Chicago Mayor Brandon Johnson’s homelessness plan sparks questions


Mayor Brandon Johnson’s bold plan for Chicago to pour roughly $100 million more a year into programs for homeless services relies on an often-overlooked tax that only buyers of real estate have to pay and has generated inconsistent proceeds for decades.

As members of Chicago’s City Council soon begin examining the nuts and bolts of the Bring Chicago Home proposal with an eye toward deciding whether to ask city voters through a ballot referendum whether it should be implemented, questions abound about the plan’s fiscal structure, its revenue projections, and what impact it will have on the city’s broader real estate market.

The debate about overhauling the real estate transfer tax comes at a time when revenues from it are already falling. The tax will end this year 37% lower than initially anticipated, according to the Johnson administration’s own projections. What’s more, revenues from the tax since 2003 have been fickle and followed fluctuations in the real estate market, spiking at $242 million in 2006 and tumbling to $62 million at the height of the Great Recession in 2009.

Property sales have dipped because of higher interest rates, inflation and a distressed commercial market. A coalition of organized real estate interests has already begun an opposition campaign, warning that the tax hike on sale values over $1 million could add pressure to an already-stressed market, further impeding development and damaging the city’s overall tax base.

Johnson administration officials acknowledge the tax’s volatility, but say their projections are especially conservative for that reason and are based both on historical data and broader market forces. They plan to keep a reserve to bolster against peaks and troughs in collections.

“There are going to be years where we bring in way more than we forecasted, there’s going to be years that you bring in less,” said Annette Guzman, Johnson’s budget director. “Because of the uncertainty around this particular revenue source, we’ll always budget in a way that we’re not (spending) the entire amount.”

Chicago’s persistent homelessness crisis — exacerbated over the past 13 months by an influx of asylum-seekers — calls for a dedicated revenue stream to address it, Johnson and allies of the Bring Chicago Home coalition have argued. They have proposed a three-tiered, progressive structure to the city’s real estate transfer tax, which is also often referred to as “RETT.”

Levied on buyers during real estate sales, the plan calls for slightly reducing the rate charged on the first $1 million in value, increasing the rate on properties valued between $1 million and $1.5 million and boosting the rate even more on properties valued above $1.5 million.

Johnson’s administration and supporters of the Bring Chicago Home initiative have often presented the plan as an effort to pay for services for people experiencing homelessness by taxing those purchasing mansions. The change would cut the tax rate on over 95% of residential transactions for homeowners, they say. To be sure, million-dollar-plus home deals will be hit by the restructuring, but so too will purchases of apartment buildings and neighborhood commercial properties.

While leaders in commercial real estate say they support efforts to reduce homelessness in Chicago, they also say their industry will bear a disproportionate burden of the hike, especially at a time when the industry is distressed.

A collection of tents at a homeless encampment in Humboldt Park on Aug. 23, 2023.

Transaction taxes charged on the sale of commercial, industrial, office, retail and large apartment buildings brought in at least $320 million collectively from 2015 to 2022, according to a Building Owners and Managers Association of Chicago analysis of state data. That represents just under one-quarter of the city’s total RETT receipts during that time.

“We tell people we now have the highest commercial property tax in the country,” said Farzin Parang, BOMA’s executive director and a one-time deputy to former Mayor Rahm Emanuel focused on economic development. “For transfer tax, we’re fourth under the current model. That matters. What we hear from our members is that public safety and real estate property tax based policies are the big things people are just kind of redlining.”

BOMA is part of a group of real estate interests opposed to the increase that includes Realtors associations at the city and state level, the Neighborhood Building Owners Alliance, and the Illinois Hotel & Lodging Association.

“Your taxes are going up!” read mailers sent from a group calling itself “REALTORS in Opposition to Real Estate Transfer Tax.” The group is affiliated with the head of the Illinois Realtors organization. They warn the change “could dissuade buyers from purchasing your property in the future.”

Mailers that a group led by Illinois Realtors sent to consumers who will be affected by a rise in the real estate transfer tax.

Sales of Chicago’s downtown office buildings, potential sources of the biggest individual transaction tax infusions, given their sales prices, “plummeted” between 2016 and 2022, BOMA pointed out in a 2022 fact sheet.

Hotel property values in Chicago also fell by “as much as 50% in the last five years and investors are already saying NO to purchasing Chicago hotels,” the hotel association said in digital ad. “The Bring Chicago Home proposal would quadruple the real estate transfer tax, giving investors yet another reason to take their business elsewhere. Tell your alderperson to vote NO on the Real Estate Transfer Tax hike and instead focus on ways to grow the city’s tourism and hospitality industries.”

A City Council committee is expected on Wednesday to give aldermen their first chance to hear public comment on the Bring Chicago Home plan. The full council is expected later this year to decide whether to put the initiative to voters on as a referendum question that would be included on the ballot in the March primary.

The city’s current real estate transfer tax charges a 0.75% flat rate on all property sales in Chicago.

Under the latest proposal, property values below $1 million would be taxed at a lower rate of 0.6%. Properties selling between $1 million to $1.5 million would be taxed at a 2% rate and properties selling above $1.5 million would be hit with a 3% transfer tax. The tax would be implemented using a so-called marginal rate, which means only the additional dollars above the lower bracket would be subject to the higher tax rate. Those rates would be adjusted for inflation every five years.

The administration estimates the rate change would yield an average of $100 million annually to fund programs such as emergency rental assistance, buying and rehabbing shelter space, and direct housing help. Pressed for revenue estimates for each of the newly proposed brackets, the administration did not provide any.

While early into his first term Johnson generally has enjoyed support from aldermen, especially fellow progressives, the question about whether voters will even see the referendum question on the March ballot remains unanswered.

