Series: The Tax Divide Inequities and Errors Riddle Cook County’s Property Tax Assessments

In the first effort to measure the cost of Cook County’s error-ridden assessment system under Assessor Joseph Berrios, a new study estimates that at least $2.2 billion in property taxes was shifted from undervalued Chicago homes onto overvalued ones between 2011 and 2015.

Because the county’s assessment system is skewed in favor of high-priced homes, the errors amount to a staggering transfer of wealth that benefited Chicago’s most affluent homeowners at the expense of people who own lower-priced homes.

The study, released Thursday by the Municipal Finance Center at the University of Chicago’s Harris School of Public Policy, was conducted by Professor Christopher Berry, a critic of the assessor’s office who testified at a County Board hearing in July about flaws in the county’s assessment system.

The analysis involved calculating a citywide fair tax rate using the tax bills of homes that sold, then seeing how those tax bills differed from the amount that would be expected if the assessor valued property fairly.

Under Berrios, the study found, flawed assessments caused as much as $1 billion to be shaved off the tax bills of Chicago’s most expensive residential properties — those in the top 10 percent of value, or single-family homes and condos worth more than $1 million on average.

Because the amount of property taxes collected each year is fixed, that means hundreds of thousands of other taxpayers made up the difference, with the lowest-valued homes shouldering a disproportionate amount of the tax shift.

“Everyone — even the assessor — now agrees that the system is regressive,” Berry said. “But I wanted to know how much money is at stake. The answer is easily in the billions. These dollars are being taken from some of our citizens who can least afford it and used to pay the taxes of the wealthy. It’s unconscionable.”

The assessor’s office dismissed the U. of C. study as a political ploy aimed at influencing the March 20 primary election. Officials also accused Berry of having an ax to grind because the office did not adopt a new residential valuation model he helped design in 2010 with a grant from the MacArthur Foundation.

“Clearly, Professor Berry is upset that his model was exposed to have flaws and deficiencies,” the assessor’s office said in a statement. “We are saddened by Professor Berry’s lack of professionalism in releasing this report four days before the election and not giving us the opportunity to review it.”

Read the Full Study Tax Shifting Due to Regressive Assessments (PDF)

Tax Shifting Due to Regressive Assessments (Text) Source: Center for Municipal Finance at Harris School of Public Policy, The University of Chicago Source: Center for Municipal Finance at Harris School of Public Policy, The University of Chicago

Berrios, who doubles as chairman of the Cook County Democratic Party, is fighting for re-election against two opponents: Fritz Kaegi, a money manager from Oak Park, and Andrea Raila, a property tax consultant who was put back on the ballot Wednesday after being disqualified weeks earlier.

The U. of C. study comes a month after the Civic Consulting Alliance, a nonprofit organization that provides pro bono technical expertise to local government, confirmed the county’s residential property tax assessments are riddled with errors that cause “a wealth transfer from owners of lower-value homes to those of higher-value homes.” That study did not put a dollar figure on the wealth transfer.

Cook County Board President Toni Preckwinkle commissioned the CCA study in July following publication of the Chicago Tribune’s series “The Tax Divide,” which found deep inequities in the county’s residential assessment system.

Berrios’ office, which denied for months that a problem existed, now is vowing to fix the issues with residential assessments before reassessing Chicago’s roughly 730,000 homes this year.

The Tribune’s investigation, which continued in partnership with ProPublica Illinois, also revealed severely regressive and inaccurate assessments of commercial and industrial properties, but Preckwinkle has said the county currently has no plans to study or address that problem.

“We’re focused on residential — one thing at a time,” she said at a news conference last month.

“The Tax Divide” series found that residential assessments produced under Berrios were highly regressive, meaning the assessor’s office tended to undervalue higher-priced homes and overvalue less expensive properties.

Most assessors conduct statistical analyses to ensure that tendency falls within acceptable limits, but Berrios’ office said it did not follow that practice.

To estimate the cost of the problem on Chicago taxpayers, Berry compiled data on single-family homes and condos that sold in arm’s-length transactions — sales that involve unrelated, nondistressed parties.

About 2.5 percent of all homes in Chicago were sold in such transactions during the study period, and the analysis assumes they are representative of other, similar residential properties in the same neighborhood.

Berry then calculated a “fair” tax rate by adding up the total property taxes billed on the sold homes and dividing that number by the total sales price of the same homes. Applying this rate to all of the sold homes produced an estimated “fair” tax bill for each one.

To calculate the tax shift, Berry summed the differences between the estimated fair bills and the actual bills that owners of undervalued homes received. That shift was then extrapolated out to cover the entire city, using four different statistical methods. For example, one method involved calculating the tax shift for each neighborhood before arriving at a citywide number.

Each method produced a similar answer: a total tax shift in excess of $2.2 billion over the study period.

Cook County Assessor Joseph Berrios (Nancy Stone/Chicago Tribune)

“I start with homes that sold, since we have good information about their market value and their taxes,” Berry said. “Then I make some pretty standard assumptions to extrapolate the number to the whole city in a representative way.”

Experts said the approach he used is fair and reasonable.

“Berry is definitely on solid ground,” said Richard Almy, a former executive director of the International Association of Assessing Officers, an organization that set standards used by assessment officials around the world. “These types of analyses are usually done to evaluate proposed changes to assessment systems.”

Experts also said the U. of C. analysis may understate the amount of the property tax burden shouldered by low- and middle-income homeowners because the analysis does not take into account inaccuracies in commercial and industrial property assessments.

The total tax shift from flawed assessments also would be far larger if the entire county were included in the analysis. The study focuses on Chicago because it is the largest taxing district. Other districts have different tax rates.

Berry, the academic director of the Center for Municipal Finance and faculty director of the U. of C.’s Master of Science Program in Computational Analysis and Public Policy, appeared in “The Tax Divide” series because of his involvement with a grant-funded effort to develop a computer model that would reduce regressivity in the county’s residential assessments.

Berry also co-taught a graduate-level class with a Tribune reporter in 2016 that examined the county’s robust appeals process, finding that it added to the system’s problems with regressivity.

The project to improve residential valuations dated to the era of former Assessor James Houlihan and was inherited by Berrios when he took office in late 2010.

Berry said technical limitations prevented officials from using the most accurate models the team created. But eventually the assessor’s office settled on a compromise that balanced improvements to the system with the office’s capabilities.

In July 2015, Berrios’ office issued a news release saying it had implemented “a new state-of-the-art residential assessment modeling technique that assesses the value of homes in different price ranges to improve accuracy.” Berry was quoted in the release.

But the Tribune eventually determined the assessor’s office never fully implemented the new model, which Berry said came as a surprise.

When questioned by Tribune reporters, officials offered a series of changing responses but ultimately said that the model was flawed and that Berry and others involved had a vested interest in the county using it.

Robert Weissbourd, president of the economic development consulting firm RW Ventures, led the team that retained Berry’s services and said both assertions are false. The assessor’s criticism distracts from the office’s ongoing failure to fix the assessment system, he added.

“Our models are beside the point,” Weissbourd said. “It is clear that the systematic overassessment can and must urgently be fixed, and that the public needs full transparency and independent monitoring to ensure the fix is implemented this time.”