Housing crash pushed bigger tax load onto seniors
Many Illinois seniors on fixed incomes are actually paying more property taxes these days because of the drastic decline in the value of their homes in recent years.
That's because a state program designed to stabilize property tax burdens for homeowners 65 and older on limited incomes doesn't work -- and actually has an opposite effect for participants -- when property values decline for everyone like they have since the housing market crash in 2008, a Daily Herald analysis of tax records shows.
"It's the law of unintended consequences," said Craig Dovel, DuPage County's supervisor of assessments. "When everybody's property value declined there's not that artificial protection of the senior freeze. Those seniors are now paying more of the full boat."
The state's Senior Citizens' Assessment Freeze Exemption works by capping participating homeowners' property assessments. So even if the property's value rises each year, a participating homeowner is taxed only at the level when the "freeze" was put into effect. In better times for real estate, participating homeowners in some suburban townships averaged as much as $38,000 reductions on their assessments, which would have reduced their property tax bills by hundreds of dollars. But instead of just losing out on the revenue, governments shift the tax burden onto property owners who don't qualify for the freeze.
The law was intended to prevent fixed-income seniors from being taxed out of their homes since, to qualify, participating homeowners have to earn less than $55,000 a year.
"But nobody thought property values would decline," said state Rep. David Harris, an Arlington Heights Republican who sits on the House property tax subcommittee. "Now, the issue is huge."
Here's why. If property values drop below the frozen level, there is no longer any benefit to the participating homeowner because he or she is taxed at that lower level.
That wouldn't be a problem if the value dropped for only that homeowner. But when the value drops for everybody and the tax levies for all government bodies stay the same, or more likely increase, tax rates have to increase to meet the levies governments are allowed to collect.
"Does that mean these seniors are paying more property taxes now than when their home was worth more and they were benefiting from the freeze? It absolutely does," said Mark Armstrong, Kane County's supervisor of assessments. "Declining values across the board shifts the burden toward people that had senior freeze."
An analysis of exemption records in 50 suburban townships throughout six counties shows nearly 52,000 homeowners were taking advantage of the senior freeze exemption and receiving an average assessment reduction of $16,214 in 2009, the tax year property values peaked. By 2012, fewer than 35,000 elderly homeowners received any benefit from the freeze, and the average assessment reduction had dipped by 46.4 percent to $8,695.
The program also doesn't benefit Cook County seniors as much as qualified homeowners in other counties. That's because every county besides Cook assesses property at 33.3 percent of its market value. In Cook County, residential properties are assessed at 10 percent, so the freeze is applied to just that lower amount. To compare, the 1,494 participating seniors in DuPage County's York Township averaged $25,541 assessment reductions last year. Meanwhile, a similar number of qualifying seniors in Cook County's Palatine Township averaged assessment reductions of $2,522 in 2012.
Legislators have not been swift to address the issue. Harris said he supported a bill that would have prevented a homeowner's property tax bill from increasing if his or her property value decreased, though he noted it "was not the best bill in the world." It didn't pass.
"This is a serious problem," Harris said. "My basic belief is that the property tax system in this state is broken and needs serious adjustment and reform. It's too easy for the taxing bodies and the assessors and others to sit around in a circle pointing at the other ones as responsible for property tax bills."
While experts believe real estate values will bottom out for taxable purposes by next year at the latest, the peril lies in the requirement that fixed-income seniors must reapply for the freeze every year. If they've gotten out of the habit because they haven't received any benefit in recent years, they could forget to apply and miss out on the chance to freeze their assessments at the lowest level.
"You want to establish that lowest base so when things begin to rise you're going to be set at that lowest level," explained Rhonda Novak, Will County's supervisor of assessments. "Keep applying."
It's just one more thing Barbara Rogers has to keep track of in her retirement.
"You better find the loophole yourself," she said. "No one's going to tell you about them."
The 70-year-old Crystal Lake widow had qualified for the senior freeze in the past, but when the assessed value of her home dropped by $12,000, any benefit evaporated. Meanwhile, her property tax bill rose from around $5,700 in 2011 to $6,600 last year, she said.
"I'm on a very fixed income now," Rogers said.
"I will gladly take the freeze. I just hope they send me the paperwork automatically and I don't have to go chase it down."
There are some property tax relief programs available to seniors who qualify, but even those programs are affected by the declining property values. The state offers a tax deferral program administered by county treasurers that charges 6 percent interest, but participants can leverage only up to 80 percent of the value of their properties.
"The value of these houses is dropping so much that these participants may not qualify because they've already deferred so much," said Robert Skidmore, Lake County's treasurer. "And recently the state changed the rules so you can only defer up to $5,000 a year."