Ald. Scott Waguespack, 32nd, the former chair of council’s Finance Committee, said between the tax’s volatility and the unclear impact on the broader real estate market, he is considering voting against even putting the measure on the ballot. Waguespack is not an ally of Johnson and the mayor replaced him as head of the Finance Committee with Ald. Pat Dowell, 3rd.

“I think this will have a pretty significant impact on all our wards, all our neighborhoods, and that’s what people are worried about,” Waguespack said. “Not knowing what that number is going to be year to year with the way it flexes up and down, it’s not a good source of revenue” to pay for the mayor’s “billions in ideas,” he said.

Transaction taxes are only charged at the point of sale. Asked whether hiking the price on those taxes could put a damper on commercial investment in Chicago, City Comptroller Chasse Rehwinkel said, “We did look at it. It does have an impact. I don’t believe that it’s as strong an impact as other variables that are controlling for prices and behavior,” including trends in real estate prices.

Housing activist Brian Rodgers during a rally in the lobby of Chicago's City Hall on July 27, 2023. Housing activists want to see the real estate transfer tax in Chicago raised on properties that sell for more than $1 million.

A one-time charge at the time of a sale is one factor among many, Rehwinkel said, a smaller impact than market prices or the annual property tax levy. Of some comfort to all property taxpayers: when releasing his budget forecast, Johnson pledged to keep his campaign promise to hold the line on property taxes and signaled he would end his predecessor’s practice raising the levy to match inflation.

The city’s own budget office has rarely accurately predicted how much real estate transfer tax revenue it could count on and generally planned conservatively. After the Great Recession and before the COVID-19 pandemic, the city wound up bringing in about 20% more than officials thought it would. Even so, receipts have never caught up to the tallies seen before 2008.

When passing what would be her final budget, Mayor Lori Lightfoot’s administration counted on $221 million in receipts from the real estate transfer tax by the end of this year. But earlier this month Johnson’s administration revised estimates downward, predicting the city will end the year with 37% less than expected, for a total of $139 million, “due to a slowdown of activity in the real estate market.”

“Federal Reserve increases to benchmark interest rates to combat inflation have affected the local economy and negatively impacted revenues,” Johnson said in a release when revealing his budget forecast.

The tax’s volatility does not have a major impact on the city’s roughly $16 billion budget, according to Justin Marlowe, a professor at the University of Chicago’s Harris School of Public Policy focused on public finance and budgeting.

But how much money the tax brings in is closely tied to the economy, and continued uncertainty about the cost of borrowing could dampen sales for years.

“When you think about all those RETT numbers going back to 2002, 2003, most of those years were during years of record low interest rates,” Marlowe said. Those rates are high and are likely to remain so for the next year, or even three, he said.

If aldermen agreed to put the measure on the ballot and voters approved the new rate structure during the March primary election, the new rate would not take effect until Jan. 1, 2025 and money from it could not be spent until the 2026 budget.

As part of the initiative’s formal rollout, Johnson’s administration recently told aldermen the city planned to set up a special “Bring Chicago Home Fund” that could only be tapped to address homelessness, “with a priority on permanent supportive housing and wraparound services.” Those responsibilities would likely be split between the city’s housing, public health, and family and support services departments.

The city also would plan to establish a community-led advisory board “to provide annual recommendations on appropriations from the BCH Fund, establish goals, and track outcomes,” according to a brief from the administration.

The proposal is structured to hold the city’s general fund harmless — essentially, the city’s main budget pot would still receive funds as if the 0.75% rate was being charged. City officials do not expect the need to add staff to implement additional services. Properties with legally restricted affordable housing agreements with the city, its housing authority, the state or county would be exempt from the RETT increase.

Guzman, Johnson’s budget director, noted revenue from the Bring Chicago Home proposal is not “the only tool in our tool box to address homelessness in the city of Chicago. I think this is another tool.” Having a dedicated source of funding — no matter the amount — would shield it from other departments’ budgetary pressures or changes in mayoral administrations, she said.

“The bigger question is the real estate market generally, especially the commercial real estate market,” Marlowe said, and whether and when sales and new construction might pick back up. Commercial developers have already scaled back or put projects on hold.

“All of that is starting to feed back through what the city is seeing on the flow of deals,” he said. That’s the driver of this whole thing: interest rate levels and uncertainty about future interest rate levels.”

The trend is similar for new construction and renovation.

Chicago’s pace of issuing such permits has dipped this year to its lowest in more than a decade. The Johnson administration said the slowdown was not due to difficulties getting permits out the door, but a slowdown in applications due to the long-term effects from the COVID-19 pandemic.

From the start of 2023 through Sept. 18, the city’s Department of Buildings issued 5,844 permits for renovations and alterations or new construction, according to city data. That’s a 16% drop from that same time in 2022, 30% lower than 2019, and just slightly lower than the number of permits issued in 2009 and 2010, during the Great Recession.

The city’s building department told the Tribune the value of the work nearly rivals pre-COVID times, despite that lower number of permits from January to mid-September. Those requesting permits estimated their work is worth $5 billion now, compared to $5.1 billion in 2019, before the pandemic.

“The economy’s still going, people are still investing here, we’re seeing it all across the city,” Building Commissioner Matthew Beaudet said.

Beaudet did cite the pandemic’s lasting impact, however, from difficulties obtaining financing for projects, continued labor crunches and supply chain disruptions.

“Realistically, moving forward, folks will tell you if they can’t get financing, they’re not going to start a project. And that’s not anything that is reflected on the city. That’s just the new way the world is,” Beaudet said.

Chicago Tribune’s Alice Yin contributed.


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