’t “overburden a struggling sector” of the economy, the analysis states.

• Also, the proposed tax increase “does not address or reduce significant existing barriers to creating affordable housing,” such as changing the zoning code or “reforming aldermanic prerogative,” a reference to the long-standing but unwritten tradition in which City Council members, with rare exceptions, defer to the wishes of the local alderperson on zoning issues in that member’s ward.

For additional spending to address homelessness to be “maximally effective, it must be paired with efforts to address barriers to affordable and supportive housing” in Chicago, the analysis states. “Review exclusionary zoning structures … and enact comprehensive zoning reform to increase the supply of affordable housing, improve access to affordable housing and increase racial equity in housing outcomes.”

Limiting the ability of Council members to block affordable housing projects “without regard to demonstrated need for such units” also must be part of that, according to the analysis. Otherwise, “it will be impossible to increase the amount of affordable or supportive housing in many areas of Chicago,” the report states.

Civic Federation President Joe Ferguson said he’s “not looking to influence the vote” Tuesday. Rather, he’s “looking to influence the landscape on the accountability on what we’re voting for.”

“That’s the problem. It’s insufficiently clear to people what they’re voting for. It’s insufficiently clear how this all works,” Ferguson said. “There is a significant runway of time from the March 19 vote until implementation. There are enormous numbers of details that can be provided and a lot of guardrails and circuit-breakers that can assure that this goes much better.”

The Civic Federation’s concerns include the city’s capacity to spend the hoped-for $100 million in annual proceeds.

A $1.9 billion avalanche of federal stimulus funds flowed to Chicago after the pandemic, but the city has managed to spend just 29% of that money on programs ranging from affordable housing and homeless prevention to violence reduction, mental health and recreation for young people.

With a Dec. 31, 2026, deadline to use the federal money or lose it, Johnson has promised to spend every last dollar.

“We’re going to make sure that the communities that have been impacted the most by gross disinvestment, that those dollars reach those communities,” Johnson told reporters last month.