Friday, August 05, 2016
Why Economic Development Matters
Recent discussions on the proposed Madison Street Tax Increment Finance district (TIF) have generated a variety of discussions. One subject that seems to come up more than most is what kind of businesses we can expect to see. Will we get a restaurant? Will we get another type of store? While it is not uncommon to want specific businesses, the Village cannot dictate what the market will bear. However, we can influence the creation of desirable locations that will attract the types of businesses that are both desirable and consistent with the character and quality of River Forest.
The Village needs to look at economic development in a broader context. The River Forest Board of Trustees and I believe that strengthening our commercial base is vital to strengthening our community. That means we have to increase the value of our commercial properties to lessen the property tax burden on our residents.
To explain what I mean here, let’s talk about the property tax system in Illinois.
Each tax bill in River Forest includes nine separate entities that levy taxes to fund operations and meet their obligations including salaries and benefits, such as health insurance and pensions, maintenance of equipment and property, plus a myriad of programs and services each unit of government offers to our community.
Think of all property tax revenue collected from River Forest properties as a pie. Each year, taxing bodies ask for a piece of that pie to fund their services and obligations. The value of each property determines each owner’s “share” of the pie, or what you, the property owner, will pay to support public programs and services whether you use them or not. In towns with strong commercial property bases, residential properties pay lower taxes, not because the government is asking for less money but because the commercial properties pick up a greater share of the tax. In primarily residential communities such as ours, homeowners shoulder a larger share of the property tax burden because they make up the majority of the property tax base.
A little more than 50 percent of properties in River Forest cannot be taxed. It is land owned by nonprofit organizations including two universities, the Cook County Forest Preserve District, religious institutions, schools, the library and the Community Center, which all provide valuable services to River Forest. In our community, less than half of all property can be taxed. Out of that taxable property, approximately 90 percent is residential and 10 percent is commercial. As a result, residential properties pay a majority of the taxes in River Forest.
It is important to understand how your taxes are calculated and how that relates to the importance of economic development. Every three years, the Cook County Assessor’s Office determines the value of every parcel of land. The calculation to determine your property taxes is an overly complicated one, but for this discussion, it is important to know a residential parcel is taxed at 10 percent of its market value.
For example, if a home is worth $500,000, the taxes paid are based off of a value of $50,000 ($500,000 X 10% = $50,000). In the case of a commercial property, the property is taxed at 25 percent of the market value. A commercial property worth $500,000 has its taxes based off a value of a $125,000 ($500,000 X 25% = $125,000). A commercial property will pay 15 percent more in taxes than a residential property with the same exact value. The property taxes paid by commercial properties are based off of a higher percentage of their market value than residential properties.
River Forest is a landlocked community with very few opportunities to create new commercial development, so we must do what we can to get the highest and best use out of each commercial property. The strategic decision River Forest made in 1987 to create a TIF District along Lake Street was monumental. Because of that TIF, commercial land at Harlem Avenue and Lake Street now produces significantly more in property tax revenue than it did 30 years ago. If that development did not exist River Forest homeowners - you and I - would pay more in taxes today than we already do. That is the definition of the “zero sum game”...taxes are collected regardless of who pays.
Therefore, the Village must now focus on strengthening its commercial base. We must commit to creating TIF districts along Madison and North Avenue (while restricting eminent domain), and work with businesses along Harlem Avenue. TIF districts will help shift the tax burden away from homeowners, allowing our neighbors, especially seniors on a fixed income, to remain here in River Forest. It is the right thing to do.
Thank you for reading this letter and please feel free to call me personally at (312) 498-7767, should you have any questions.