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Is a state law actually discouraging development?

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Illinois

* Rep. Rob Martwick (D-Chicago) is pushing a bill to address vacant storefronts that are pock marking even “hot” areas because they may not be telling the truth when taking advantage of a state law to lower their property taxes…

Current state law allows the owners of properties that become vacant unexpectedly to ask tax officials for a break on their bill — as long as they are doing everything possible to find a new tenant for the store or office.

But there are troubled properties that have received the break for decades — when, in some cases, the owners should be paying the property’s tax bill in full, Martwick said.

If the measure authored by Martwick is passed by the General Assembly and signed into law by Gov. Bruce Rauner, government agencies that collect property taxes — like the city of Chicago and the Chicago Board of Education — would have an incentive to investigate the claims of property owners asking for the vacancy deduction, Martwick said.

If officials determine that claim was false or fraudulent, they could force those owners to pay back three times what they owe as punishment, according to the measure. […]

“I’ve been a broker since 1981 and I’ve never done business with a landlord who does not want their building rented,” said Rich Kahan, a principal at commercial real estate brokerage KB Real Estate. “The law provides some relief. You don’t always get it, sometimes you do. At end of day, you make zero income on any empty space.” […]

“Chicago needs to start imposing penalty taxes on property that sits vacant for more than a year in hot areas — the number of commercial spaces that just sit empty due to landlord greed or indifference could be reduced significantly,” [Michael VanDam, an East Village resident in West Town] commented on Neighborhood Square.

On the other hand, what happens to those landlords when the economy turns downward again? I’d bet that’s why the original law was enacted.

posted by Rich Miller
Thursday, Oct 6, 16 @ 11:35 am

Comments

Martwick’s proposal does not pass the test of reason.

Any time the potential rent exceeds or is greater than the tax break an owner would be insane not to enter into a lease with a tenant.

Comment by MOON Thursday, Oct 6, 16 @ 11:45 am
Where is the state law authorizing this? Not cited in the bill or in the article. Vacant property is worth less than occupied property; if someone is duping the assessor, surely there are already ways to stop that.

Comment by notsosure Thursday, Oct 6, 16 @ 11:52 am
I have some experience in this issue — if an open store front or property is vacant in a “hot” area it usually is because the property is owned by some large corporation or faceless institution that is headquartered elsewhere. There isn’t an actual local person to realize the area has become hot and it is time to seek a buyer/renter; the property is nothing more than a line in an account on someone’s desk hundreds of miles away, and the local property manager (if there is one) has no incentive to ruin a good thing and never brings it up, because if the property was put to use someone else would probably be hired to manage it, or it would even be sold entirely.

Comment by Not It Thursday, Oct 6, 16 @ 11:59 am
===Where is the state law authorizing this?===

HB4363

Comment by Obamarama Thursday, Oct 6, 16 @ 12:05 pm
There’s a slumlord from River Forest that’s been pulling some kind of empty storefront tax dodge on Harrison Street in Oak Park for decades. He’s run circles around the village attorneys “selling” the properties to different LLCs he ultimately controls over the years.

Comment by wordslinger Thursday, Oct 6, 16 @ 12:05 pm
I think this is a good low hanging tax fraud to go after. One reason why a property owner wouldn’t want to lease is the need for renovation or repairs in order to bring it up to code or compliance, or even up to the needs of the business leasing the property. It becomes less of a drag to get the reduction and let it sit vacant than to lease it out. Having been a landlord I understand this. 10 years ago we were initially out a lot of money rehabbing a duplex. Recently we decided not to purchase a duplex in Springfield because of structural issues.

So yeah, I think this is a good idea. Plus you’d need to hire workers to do the investigations. I’m all for creating jobs.

Comment by Honeybear Thursday, Oct 6, 16 @ 12:07 pm
I’m with Rob on this one because I can testify to the vacant storefronts scattered up and down Milwaukee Ave. in his district. Some of these have sat vacant for ages and as a real estate appraiser, I wonder if some of these landlords are actually adhering to the laws of supply and demand or are using the tax code to game the system. I also applaud the 45th ward alderman John Arena for trying to spur housing and economic development in an area that has been somewhat moribund for a long time.

Comment by Galena Guy Thursday, Oct 6, 16 @ 12:17 pm
moon, your “test of reason” is naive.

You have to know all the components of the play. There are ways to make real money by “losing” money on paper.

Ask the governor and the GOP presidential nominee, both yoogely successful businessmen.

Comment by wordslinger Thursday, Oct 6, 16 @ 12:18 pm
Good idea, in concept. If you want a property tax break, you should have to prove you qualify. In many ways, it’s like unemployment assistance. On one hand, you recognize the hardship. On the other, you know if you don’t cap it at some point, many will just go on receiving the checks. In this case, the problem may be the rent the landlords are demanding is actually too high. It may be “in line with the market,” but the market may be manipulated by this incentive, courtesy of taxpayers, to keep storefronts empty. Whatever you incentivize, you will receive more of.

