On November 2, 2010, approximately 72% of Indiana voters approved a constitutional amendment capping property taxes on all property classes.  The amendment provides that property taxes will be capped at 1% of the assessed value for residential property, 2% for apartments and agricultural land and 3% for commercial property.  Such property tax caps have been effective since January 1, 2009 as they were adopted by the Indiana legislature in 2008; however, the amendment to the Indiana Constitution makes it more difficult for future legislatures to amend or revoke the property tax caps. 

Although effective property tax rates differ among taxing districts in Indiana, the average effective property tax rate statewide is currently lower than the tax cap for each property class, according to the Indiana Department of Local Government Finance.  The Constitutional amendment continues to allow local residents to vote to approve increased property taxes for special purposes, such as capital projects and school operating costs.  If property tax cap rate levels are reached in the future and local residents do not approve higher property tax rates, the usefulness of TIF may be impacted because the property taxes, and therefore the amount of tax increment generated, would be limited.

Supporters had hoped that the Chicago City Council would vote yesterday to adopt the Sweet Home Chicago Ordinance, which would require the City to set aside an amount equal to 20% of the tax increment generated in TIF districts throughout the City for the construction and rehabilitation of affordable housing.  Although the Ordinance was on the agenda for yesterday’s meeting, the City Council elected to delay the vote until December.

The Chicago City Council will likely vote this week on the Sweet Home Chicago Ordinance, which would require the City to provide an amount equal to at least 20 percent of the aggregate tax increment collected through the TIF Districts in the City during a fiscal year to the development and preservation of affordable housing during the next fiscal year.  The Ordinance passed out of the City Council Joint Committee on Finance and Housing on November 15^th by a vote of 13 to 8.

The Ordinance establishes criteria for residential developments to receive a portion of the affordable housing set-aside.  Residential rental developments would qualify to receive funds if at least 50 percent of the units are affordable to households earning less than $37,000 per year for a family of four, 50% of the Chicago Metropolitan Statistical Area median income adjusted for household size.  Residential for-sale developments would qualify to receive funds if at least 50 percent of the units are affordable to families of four earning less than $60,300 per year, 80% of the Chicago Metropolitan Statistical Area median income adjusted for household size.

In addition, the Ordinance requires that, on a citywide basis, 40 percent of the units created with affordable housing funds be affordable for households earning less than $22,600 per year for a family of four, 30% of the Chicago Metropolitan Statistical Area median income adjusted for household size.

Proponents of the Ordinance, which has been held in the City Council Joint Committee on Finance and Housing since March, say that approximately $100 Million would be available in TIF money in 2011 to build or rehabilitate affordable housing in the City.  In addition, proponents claim that the Ordinance would help create approximately 3,000 Chicago jobs in construction, architecture and real estate.  If the Ordinance is adopted by the full City Council on Wednesday, it would still have to survive a possible veto by Mayor Daley.

California Proposition 22, the “Local Taxpayer, Public Safety, and Transportation Protection Act of 2010,” was adopted by approximately 61% of California voters in the November 2nd election.  Proposition 22 prohibits California from shifting tax revenues away from local government, public safety and local transportation agencies, and eliminates the State’s ability to tap into local funds to cover the State budget shortfall.  Proposition 22 declares that the State has been acting illegally by requiring redevelopment agencies to transfer TIF funds for non-redevelopment purposes, and includes a provision that prohibits the State from forcing redevelopment agencies to transfer TIF funds to the State in the future. 

Public approval of Proposition 22 may also impact a pending legal challenge filed by the California Redevelopment Association (CRA). On October 20, 2009, the CRA filed a lawsuit against the State, claiming that the State’s requirement that redevelopment agencies transfer $1.7 billion in TIF funds to school districts by May 10, 2010 and an additional $350 million by May 10, 2011 is unconstitutional.  A Sacramento County Superior Court ruled in favor of the State on May 4, 2010 and the redevelopment agencies transferred $1.7 billion to the State prior to the May 10^th deadline – that ruling is being appealed.

If you are a developer considering a commercial or industrial project in Cook County, your project may be eligible for certain incentive programs designed to reduce your real estate taxes.  Two such incentives are the Class 6b and the Class 8 classifications.  These classifications allow certain commercial and industrial properties in Cook County to be assessed at lower levels (10% of market value) rather than a traditional assessment (25% of market value) for a period of 10 years.

Class 6b Incentive

Class 6b incentives are designed to encourage industrial development in Cook County.  New, rehabilitated or re-occupied industrial facilities are eligible for this incentive.  Qualifying properties receiving the Class 6b incentive are assessed at 10% of market value for the first 10 years, 15% in the 11^th year and 20% in the 12^th year.  In the absence of a 6b incentive classification, industrial property would normally be assessed at 25% of its market value.  This incentive is renewable and the number of renewal periods is unlimited.

Class 8 Incentive

Both commercial and industrial projects may be eligible for Class 8 incentives.  A Class 8 incentive is designed to encourage industrial and commercial development in areas of Cook County experiencing severe economic distress.  Like the Class 6b incentive, qualifying properties are assessed at 10% of market value for the first 10 years, 15% in the 11^th year and 20% in the 12^th year, substantially lower than the 25% assessment level.  Also, like the 6b incentive, the Class 8 incentive is renewable and the number of renewal periods is unlimited.

Application Process

An Eligibility Application must be filed for both the Class 6b and the Class 8 classifications prior to the commencement of construction or rehabilitation.  The applicant must provide certain information to the Cook County Assessor, including information about the property, the proposed project and the proposed tenants.   A municipal ordinance supporting the classification must either be included with the Eligibility Application or delivered to the County prior to the completion of construction.

While an individual industrial property may qualify for either a Class 6b or a Class 8, the Class 8 requires a municipality to adopt an ordinance stating that the proposed development or redevelopment area, which includes the property, is in need of revitalization.  The County has waived this requirement for properties located in Bloom, Bremen, Calumet, Rich and Thornton townships.

After construction has been completed, the applicant must file an Incentives Appeal Form requesting that the real estate be re-classified.  Certain information about the project must be provided with the Incentives Appeal Form, including a final project budget for all work completed on the property. Finally, a Real Estate Assessed Valuation Appeal must be submitted to the Cook County Assessor to finalize the classification change.

If a classification change is granted, the Class 6b or Class 8 recipient must file a triennial affidavit during the term of the incentive, attesting to the use of the property and the number of employees at the site.