Editorial: Vote NO on Mayor Johnson’s Real Estate Tax Increase

By The Editorial Board, Chicago Tribune | February 25, 2024

Earlier this month, Arne Duncan stood at a lectern to announce a new anti-violence initiative to reduce Chicago shootings by 50% in five years.

The founder of the gun violence prevention nonprofit Chicago CRED had a credible, specific plan; a history of success in this vital arena; and thus buy-in from a variety of political constituents, each determined to put aside political and racial divisions and get their heads together to solve Chicago’s most debilitating problem. “I’ve never been in a room like this,” Duncan said, “with the private sector stepping up big time, with philanthropy stepping up big time, with a unified violence prevention community across the city.”

Duncan needed money — a whopping $400 million — for his Scaling Community Violence Intervention for a Safer Chicago, as do all of those who wish to try to solve the city’s most vexing problems. On Feb. 1, he announced the commitment of $66 million, bringing the total for the effort to nearly $200 million. The impressive infusion flowed from fundraising by his Partnership for Safe and Peaceful Communities and by the Civic Committee of the Commercial Club of Chicago, which means business leaders such as Eric Smith, vice chair of BMO Bank, and Hyatt Hotels CEO Mark Hoplamazian. On top of that came multimillion-dollar contributions from the Crown, Pritzker and Walton foundations, among others. Hoplamazian said he recognized the business community’s responsibilities when it came to violence prevention. “Our goal,” he said, “is to be the safest big city in America.”

Duncan was right to call that day “momentous.” A major public-private partnership was underway to bring about social change. And no one had raised anybody’s property taxes, or any other taxes for that matter.

What has that got to do with Ballot Question 1, a referendum that was to ask March voters to approve a major increase in the real estate transfer tax to create a projected new annual revenue stream of $100 million to alleviate homelessness before it was thrown into legal limbo late on Friday afternoon by a Cook County judge?

It is a study in contrasts.

Both gun violence and homelessness are major Chicago crises.

Duncan had his act together on the former, having come up with a specific plan that everyone could and did get behind, that had buy-in from business and resource-rich philanthropists like the Crown family, and that didn’t burden house-buying Chicagoans with new taxes at the very moment they already are socked with myriad taxes and fees.

On the latter, the Bring Chicago Home campaign, sincere as it was, proved so riddled with problems that it did not pass muster with a judge before it even got before voters.

The judge’s apparent problem? The single subject rule, or the prohibition of so-called logrolling, in the Illinois Constitution, which is designed to stop governments from trying to get enough votes for unpopular legislation (such as a real-estate transfer tax increase) by sweetening the pot with something unrelated and attractive (such as a real-estate tax decrease elsewhere). Those who opposed the tax increase had sued to stop it, and, for now at least, Ballot Question 1 is in limbo.

This all happened because, after an initially lukewarm response to their tax plan in City Council, the Bring Chicago Home campaign learned from that failure and its proponents sweetened this deal for voters by slightly reducing transfer taxes on Chicago real estate transactions under $1 million to 0.6%, down from the current rate of 0.75%, even as they would hike it to 2% (2.5 times the current rate) for deals between $1 million and $1.5 million and 3%, four times the current rate, for transactions above that amount.

Clearly, this decrease would be more attractive to anyone not planning on buying or selling property over $1 million (or, actually, even slightly more), and there you had a clever way to get voter approval for another $100 million coming from those who do, landing in city coffers. If you got a flyer promoting the campaign to your door, you will have read marketing phraseology like, “anyone buying a home under $1 million will get a tax cut.”

No fair, said the judge. Can’t get a tax increase through that way. An appeal is, of course, likely. We will have to wait and see where it all ends up.

