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CHICAGO-When incentives drive 90% of real estate development, it’s a sign something is wrong, said Cook County assessor James Houlihan. “The state of property taxes in Cook County and the state of Illinois is broken,” Houlihan told the Chicago Association of Realtors’ Commercial Forum and CCIM recently.

“It’s an outrage,” said Houlihan, whose plan to shift the burden of financing schools and local governments from property taxes has fallen on mostly deaf ears, including fellow Chicago Democrat and Illinois Gov. Rod Blagojevich.

Houlihan urged commercial real estate owners and practitioners to “make your voice heard to those who say we’re not going to make a change. The only thing holding us back is elected officials and public.”

Residential property tax payers in Cook County enjoy a relative bargain, as their homes and small multifamily rental properties are assessed at 16% of theoretical market value. The actual assessments, however, turn out to be 10%, according to state revenue officials. Meanwhile, commercial property owners are assessed at rates up to 38% of market value.

“We should change that,” Houlihan conceded. “We should have as broad a tax base as possible.”

Houlihan’s proposal includes cutting property taxes by $4.5 billion, individual income taxes by $1.5 billion and sales taxes by $1.3 billion. He would then increase income taxes by $4.3 billion, targeting businesses who have largely avoided tax hits as well as making the individual taxes progressive rather than the current flat 3%. Services such as attorney fees also would be subject to the sales tax, adding $3.8 billion in revenue.

The end result would make Illinois more competitive with its Midwest neighbors, Houlihan said. Illinois’ income tax rate is lower than most states, including Wisconsin, and the sales tax is not applied to food and medicine, he noted.

“We fund too much of government and schools with the property tax,” Houlihan said. Even then, it produces inequities. In Evanston Elementary District 65, a property tax rate of 9% of assessed value generates funding of $10,000 per student, Houlihan said. Meanwhile, he added, Park Forest Elementary District 163 provides $3,500 per student despite a tax rate of 19%.

The state has long paid less than the 50% mandated by the constitution for education. However, Blagojevich has so far rejected “tax swaps” if it results in higher taxes in any category.

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