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An Interview with Cook County Assessor Fritz Kaegi


Fritz Kaegi is a man on a mission, and his “to-do” list is long. He will need time and resources to get everything done, and both are in short supply. But, if my one-hour interview with Mr. Kaegi is any indication, Mr. Kaegi is not put off by the challenge. If anything, he strikes me as being very much up to the task.

A top priority in his first several months in office has been explaining to taxpayers what he is trying to do and why it matters. This effort began prior to his election and resonated enough with voters to hand him a stunning and decisive victory over incumbent Joe Berrios in the March 2018 primary. He easily beat his Republican challenger in the general election the following November.

It’s one thing to win an election on voter anger at the incumbent; it’s quite another to be the person in charge and to be responsible for a broken system, particularly when that system is entrenched and shrouded in mystery. Suffice it to say, few people truly understand Illinois’ Byzantine property tax collection system. It is harder still to articulate why the system was not working and why it needed to change. Perhaps most daunting of all, Mr. Kaegi wants us to understand what he can and cannot do in his capacity as Cook County Assessor about those high, and ever-increasing, tax bills.

The good news is that Fritz Kaegi brings both energy and urgency to the work ahead. In his few short months in office, he has already made dramatic changes to the status quo. However, he has also sent shockwaves through the real estate industry with his new assessments in Evanston and other areas that have been part of the 2019 triennial reassessments in north suburban Cook County. (South suburban Cook County will get reassessed in 2020, and the city of Chicago in 2021. The process starts all over again in 2022.)

Suffice it to say, few people truly understand Illinois’ Byzantine property tax collection system.

I was lucky enough to be given an hour of time on a Friday morning this past summer to sit down with Mr. Kaegi and discuss a wide range of topics regarding the assessment process and its impacts on property owners. The fact that I was given this opportunity at all speaks to how important the Assessor believes it is to get the word out – to property owners, and to all citizens of Cook County – about his work. What follows is a summary of the many issues we touched on during the interview.


Goals, Objective and Challenges

What are the Assessor’s main goals and objectives, and what are the biggest obstacles standing in his way?

Several times during the interview, the Assessor referred to his “North Star” which he defines as “accurately, transparently, fairly and ethically” setting assessed values for all properties in Cook County. In the Assessor’s view (and in the view of many others), this was not done under his predecessor. If there is one overarching goal for Mr. Kaegi, it is to make the assessment process as objective and data-driven as possible.

Several times during the interview, the Assessor referred to his “North Star” which he defines as “accurately, transparently, fairly and ethically” setting assessed values for all properties in Cook County.

It is widely understood that, in the past, the assessment process has been subject to political interference. More than one powerful politician in Chicago, Cook County and Illinois, is also a tax-appeal lawyer. These well-connected, politician-lawyers have long been rumored to influence the assessment of properties in Cook County, winning appeals for their clients that result in lower assessed values and lower tax bills.

If there is one thing above all others that Mr. Kaegi is hell-bent on changing – it is this: no more arbitrary values that may or may not be too high for regular folks, but have a strange tendency to be unusually low for the wealthy, the powerful and the well-connected.

If there is one thing above all others that Mr. Kaegi is hell-bent on changing – it is this: no more arbitrary values.

This political influence resulted in a system that was notoriously unpredictable, and led to sizable variations between assessed values for properties that were otherwise highly comparable. Moreover, these assessed values were subject to unpredictable changes every three years under the triennial reassessment process. Mr. Kaegi lamented the “wicked volatility” of this system under his predecessor, and the difficulties this volatility caused for property owners and their lenders anytime a decision needed to be made about buying, selling or financing.

Mr. Kaegi laid out a number of specific goals he will need to accomplish in order to right the ship.

First, he cites the importance of data integrity. His highest priority in obtaining the best possible data is to get the Illinois Legislature to approve his Data Modernization Bill in both the House and the Senate. The Assessor laid out his case for why this bill is so important in an excellent Crain’s article on February 18, 2019. It is worth a read.

