September 09, 2015
The Illinois Department of Revenue announced earlier this summer that the final equalization factor for the Cook County 2014 property assessment year (taxes payable in 2015) is 2.7253.
The 2014 final equalization factor of 2.7253 is greater than the final 2013 equalization factor of 2.6922. This does not mean that property taxes will go up or down. It means that, overall, the weighted average level of assessment[1] in Cook County for all types of property averaged over the past three years has decreased to a level further from the 33⅓% assessment level[2] required by state law than in previous years. The equalization factor compensates for low levels of assessment in Cook County; it does not cause tax increases or decreases.
What is the equalization factor and why do we need it?
Inter-county equalization (sometimes referred to as “state equalization”) is the application of a factor, or multiplier, to all assessed values such that the aggregate total equalized assessed value of all real property in the county equals 33⅓% of fair market value.[3] All counties, including Cook, are required to undergo equalization to ensure that the total value of real property is 33⅓% of fair market value. Counties other than Cook also perform intra-county equalization in order to ensure that townships assessed by different assessing officials are equalized (35 ILCS 200/9-210).
Equalization is necessary for the fair implementation of certain state statutes. Assessed valuation of property is a component in formulas for various education, transportation and public assistance grants to local jurisdictions, so it is important that assessed values be made equivalent statewide. This is particularly important because Cook County, unlike the other 101 counties in Illinois, assesses different types of property (that is, commercial or industrial or residential) at varying assessment levels set in county ordinance. [4] State statutes that limit property tax rates and bonded indebtedness of local governments are also related to assessed value, which must be equalized in order for the statutes to apply equivalently across the state.
The State of Illinois Department of Revenue (IDOR) is responsible for calculating an equalization factor for each county. This calculation is made annually using a multi-year comparison of property assessments and sales prices in each county called the assessment/sales ratio study. This study is described in the IDOR’s Publication 136 and in the Civic Federation’s primer on the Cook County assessment process. The assessment/sales ratio study is used to compute a three-year adjusted average for the countywide median ratio, weighted by class of property. This three-year average was 12.23% for Cook County in 2014, so the 2014 equalization factor was 2.7253 (33.33% ÷ 12.23%).
Before publishing a final equalization factor each year, the Department of Revenue calculates a tentative equalization factor and holds a public hearing on the tentative factor, per 35 ILCS 200/17-20. This tentative factor is computed before the Board of Review releases its final assessments for a given assessment year. For assessment year 2014, the Department issued a tentative equalization factor of 2.6621 on April 3, 2015. The final factor of 2.7253 was published on April 27, 2015. The difference between the tentative and final factors is due to assessment reductions made by the Cook County Board of Review in that intervening period.
Once the Department of Revenue has certified the final Cook County equalization factor, the Cook County Clerk applies the factor to the final assessed values determined by the Assessor and modified by the Board of Review. The new value is called the equalized assessed value (EAV). Unless the property is a residential property for which the homeowner qualifies for one or more exemptions, this value is the final taxable value. For residential properties, most exemptions are applied to EAV. This reduces the EAV for that property, providing a net EAV, which is then the taxable value of that property.[5]
Illinois statute authorizes homestead exemptions available to different types of homeowners. There is a general homestead exemption for all homeowners on their primary residence, as well as special exemptions targeted at senior citizens, persons with disabilities and veterans. All homestead exemptions are designed to reduce the taxable value of homeowners’ property. Public Act 98-0007, which increases the maximum General Homestead Exemption to $7,000 from $6,000 in Cook County only and the maximum Senior Citizens Homestead Exemption to $5,000 from $4,000 for the entire state, was signed into law on April 23, 2013. The change to the General Homestead Exemption and Senior Citizens Homestead Exemption went into effect in tax year 2012 in Cook County and the increase to the Senior Citizens Homestead Exemption for the rest of the state went into effect in tax year 2013. The General Homestead Exemption for Cook County was increased to help offset the increase in EAV due to the Alternative General Homestead Exemption expiring in each of the assessment districts beginning with the City of Chicago after tax year 2011.
For example, single-family homes (6 units or less) are assessed at 10% within Cook County. Therefore a single-family home in Chicago in tax year 2014 with an estimated market value of $200,000 would have an assessed value of $20,000 ($200,000 x 10%) and an equalized assessed value of $54,506 ($20,000 x 2.7253 equalization factor) before any homeowner exemptions were applied. If the homeowner qualified for a General Homestead Exemption in tax year 2014, $7,000 would then be subtracted from the EAV to produce a net EAV of $47,506. This is the final taxable value to which the composite tax rate for the tax code the home is in would be applied to produce the taxes owed for that property. The final tax year 2014 tax rates for Cook County tax codes were released on June 18, 2015.
Below is a sample property tax bill calculation for a Chicago home with a tax year 2014 estimated market value of $200,000.
The $3,424.70 would not be paid all at once, but in two installments, one in March and one in August. The first installment is equal to 55% of the previous year’s tax bill and the second installment, which includes any changes to tax rates, equalization and property values is then equal to the total tax bill for the year minus what was paid in the first installment in March.
[1] Level of Assessment: Ratio of assessed value to the sale price. This blog uses terms as described in the IDOR Publication 136 glossary of terminology associated with the property assessment and equalization process.
[2] Assessment Level: The percentage of full value at which property is being assessed. This may refer to the statutory or ordinance level or the actual level as inferred from a sales ratio study. (A sales ratio study is described in the text above.)
[3] The level of 33⅓% was chosen as an approximation of the actual levels of assessment in 1975. See page 63 of this report to the General Assembly. Fair market value or fair cash value is defined in statute as “the amount for which a property can be sold in the due course of business and trade, not under duress, between a willing buyer and a willing seller.” (35 ILCS 200/1-50)
[4] In tax year 2014, the ordinance assessment level for residential and apartment properties is 10% and for commercial, industrial and not-for-profit properties it is 25%. There are additional classifications for other types of property and incentive classes for redevelopment.
[5] The Disabled Veterans’ Exemption is applied to assessed value, not the equalized assessed value, and the Homestead Improvements Exemption exempts a portion of cash (market) value. The Natural Disaster Homestead Exemption (35 ILCS 200/15-173) allows an exemption in the amount of the difference between the EAV of a property before it is damaged in a disaster and the EAV after it is rebuilt.