The first installment of property tax payments due last week was a sore reminder to Cook County business owners and landlords that their prime locations come at a premium: By some estimates, taxes on commercial properties are 60 percent higher than taxes on similar facilities in Lake and Du Page counties.
Although companies may gripe about taxes, the vast majority pay the freight, chalk it up to the cost of doing business and stay put.
But when a company needs to move, it’s a whole different story. Taxes often loom as one of the big reasons why companies-especially those in suburban Cook-are pushed over the line into more tax-friendly counties.
Take the example of Energy Concepts Inc., a Skokie-based publisher of training and technical materials. Company president Richard Gibbons describes his north suburban address as “the best of both worlds . . . close to Chicago, yet in a nice neighborhood with good transportation.”
Even though Gibbons didn’t want to move, it didn’t stop him from looking just a little farther up the road when the company’s 28,000-square-foot building could no longer accommodate rapid expansion. Like many business owners facing relocation issues, Gibbons made a list of expenses, and property taxes were right near the top.
“We’re paying $60,000 a year in property taxes in Skokie. It’s killing us,” he says, adding that the tax bill has doubled since the company bought the building in 1986.
After an exhaustive 18-month search for a new building, Gibbons decided to construct a $2.5 million facility in Lake County at Lincolnshire Business Center. His building is scheduled for completion in June.
The company will have a new two-story, 40,000-square-foot building on 4.5 acres of land, and his Lake County property taxes, he estimates, will be only half his current bill.
As much as those discrepencies rankle business owners, few leave Cook County strictly because of the taxes. A 1990 study by The Civic Federation, a taxpayer watchdog group, showed that industrial companies felt property tax differentials were an important location factor but not as significant as labor costs, access to highways and the cost of land.
The simple availability of land was a big reason that Energy Concepts decided to build in Lake County: Real estate brokers say large chunks of environmentally clean land are scarce in Cook County. Also, land prices in outlying counties, such as Will and McHenry, are lower, by as much as several dollars a square foot, than closer-in sites.
But in areas that straddle the Cook County border, where land prices are more comparable, taxes can have a bigger influence.
“The land prices are similar in northern Cook and Lake counties,” said Jack Rosenberg, an associate with Colliers, Bennett & Kahnweiler. “The difference is that you pay $1 per square foot more on your real estate taxes in Cook County.”
The Cook County property tax system is one of a kind, which explains the wide swings in bills from county to county. Cook is the only county in Illinois that classifies properties and then assesses them at different levels.
For example: industrial property is assessed at 36 percent and homes at 16 percent. All other counties in Illinois assess property, regardless of type, at 33 1/3 percent.
The system is further complicated by the state multiplier or county equalization factor, which is supposed to level out county differences and bring all properties statewide to a 33 1/3 percent assessment rate. The assessed value of a property is then multiplied by this number to determine the value of the property for taxing purposes.
Cook County’s multiplier is about 2.08, meaning industrial property effectively is assessed at about 75 percent of market value. By comparison, multipliers in the collar counties are about 1.
“The Cook County property classification system puts us at a competitive disadvantage,” said Jackie Harder, director of economic development at the Cook County Department of Planning and Development.
“The effect is exacerbated with the multiplier. Businesses are paying 36 percent times two, which is a big hit.”
Given the tax burden as well as other factors, some cost-cutting companies are willing to jump not only the county but the state line. For example, a number of businesses still needing a Chicago-area location have moved to LakeView Corporate Park near Kenosha, Wis.
LakeView’s lead tenant, Rust-Oleum Corp., opened there in 1990 with a 300,000-square-foot manufacturing, warehousing and research facility. Richard Manning, vice president of operations, says the company has lowered its annual operating costs by $1.5 million since moving from Evanston.
Much of the savings come from efficiencies associated with a new, modern facility and low utility costs. LakeView, owned by the parent of Wisconsin Electric Power Co., has electric rates about 33 percent lower than Chicago’s Commonwealth Edison Co. Although Rust-Oleum is not a big electric user like the food processors that have been lured to LakeView from Chicago, the company did lower its electric bill by $400,000 a year.
But Rust-Oleum cut its tax bill, too. The company’s Evanston property taxes topped out at $650,000 in 1988. The first year tax bill at LakeView was $210,000.
“The real motivator was the future increases of real estate taxes in Evanston,” said Manning, echoing the uneasy feeling of many Cook County property owners who wonder where the spiraling costs will end.
Business owners who want to build or buy a new facility aren’t the only ones affected. Cook County landlords have watched property values and incomes fall because of tax disparities.