All that said, however, if it becomes harder to obtain the tax break, it could create a great market for those willing to sell the tax breaks. Not that anything like that happens in Illinois.

Comment by JB13 Thursday, Oct 6, 16 @ 12:18 pm
Word! You are so right. I lived in Oak Park from 1996- 2002! I lived right near there! ( I was on Highland) Yep, I remember things were vacant for a long time! That is until Buzz Café. I can’t quite remember the West part of Harrison. But yeah it’s obviously a tax dodge situation.

Comment by Honeybear Thursday, Oct 6, 16 @ 12:32 pm
I mean the state law that’s discouraging development; I’d already read the bill and as I said the bill doesn’t cite it. There is no special vacancy tax break I can find.
If there’s some break they shouldn’t be getting, then throw the book at them (and write the book if it doesn’t exist), but this feels like frustrated politicians wanting to fix a problem without really understanding it.
Property tax is based on value. A run-down empty building is worth less, and if the owner is a jerk and doesn’t fix up their building, that’s all sorts of bad but not property tax fraud.

Comment by notsosure Thursday, Oct 6, 16 @ 12:44 pm
I was concerned that the bill would be too broad and as, Rich suggested, might penalize good landlords during economic downturns.

However, after reading the proposed language, I think the bill efficiently limits the potential damage to good landlords in bad situations.

For instance, if the property has a for sale or rent sign with legitimate contact information, then that’s enough to show that the landlord is attempting to lease or sell the property in good-faith and has not committed fraud.

If anything, I think the bill might have too many loopholes to do affect change.

Comment by Chicago_Downstater Thursday, Oct 6, 16 @ 12:55 pm
I don’t know if Albertson’s is doing the same thing, but they have kept a lot of the Dominick’s sites empty depsite interest from other stores, citing various, hollow reasons. Ultimately, I think they are just trying to stifle competition, but the added tax breaks may be part of it.

Comment by Bothanspied Thursday, Oct 6, 16 @ 1:15 pm
Most high end landlords have triple net leases where the tenant pays the property taxes for 10-20 years or more. When the property become vacant, the first thing the landlord does is call Madigan’s law firm and go to the assessor crying poor mouth, lack of income, etc.

Comment by Nitemayor Thursday, Oct 6, 16 @ 1:21 pm
There is no “state law” that authorizes the vacancy reductions at issue here. This is a non-statutory practice of the Cook County Assessor. Assuming that granting the reductions are authorized under law in the first place, the Assessor could fix this issue by proper enforcement of the reductions that they are granting.

Comment by Anonymous Thursday, Oct 6, 16 @ 1:48 pm
=== - notsosure - Thursday, Oct 6, 16 @ 11:52 am: Where is the state law authorizing this? ====

===- Anonymous - Thursday, Oct 6, 16 @ 1:48 pm: There is no “state law” that authorizes the vacancy reductions at issue here. ===

Agreed.

The Illinois Property Tax Code specifies a myriad of preferential treatments for certain special properties and circumstances. Own a golf course? There is a special tax status for you. Develop a new subdivision? There is lawful special class for you. Own certain types of low-income housing? There are specified procedures spelled out within the law on how the assessor is to appraise the property.

However, the so called “vacancy relief” is not among the codified relief programs. The internal administrative policy of some local assessment offices to grant vacancy relief is not expressly empowered by Illinois Law. Many would argue that some of these policies could be contrary to existing law if they have no basis in commonly accepted appraisal practice. Keep in mind that the internal vacancy policy of some assessment offices provides for a loss in value which is far greater than the amount that would be arrived by traditional appraisal practice.

Speaking of unintended consequences: If enacted, would HB 4363 provide a backdoor creation of a tax reduction not currently permitted by law?

Comment by Boyd's ghost Thursday, Oct 6, 16 @ 3:11 pm
This is called land banking. There are a few properties in Old Town whose have received a vacancy reduction for decades paying only a fraction of property taxes of their neighbors. These neighbors also suffer due to the dilapidated structures adjacent to their homes. Tax attorneys/reps make a nice living filing a simple form annually, along with shut off letters from a utility company. These type of properties everywhere cause an increase in the property tax rate on all taxpayers by reducing the over all property tax base (assessed value). System has been played well by some in Cook County for decades too!

Comment by qualified someone nobody sent Thursday, Oct 6, 16 @ 3:57 pm
The law as it stands is reasonable, however, requiring some action to lease out the property is also reasonable. Provide proof of such efforts, get the exemption. It can mean a lot of money to building owners especially in non-hot areas. I also think there should be an abatement on taxes if the State is leasing the property and not paying their rent.

Comment by burbanite Friday, Oct 7, 16 @ 7:42 am