This bill is not without its critics, particularly from property owners who fear it will impose new and costly reporting requirements on them, and might result in the disclosure of proprietary income, expense and general operating information. In response, Mr. Kaegi says that the data requirements are not unreasonably burdensome; that 17 other states are already requiring similar data from property owners; that the same data is required for property tax appeals, so why not provide it upfront and avoid the lengthy and expensive appeal process; and that any data submitted is exempt from FOIA and will only be released to the public as averages and never as individual datapoints. Mr. Kaegi also argues that the benefits greatly outweigh any disadvantages and will ultimately benefit property owners and the assessment process.

He is already half-way to success on this legislative effort. The Senate passed SB 1379 in April. Although the bill has yet to receive a vote in the House, Mr. Kaegi is hopeful that it will be taken up during the fall Veto Session which is now upon us as this article goes to print. Even if he fails to get this bill through the State Legislature, the Assessor is committed to using actual data to determine property values, focusing on operating information and cap rate data for commercial properties, and comparable sales data and up-to-date physical condition information for residential properties.

Second, he wants to implement “best practices” in his valuation methodologies wherever possible. One example is incorporating Trepp database information into this valuation analysis. Trepp provides excellent data on income, expenses and cap rates for large, institutional-grade commercial properties. Unfortunately, Trepp is less useful for smaller, non-institutional properties.

Third, he wants to revamp and professionalize staffing at the Assessor’s Office. Before his predecessor took office, the number of accredited International Association of Assessing Officers (IAAO) staff was over 100. By the time Mr. Berrios left office, this number had fallen to fewer than 30. Mr. Kaegi is committed to rebuilding capacity and re-professionalizing the office by increasing the number of IAAO-accredited employees. More generally, Mr. Kaegi is intent on hiring smart, driven, committed people of high integrity.

Finally, Mr. Kaegi is looking toward technology to improve the assessment process, and the interactions of the Assessor’s Office with other divisions of Cook County Government. Tyler Technologies will play a key role in integrating the work of the Assessor’s Office with other parts of Cook County government.

Mr. Kaegi notes that the Assessor’s Office already works closely with the County Clerk, the Treasurer’s Office, the Recorder of Deeds, and the Cook County Board of Review (which I was surprised to learn was completely separate from the Assessor’s Office, even though they have the last word on Assessed values for properties that make it all the way through the tax appeal process). Tyler Technologies will make these interactions easier, more transparent and more productive.

Mr. Kaegi says that he has a great relationship with County Board President Toni Preckwinkle and all 17 members of the Cook County Board of Commissioners. He says they have a good understanding of his needs and have expressed support for his budget requests as part of his effort to overhaul the Assessor’s Office and bring it into the 21st Century. This is not to say that he presumes he will get all the money and resources he has requested. But he is generally optimistic about the support he has gotten from the County Board for the work he is doing. He feels confident the Board President and Commissioners will continue to support him in his efforts.


What the Assessor Can and Cannot Do

A big frustration of Mr. Kaegi’s is that even though he is the public face of property taxes in the county, he is in fact just one part of a complex system that determines how much we all pay twice a year when we send our checks to the Treasurer’s Office. First and foremost, Mr. Kaegi wants you to know that his primary responsibility is the accurate, transparent, fair and ethical valuation of your property. On the list of things Mr. Kaegi does NOT control are:

 

  • The amount of taxes any jurisdiction decides it must raise to cover promised government services (determined by each local community or taxing jurisdiction)
  • How taxes are “equalized” across the state’s 102 counties (determined by the Illinois Department of Revenue)
  • How taxes are distributed within your township between schools, police, fire fighters, etc. (determined by the Cook County Clerk)

 

Mr. Kaegi says the greatest misconceptions people have about him and his work as Assessor is that he knows in advance what values are going to be, and that he just wants to “grab more money” from property owners. For the record, Mr. Kaegi thinks property taxes are way too high in Illinois and are a direct result of the State’s failure to adequately support local public schools. At least one source ranks Illinois dead last in state support for public, primary education. The State of Illinois contributes less than 20% of the cost of public schools (K-12), compared to a 50-state average of 45%.

Mr. Kaegi says the greatest misconceptions people have about him and his work as Assessor is that he knows in advance what values are going to be, and that he just wants to “grab more money” from property owners.

