May 25, 2016
The Illinois Department of Revenue announced earlier this spring that the final equalization factor for the Cook County 2015 property assessment year (taxes payable in 2016) is 2.6685.
The 2015 final equalization factor of 2.6685 is less than the final 2014 equalization factor of 2.7253. 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 increased to a level closer to 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 equalized assessed 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 12.49% for Cook County in 2015, so the 2015 equalization factor was 2.6685 (33.33% ÷ 12.49%).
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 2015, the Department issued a tentative equalization factor of 2.6059 on February 25, 2016. The final factor of 2.6685 was published on April 28, 2016. 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]
Helpful Links
Estimated Effective Property Tax Rates 2004-2013: Selected Municipalities in Northeastern Illinois
Estimated Full Value of Real Property in Cook County: 2004-2013
[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 2015, 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.