Michael Rose, principal, The Rose Group, a developer and property manager, says taxes on his Morton Grove industrial buildings were 12 percent of rent in 1973 and are now 33 percent.
Most commercial leases are written so that costs such as real estate taxes are passed directly to tenants, who pay them along with a net rent that goes to the landlord. But when taxes are high, landlords like Rose must accept less rent in order to keep properties competitive in terms of overall costs with those over the border.
For that reason, real estate investors are wary of buying commercial properties in Cook County.
“I will not pay the same amount for a building in Cook County versus Lake and Du Page,” said Michael J. Klonoski, president of Morgan Realty Partners Inc. “It has to cost less because I get less income because of the taxes.”
Realizing the serious impact of high tax bills on resale value, landlords and business owners regularly file appeals with the county assessor’s office-a tactic that frequently reduces the bill.
Gibbons of Energy Concepts used an attorney to appeal his company’s Skokie tax bill and saved $10,000 one year. The bill rose again the next year to its previous level, however.
To specifically address the problem of Cook County’s high commercial and industrial property taxes, an incentive program was implemented by the Cook County Assessor’s Office in the late 1970s.
“The incentives are an attempt to address the loss of manufacturing jobs in the county, as well as trying to stimulate commercial activity,” said Marcia Maras, Cook County chief deputy assessor.
The property tax incentives, up for renewal in 1995, apply only to newly developed, substantially rehabilitated or reutilized properties. The most commonly used incentives reduce the industrial property assessment level from 36 percent to 30 percent for eight years.
According to the Cook County Assessor’s office, there have been more than 500 incentives granted since the program began, and applications for incentives were up in 1993.
But where many businesses sail through the incentive application process, others point to the stringent requirements, rigorous qualifications and bureaucratic entanglements as drawbacks.
Excessive paperwork and lengthy lead times are also cited as reasons more companies don’t apply for other incentive programs.
Ace Anodizing and Impregnating Inc. in Hillside, has been the only company in suburban Cook County to get a low interest federal government loan through the community development block grant program since 1989.
“The terms of the loan are great,” says David Vaughn, vice president/comptroller. “The process is brutal.”
Vaughn used the low interest loan to help buy and improve the 36,000-square-foot building the company previously leased. Like many executives, Vaughn didn’t want to face the expenses and downtime of a relocation.
But without the government loan-which took eight months to get-Vaughn said he would have built a new facility in Kane or Will County because of cheap land and low taxes.
“I’ve had more businesses than not complain about the rules imposed upon them by the federal government,” said Valerie Jarrett, Chicago commissioner of planning and development, whose staff has orchestrated the retention of hundreds of businesses for the city. “They take one look at the package they have to fill out and say forget it.”
Jarrett points to the need for more “flexible” money, programs that cities can tailor to their own needs without excessive federal requirements, but adds that financial incentives are only a small part of the strategy used to keep business.
“The best way to attract business is to have a good quality of life,” she said.
Yet even within the boundaries of the city itself, relocation decisions can still be colored by real estate taxes.
Armand Lee & Company Ltd., a maker of high-end custom picture frames and mirrors, purchased a 20,000-square-foot building on Milwaukee Avenue in Chicago, moving its operation from leased space on Erie Street.
The relocation was motivated by the need for more space and the desire to own property. But while the company wanted to stay near its downtown clients, it did look for a new neighborhood with lower property taxes.
“One of the reasons we left River North and came to River West was the real estate taxes,” said Norman P. Olson, president of the company. Olson estimates the taxes on the Erie Street building were double his current bill.
Along with his new address, Olson may get further tax benefits because his building is located in an enterprise zone. Set up by the state to encourage development in depressed areas, enterprise zones are another of the handful of programs designed to attract and retain businesses through tax breaks and special financing techniques.
But for some businesses, high costs and high taxes take a back seat to people when it comes to making location decisions.
Bill Neiman, vice president of North American Signal Co., realized the company’s 15,000-square-foot Chicago building was too small, but was afraid he’d lose employees with a move.
“We have good employees who have been with us a number of years, and we wanted to keep as many as possible,” Neiman said. “We wanted to stay as close as possible so our employees would not have to travel that far.”
Neiman purchased a 25,000-square-foot building in Wheeling and hopes most of his workers will make the move this spring.
The fact that his property taxes might be higher than his neighbors a little farther north never figured in his decision.
“Taxes did not enter into our thinking. Real estate taxes are high wherever you go,” he said.