The proponents of approving this ask, which aims to “bring Chicagoans out of the cold and into a home,” have little trust in the private sector. Their mailings reference “wealthy real estate developers who profit from the housing crisis.” That’s even though the transfer tax increase will hit the many commercial property owners who now are underwater on their mortgages; real estate developers hoping to build multifamily housing on vacant lots; owners of street fronts all over the city, including in areas starved for more retail; and mom-and-pop landlords with three-flats. Not to mention the ordinary Chicagoans committed to raising their kids in the city, who don’t want to decamp for the suburbs and who hope to buy a decent-size house, but hardly a mansion, in a neighborhood such as Hyde Park or Lincoln Square.

They are not asking taxpayers to join in an established coalition of corporate and philanthropic entities standing shoulder to shoulder, but to shoulder the burden of creating this new fund themselves.

More significantly yet, there is no detailed plan for how this money, which will enter the mayor’s budget, will be spent. Although there are guardrails requiring the new funds to be spent on alleviating homelessness, that’s a broad word, encompassing those who live on the street, those who suffer from housing insecurity (meaning they’re in danger of losing where they live), and support services for both groups. The money may go toward rent subsidies, toward the city building affordable housing itself or in partnership with others, and toward services for these groups, as provided by nonprofits. A “community-led advisory board” in concert with city departments is to be charged with making these decisions, if and when the proposition might pass.

In recent days, the editorial board has heard from those for and against “Bring Chicago Home,” to some degree another swing at the kind of tax redistribution voters rejected when they turned down the question of a graduated income tax in Illinois.

“Chicago has to take care of Chicago,” co-sponsor Ald. Maria Hadden, 49th, told us, arguing that funding for systemic change in the city has to come from an initiative such as this, given how most monies flowing to the city are earmarked for other purposes. Ald. Walter Burnett, 27th, told us that homelessness already results in costs to the city and its taxpayers and that this initiative will have unheralded benefits when it comes to getting people off the street and into housing.

Maxica Williams, board chair of the Chicago Coalition for the Homeless, described her own past struggles to keep a roof over her head and noted, as did Hadden, that 50% of the advisory board will be made up of those with “lived experience” when it comes to homelessness. Other sincere leaders and advocates, such as Mark Ishaug, CEO of Thresholds, and Julie Dworkin, former policy director for the Chicago Coalition of the Homeless, said there was no data to prove that increasing the transfer tax would affect property tax rates or result in higher rents.

Others, including Jeff Baker, CEO of Illinois Realtors, disputed that. Baker argued to us that the difference between this tax and property taxes is mostly semantic, a tax on real estate being a tax on real estate, and that landlords would have no choice but to pass on the increase to tenants, resulting in increasing rents which then could have the unintended consequence of actually worsening housing insecurity.

Other business leaders share Baker’s view that the new tax would be a major disincentive to new development, including private developers hoping to build affordable rental housing on their own, and would be a particularly poorly timed hit to Chicago’s huge commercial real estate market, already distressed from the pandemic.

Dworkin argued that hit already had happened, thanks to the pandemic and the rise of working from home. Baker countered that if new development is disincentivized by yet another tax increase and assessed values fall, as is likely, residential property taxes can only go up, given that the total amount needed won’t change.

So it was to be a battle of two philosophies, you might say.

Whatever your view, though, voting “Yes” would have required a leap of faith: that the tax increase would not send private-sector housing builders elsewhere, would not make it so hard for upper-middle-class Chicagoans to buy a home in this expensive market that they’d pick a suburb instead, and would not add yet another significant disincentive to moving here. You also had to feel confident that the Brandon Johnson administration and its committee would come up with effective ways to spend this huge amount of new money with all the necessary safeguards in place.

We commend the advocates for their commitment to this issue. We understand why they want to create a recurring revenue stream for their programs and initiatives to give as many of our fellow Chicagoans a home as possible.

But we feel that the best approach here would always have been one more akin to Duncan’s strategy on gun violence and that did not demonize the private sector and “out-of-town developers.” With respect, we think the people and businesses of this city cannot easily withstand more tax increases, even if they are being told this one won’t hit them. We think it just might, even if an appeal goes through and it ends up being validated anyway.

If or when it does, we endorse voting “No.”