It's time to simplify Chicago's property tax system
Chicago’s property tax system is a Rube Goldberg style nightmare of municipal finance, a machine whose gears churn through formulas, classifications, and equalization factors. Levies are set by overlapping layers of government. There is one feature that stands out clearly to both homeowners and businesses. That is its unpredictability. It is unusually burdensome, and, for many small businesses, difficult to navigate without hiring costly specialists.
In a city that depends heavily on local taxation to fund schools, pensions, parks, public safety, and infrastructure, the tax base is pulled in competing directions. Demands are rising on one side while property values are shifting on the other. The result is a structure that too often places the greatest strain on those least equipped to absorb or contest it.
At its most fundamental level, Chicago’s property tax system is built atop the framework maintained by Cook County, the only county in Illinois that uses a classification system. Residential properties are assessed at 10 percent of market value while commercial and industrial properties are assessed at 25 percent. This distinction alone places a sizable burden on businesses, forcing them to shoulder a rate that is two‑and‑a‑half times higher than that imposed on homeowners before any further calculations begin. While many states treat all real estate uniformly, Cook County’s classification system ensures that commercial property starts off at a disadvantage.
Once assessments are determined, they do not remain fixed. Every three years, Chicago undergoes a reassessment cycle in which the Cook County Assessor reevaluates properties across the city. These reassessments can produce sudden and significant changes, especially in neighborhoods undergoing development or commercial corridors where rents and occupancy fluctuate. For many businesses, especially those operating with narrow margins, a steep reassessment can transform a manageable tax bill into an existential threat. Hotels, restaurants, small manufacturers, and professional offices feel these shifts acutely because their ability to pass rising expenses to customers or tenants is limited.
The assessment itself is not the end of the calculation. Illinois employs an additional mechanism known as the equalization factor or “state multiplier,” a device used to bring Cook County assessments in line with the statewide statutory standard of one‑third of market value. This was not codified by the Illinois Constitutional Convention, or CON CON, but it set up the framework for it.
“Oh, what a tangled web we weave when first we practice to conceive.” No, I’m not talking about human reproduction but rather the harmful ideas conceived by the 1970 Illinois CON CON. Let’s not forget about Article VIII Section 5 of the Illinois Constitution. That’s why the levies keep rising. Because Cook County assesses property at lower percentages than the rest of the state, the Department of Revenue annually applies a multiplier, often between 2.6 and 3.1 to bring those values up to the statewide benchmark. This step adds another layer of unpredictability, particularly because the multiplier changes annually based on sales studies and other data that businesses cannot forecast.
After the equalized assessed value is established, the property is subject to tax rates set not by one body but by a plethora of local governments. A Chicago tax bill contains levies from the City, Chicago Public Schools, Cook County, the Metropolitan Water Reclamation District, the Park District, City Colleges, the Public Library, and special service areas, among others. The largest share by far goes to Chicago Public Schools, which typically consumes more than half of the revenue generated by property taxes. The City of Chicago receives roughly one‑fifth, with the remainder dispersed among the other taxing bodies. Each sets its levy independently, which means that every year the tax bill reflects not only changes in assessed value but also the rising costs of pensions, debt service, and ongoing municipal operations that by law work to jack up the levies.
Overlaying this already elaborate structure is the extensive use of Tax Increment Financing, or TIFs. Chicago has more TIF districts than any major city in America, and collectively they divert a substantial portion of the city’s property tax growth into dedicated redevelopment funds. When a property lies within a TIF district, increases in assessed value above the frozen base do not flow to schools (Thank God!) or general municipal services; they are captured by TIF. This diversion shrinks the tax base available to taxing agencies outside the TIF and forces citywide tax rates higher. Even businesses outside TIF boundaries feel the consequences, as their tax rate rises to compensate for the locked‑away value inside these districts.
All of these layers make the system unusually opaque and unpredictable. But for businesses, especially smaller firms, an even more immediate challenge lies in the role of the appeals process. Cook County has a multilayered appeals structure that includes the Assessor’s Office, the Board of Review, the state’s Property Tax Appeal Board, and even the courts. Large commercial owners routinely appeal their assessments, often hiring high‑profile law firms and professional tax consultants who specialize in navigating the system. These appeals regularly result in significant reductions in assessed values for office towers, retail centers, hotels, and other major commercial properties.
While the ability to challenge an assessment is an important safeguard, it produces a troubling dynamic for smaller enterprises. The businesses best equipped to appeal are those with the resources to hire experienced attorneys, to commission appraisals, and to litigate disputes through multiple stages if necessary. Small businesses typically lack the funds or the time to engage in such prolonged efforts.
In most cities, businesses can project their likely tax burden several years into the future with a reasonable degree of confidence. In Los Angeles, Proposition 13 limits annual increases in assessed value. In Indianapolis, tax caps restrict the maximum bill to a percentage of the property’s value. Boston and other Massachusetts municipalities operate under a statewide cap, Proposition 2½, which limits levy growth. Chicago has no such cap on assessments, no cap on tax rates, and no limitation on annual increases in the overall levy. For investors, developers, and business owners, the absence of guardrails makes planning unnecessarily burdensome.
Commercial landlords face similar challenges. Many leasing agreements pass property taxes through to tenants, but in a competitive leasing environment — especially in the wake of declining office occupancy — landlords cannot always raise rents to keep pace with rising taxes. Higher taxes may reduce net operating income, undermine valuations, and push properties into distress. In turn, this contributes to a broader downward spiral in which falling commercial values shrink the tax base, forcing tax rates higher for everyone else.
Chicago’s dependency on property taxes is rooted in deeper structural factors, particularly the weight of pension obligations. Illinois relies heavily on local property taxes to meet pension requirements for teachers, police, firefighters, and other public sector employees. Statutory schedules mandate rising annual contributions to these funds, pushing levies upward even when the broader economy softens. Because pensions must be paid, the burden is distributed through the property tax system regardless of fluctuations in commercial rents, occupancy, or business earnings.
The combination of rising pension costs, heavy TIF usage, aggressive appeals by major commercial landlords, and the classification system’s structural imbalance leaves Chicago’s property tax framework strained from multiple sides. Businesses find themselves wedged between increasing obligations (or demands) and declining predictability. Small businesses, without access to high‑priced legal teams, bear a disproportionate share of the weight. They are less likely to appeal, less able to absorb shocks, and less able to navigate the system’s complexities.
The challenge extends beyond fairness to broader questions of economic competitiveness. Chicago competes not only with New York and Los Angeles but also with its own suburbs and with fast‑growing cities such as Indianapolis, Austin, Denver, and Nashville. Many of those regions offer property tax systems that are simpler, more predictable, and, in some cases, significantly less burdensome for commercial enterprises. The inability to forecast future tax liability discourages investment in new storefronts, factories, warehouses, and office redevelopment. Developers struggle to make the economics of renovation or expansion pencil out when property taxes can rapidly outpace expected returns.
Simplifying the property tax system will be a step in the right direction, but more importantly something needs to be done in terms of the levies automatically rising with the pension demands. The downward spiral will continue otherwise.
