The Building Owner's and Managers Association (BOMA), released a study of Chicago's commercial real estate last week, blaming Illinois' over-reliance on property taxes for school funding for high vacancy rates in Loop high rises. From The Chicago Reader (circluation 158,000):
“Illinois’ dependence on property taxes jeopardizes Chicago’s long-term economic prospects,” says Ron Vukas, executive vice president of the association, which represents about 80 percent of the commercial rental buildings in the Loop. “We need a change.”
For starters, the vacancy rate in downtown office buildings remains stubbornly high. At about 18 percent, roughly five points higher than the national average, it’s below the rate in Houston (21.2 percent) and higher than rates in New York (8 percent), Boston (11.5 percent), and Los Angeles (around 15 percent).
New office buildings have gone up in the Loop over the last few years. But according to the report they’re being built not for a new market but for an old one, as tenants move from one building to another. “Notwithstanding a few significant moves by companies to Chicago, on average the city has added only 100,000 square feet of new tenant-occupied space a year over the last five years,” the report says. “Those 100,000 square feet translate into just one large new commercial tenant a year for the whole city.”
According to BOMA, rising property taxes are the chief culprit in making it hard to keep commercial tenants downtown, let alone draw new ones. Tax increases are forcing both tenants and landlords to pay a significant chunk of their income in property taxes. “Chicago had the highest property taxes over the last ten years, with an average of $6.98 in taxes per square foot,” says the report. “This compares to $5.31 for New York, $2.78 for Dallas, $2.40 for Atlanta and $1.98 for Los Angeles. By far, Chicago leads the other cities in how much of a building’s income goes to taxes. Nearly 25 percent of a building’s income in the city goes to property taxes alone. In New York and Dallas, that figure is 12.6 percent. In Atlanta, 9 percent and Los Angeles 7 percent.”
In this regard, the report is aimed at Governor Blagojevich as much as Mayor Daley. It’s Blagojevich who’s resisting attempts to have the state pick up a greater share of educational funding—he doesn’t want to back away from his promise not to raise taxes, particularly on the eve of his reelection campaign against Judy Baar Topinka. The best bet for some sort of change will come after next fall’s election, when the newly elected governor has more freedom to act boldly.
“I don’t have a prediction for what will happen with property tax legislation,” says Vukas. “But it really worries me. People think these downtown buildings are cash cows. They don’t get it.”
Of course, the problem for Vukas and BOMA if Blagojevich wins while maintaining his "no new taxes" mantra is that he will cling to that soundbite like a shipwreck survivor clings to driftwood as the '08 Presidential race approaches.
The article also takes a look at the impact that TIF districts have on the overall tax burden, showing once again why The Reader is one of the best sources for in-depth public policy reporting. This week's round-up of the police torture scandal centered around Jon Burge is also a must read.
UPDATE: BOMA's study is here.