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SB 2259 Replaces HB 2168


The Builder has been following the progress of the legislative effort to find a replacement for the Class 9 tax relief program that has fallen out of favor in recent years. Two previous articles outline how this new proposed legislation would work, and the bill introduced by Representative Sara Feigenholtz (HB 2168) to adopt this legislation into law.

While HB 2168 has not been passed, Senate Bill 2259 would address the same issue in a slightly different way. SB 2259 was introduced by Senate President John Cullerton (6th District) on May 23, 2019 and parallels the House Bill in many respects. However, SB 2259 relies on a different calculation to determine tax benefits for developers who choose to avail themselves of this program.

The new bill will still allow tax relief for new construction or substantial renovation of existing buildings of six units or larger. Like HB 2168, this bill, if adopted, will be mandatory in Cook County, and may be implemented in any of the other counties in the state with a majority vote of their respective County Boards. Like HB 2168, the new bill will require that a certain percentage of the units created (or renovated) offer rents affordable to households earning no more than 60% of area median income (AMI).

Under the Feigenholtz Bill (HB 2168), 15% or 35% of a building’s units would have to be set aside as affordable to qualify for a corresponding tax reduction of 25% or 35%. This percentage would have been deducted from the anticipated assessed value of the property once the building was built, or the renovation completed.

By contrast, the Cullerton Bill (SB 2259) standardizes the percentage of units that must be affordable at a flat 20% in exchange for a declining tax benefit that is deducted from the differential in value between the new assessed value after construction or renovation, and the current assessed value before this work begins. The deduction is substantial in the first few years, but gradually declines over a ten-year period, as follows: 100% during the construction or renovation and then for the first two years of operations thereafter; 80% in years three and four; 60% in years five and six; 40% in years 7 and 8; and 20% in years 9 and 10.

For a new construction or a comprehensive rehabilitation project, SB 2259 will likely provide greater tax incentives to developers than the previous HB 2168 would have offered. However, for smaller renovations, HB 2168 would still have provided greater total benefit to the developer. Some housing advocates fear that the Cullerton Bill will be more attractive to well-capitalized builders undertaking major construction projects, and less attractive to mom-and-pop owners of smaller buildings in both the city and suburbs.

In the final analysis, it is probably fair to say that both bills will have supporters, and that both will likely lead to the creation of new, affordable units in exchange for tax relief to developers of those units. However, SB 2259 will likely be more effective in areas seeing significant new construction (downtown, the North Side, the Milwaukee Avenue Corridor), while HB 2168 would likely have spread that benefit more widely across the city and region.

It remains to be seen which, if either, bill gets adopted into law. As previously described, both bills rely on the market to provide incentives to developers to further the worthy goal of increasing the supply of affordable units in Chicago, Cook County and the State, without resorting to measures that punish property owners or forcing them to bear the full cost of programs that benefit the public at large.

RPBG has long supported the cause of affordable housing, but believes that the costs that must accompany any attempt to increase the supply be borne by all members of society, and not imposed solely on property owners. Both HB 2168 and SB 2259 would accomplish this goal by providing financial incentives to owners of properties in need of substantial renovation, or to developers of new housing that will increase the supply of affordable rental units.

We applaud Senator Cullerton and Representative Feigenholtz for their leadership on this important legislation. We hope a final bill emerges that is passed into law.




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