To compensate for the lack of state support, local governments have had to rely on local property taxes to pay for local public education. This has resulted in Illinois having some of the highest property taxes in the nation. What the Assessor can do, and what he is trying to do, is to provide a more open and understandable process for determining property values. What other branches of state and local governments do with this information is beyond his control.

Impact on Property Owners and Shockwaves in Evanston

Mr. Kaegi understands that, fairly or not, most people in Cook County blame him for rising taxes. It was Mr. Kaegi’s bad luck to take office shortly after local governments were saddled with mandatory increased contributions to under-funded pension plans. This resulted in higher overall tax levies and corresponding increases in property taxes.

For anyone who lives near the booming Milwaukee Avenue corridor, things are even worse since these neighborhoods have seen some of the steepest increases in property values between the 2015 and 2018 triennial reassessments that occurred in the city of Chicago. All of that was old news by the time Mr. Kaegi took office, but the damage had been done, and the public was already on edge when reports of skyrocketing increases in assessments in Evanston township began to hit the news earlier this year.

Mr. Kaegi understands that, fairly or not, most people in Cook County blame him for rising taxes.

You can certainly “blame” Mr. Kaegi for your increased property valuations in Evanston. He will be the first to admit that these values did increase, in some cases quite substantially. But you can also ask yourself if the apartment assessments under Mr. Berrios, who used an average cap rate of 11.95%, were more accurate than the apartment assessments under Mr. Kaegi, who used a median cap rate of 6%. Put another way, when was the last time you, or anyone you know, was able to buy an apartment property in Evanston for a 12% cap rate? Mr. Kaegi, in an effort to be transparent, provides this data for review in his “Cook County Assessor’s Office: 2019 North Triad Assessment” Evanston Township report on the Assessor’s website.

Property owners could calmly discuss whether 12% or 6% is a more accurate cap rate for apartment properties in strong markets like Evanston. Or we could behave as any normal human being would in similar circumstances and have a total and complete melt-down when we see our property assessments double in Evanston and places like it where we own apartments. Many of these properties are encumbered with debt. Lenders typically require us to maintain minimum debt service coverage ratios or risk having technical defaults declared. There is probably no better way to blow through a DSC ratio covenant than to see your real estate taxes unexpectedly double.

The reward will be more predictable and data-based valuations, and less uncertainty about what your tax bill will look like from one year to the next.

Mr. Kaegi has two responses to this concern. First, just because an assessment goes up by 50% to 100% does not mean that your taxes will increase by the same amount. Evanston Township, like all townships, determines how much tax revenue they require to operate. As long as the total amount of tax revenues does not change dramatically from one year to the next, and as long as all commercial properties are being treated equally, then your tax burden will not increase by anything like the amount that your assessment just did.

Secondly, Mr. Kaegi recognizes that his cap rates are based on old income and expense data – where lower property taxes were baked into the operating data. To compensate for this, Mr. Kaegi assured me he is using slightly higher cap rates than actually found in these markets, resulting in slightly lower assessed values and, presumably, slightly lower tax increases.

Given the alternatives available, we have to ask ourselves – isn’t it better to have a system that is predictable and fair than one that is random, prone to abuse and fundamentally corrupt?

Once all properties in Cook County have been reassessed (after the end of 2021 when a full triennial cycle has been completed), the new income and expense information will factor in any increases in taxes that resulted from the current reassessment cycle. Maybe we just need to calm down and give the Assessor time to work his way through all of Cook County. The reward will be more predictable and data-based valuations, and less uncertainty about what your tax bill will look like from one year to the next. Not that getting from here to there will be easy or pleasant. But a return to the old status quo would certainly be worse.


Conclusion

There is a lot not to like about the state of the State these days. Our elected officials often seem more interested in blaming each other and winning elections than in actually solving problems. But, after spending an hour with the new Assessor, I can report that he seems genuinely interested in trying to fix a system that was clearly broken and that no one trusted.

Change is always hard, especially when we all know that taxes will continue to increase beyond inflation and beyond the comfort level of many property owners, no matter who we vote for, and no matter what we do or say. But, given the alternatives available, we have to ask ourselves – isn’t it better to have a system that is predictable and fair than one that is random, prone to abuse and fundamentally corrupt? I know where I stand. I’m willing to take a few lumps if it gets us to this vision of a better future.

 

 

 

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