Impasse in Legal Battles May Affect Chicago’s Real Estate ‘Mansion’ Tax Targeting Homelessness – Sky Bulletin
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The fate of a pivotal referendum in Chicago that proposes to impose a higher real estate transfer tax on million-dollar property transactions to aid the homeless is currently uncertain due to a legal tussle. Although this type of citywide vote is a rarity in the Windy City, notable cities like Los Angeles have passed such “mansion taxes.”
The Chicago initiative, termed Bring Chicago Home, was recently dismissed by a Cook County judge, leaving its proponents yearning for a reversal.
Despite ongoing judicial deliberations, the measure remains listed for voters as early voting commenced for Chicago’s March 19 primary.
Let’s delve deeper into the intricacies of this ballot initiative and the surrounding debates.
THE BALLOT QUESTION
Voters in Chicago will cast their ballots either in favor of or against a progressive increase in the city’s transfer tax for properties valued over $1 million. This is a single-time levy paid by the buyer at the time of purchase.
The current rate stands at 0.75% for all real estate sales; however, the proposal seeks to modify this structure: imposing a 2% tax on properties exceeding $1 million, 3% on those over $1.5 million, and reducing the tax to 0.6% for properties valued under $1 million.
A vast majority of property sales in Chicago fall below the million-dollar mark, implying that most homebuyers would benefit from a tax reduction. Proponents suggest that around 95% of buyers would observe a decrease in their payable tax.
The median sales price of properties in the Chicago area hovers around $350,000, according to the National Association of Realtors. Currently, such a transaction incurs a fee of $2,625 payable to the city, which would be reduced to $2,100 under the proposed tax plan.
The tax is designed to be marginal, meaning that only the amount exceeding $1 million is subjected to the higher rate. Currently, on a real estate transaction of $1.2 million, the buyer pays $9,000. With the proposed changes, this amount would increase to $10,000.
POTENTIAL IMPACT ON REVENUE
The adjustment, as estimated by supporters of Bring Chicago Home, could yield an additional $100 million per year. This sum would be earmarked explicitly for services addressing homelessness, including mental health support and job readiness programs.
Currently, Chicago spends about $50 million from its city budget for such services. With this initiative, advocates envision a substantial positive impact, including preventive measures. Doug Schenkelberg, the executive director of the Chicago Coalition for the Homeless, asserts that it would significantly shift the current dynamics.
In Chicago, roughly 68,000 individuals deal with homelessness, with noticeable racial discrepancies. African Americans constitute approximately half of this demographic. The coalition broadens the homeless definition to encompass those lacking permanent addresses, regardless of whether they are street dwellers or “couch-surfing” with friends.
Brian Rodgers’ testimony illustrates the struggles associated with homelessness, highlighting the challenges in securing stable employment.
Children make up about a quarter of the city’s homeless population. The story of Electa Bey, who faced homelessness following her husband’s untimely death, reveals the profound impact such circumstances can have on families and particularly on children.
CRITICISM FROM OPPOSITION
Real estate associations argue that imposing a heavier tax on premium properties, especially amidst the post-COVID economic recovery phase in downtown Chicago, would disproportionately disadvantage the commercial estate sector.
Downtown vacancies saw a historic peak by the end of 2023. These groups are challenging the proposal, contending that it places an unfair burden on Chicagoans and could hinder business development. The opposition, having already achieved a legal victory in February, continues its campaign against the measure.
ONGOING JUDICIAL CONTEST
Such litigation is rare for ballot questions in Chicago. To note, binding citywide ballot initiatives are quite infrequent here.
The real estate groups challenge the referendum’s legality, alleging it contravenes state law by suggesting a simultaneous tax decrease and increase.
However, there has been contention regarding the lawsuit’s target.
The litigation currently names the Chicago Board of Elections as the defendant, whereas the Board holds the City of Chicago responsible for putting the question to vote via a City Council decision. Appeals and legal maneuvers persist as the votes for the measure remain uncounted and withheld from the public pending judicial approval.
Chicago Mayor Brandon Johnson remains hopeful that the voters ultimately have the final say.
COMPARATIVE PRECEDENTS
Other cities that have introduced similar taxes serve as a point of reference. For example, Evanston adjusted its tax rates to fuel initiatives such as reparations, and Santa Fe supported affordable housing through a voter-approved referendum.
Chicago’s proposal draws inspiration from these precedents, aiming to create a significant shift in the city’s approach to combating homelessness.
The embattled Chicago ballot measure proposing to impose a higher real estate transfer tax on luxury property sales speaks to a larger societal question of how cities choose to generate revenue and address social issues such as homelessness. While such measures draw both acclaim for their progressive nature and criticism for potential economic impacts, the ongoing legal challenge in Chicago underscores the complexity involved in enacting policy changes through direct voter engagement. The outcome of this legal limbo will not only have implications for the city’s homeless population but also for the real estate market and potentially for the scope of direct democracy in municipal governance. The entire city awaits the resolution of this legal challenge with bated breath, hoping to witness the reflective power of democratic decision-making in supporting one of its most vulnerable populations.
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