Setting the Record Straight on Rumored Property Tax Increases

No one should be surprised about the current fiscal crisis Chicago is facing, but the abundance of recent news articles claiming our taxes are about to explode can be unnerving. And while the increases seem to be coming at us from all levels, hitting us from every possible angle, one of the most alarming pieces I’ve read is from Crain’s Chicago Business suggesting property taxes will increase by 30 percent.

So it’s important to understand that what we’re reading and hearing right now about property taxes is highly speculative. Press accounts are based on assumptions of what will or will not be proposed, what our legislators will or will not approve, and what our governor will or will not sign. There’s really no way to calculate the city’s total liabilities until Springfield passes a budget and resolves the many issues log-jammed with it.

Some of those issues that will impact our taxes include pension reform, workers’ compensation and tort reform. In fact, the Chicago Sun-Times today reported that reforms recently proposed by Governor Rauner would lift the state-mandated $550 million police and fire pension fund payment and provide Chicago with 15 more years to reach 90 percent funding levels – saving the city $843 million over the next five years. Additional proposals include a city-owned Chicago casino with revenues dedicated to the police and fire pensions and the state assisting with teacher pension payments and health insurance contributions. All of these measures would provide significant and much needed relief to the city and taxpayers.

There’s no question that there must be shared sacrifice across the board to resolve these major fiscal challenges. But let’s not forget the burden our commercial real estate industry already shoulders. Commercial real estate property taxes in Chicago account for over 75% of a large building’s total operating expenses, the highest percentage compared with similar cities across the country. Our commercial buildings are assessed at 2.5 times the rate applied to residential buildings and BOMA/Chicago buildings alone paid nearly $750 million in property taxes this past year. And every time another high-rise sells, the city is behind the scenes collecting its transfer tax. The Willis Tower sale alone generated about $10 million for the city.

And the value our industry brings to the city is substantial. BOMA/Chicago’s Economic Impact Study revealed that BOMA/Chicago buildings house over 353,000 employees throughout the Loop, River North, Gold Coast and O’Hare submarkets, and are responsible for nearly 80% of total consumer spending in the Loop alone. These same employees contribute $3.5 billion to Illinois and add over $1 billion in new taxable personal earnings annually.

Solving this dilemma by over-burdening commercial real estate with excessive taxes is in nobody’s best interest. It will cause the economic engine to sputter, and in another year or so, there will be a new financial crisis confronting the City.

In the weeks to come, BOMA/Chicago will be analyzing specific proposals and our legislative team will be working diligently in Chicago and Springfield to protect the interests of commercial real estate. We promise you we’ll be critical and thorough and continue to keep you updated along the way.

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Lawmakers must make tough decisions to address pending fiscal crises

Despite a recent report ranking Illinois number two in the nation in business creation, it’s no secret there are looming fiscal issues on the city, county and state levels that will have a long-term impact our buildings, tenants and the entire business community.

And while the solutions won’t be easy, these fiscal challenges must be faced head-on and our political leaders will have to make some tough decisions.

Though CBS Chicago recently reported the City of Chicago is facing a $1 billion shortfall in its operating budget and a combined $20 billion pension budget deficit, we’re happy to see that Mayor Rahm Emanuel will present the 2016 City of Chicago budget to the City Council one month early in an effort to address the pension crisis and encourage more debate and cost-cutting ideas.

We were also disheartened to read in the Chicago Sun-Times that Chicago Public Schools (CPS) has hit its breaking point and can’t make an obligated pension payment this month without significant classroom cuts. The nation’s third largest school system has never missed a pension payment, and Ernst & Young recently recommended the City Council enact two different property tax increases for the schools totaling $450 million, even if CPS makes drastic budget cuts, and receives pension relief and additional requested state funding. In an effort manage the fiscal crunch, the Chicago Board of Education approved more than $1 billion in new borrowing on Wednesday.

And on the Cook County level, due to a lack of action by Springfield on the County’s proposed pension legislation among other challenges, the Chicago Tribune reports that Cook County Board President Toni Preckwinkle is proposing a sales tax increase. If there is enough support for the tax hike, it would likely go into effect in 2016.

While these proposals are all preliminary and subject to change, it’s important to note that BOMA/Chicago will be advocating on behalf of the office building industry on the city, county and state levels. There’s no doubt our local and state governments are facing fiscal crises that will require some shared sacrifice, but the commercial building industry should not be expected to shoulder all the burden. Our legislative team will monitor these proposals and voice our support for proposals that will ultimately enhance our local economy and continue to sustain a thriving business environment.

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BOMA/Chicago Charged Up about Exelon’s $1.6B Ratepayer Increase Legislation

Exelon, ComEd and Clean Jobs Coalition all proposing Increased Rates

Recently BOMA/Chicago Government Affairs Director Ron Tabaczynski and I were in Springfield where I testified before the Illinois Senate’s Energy and Utilities Committee on behalf of BOMA/Chicago in opposition to three energy bills. If passed, the legislation would result in massive energy cost increases for Illinois’s commercial real estate industry.

Exelon was behind the first of the three bills earlier this year asking ratepayers to subsidize their nuclear plants via a new low carbon energy tax. Subsequently, both ComEd and the “Clean Jobs Coalition” sponsored bills of their own in order to claim their pieces of the ratepayer-subsidized pie.

Before delving into the legislation, it’s important to point out that Exelon Corporation is a publicly traded utility services company (EXC) with a current market cap of about $28.5 billion. Effectively, Exelon controls both sides of the coin through its ownership and control of northern Illinois’ wholesale energy supply as well as the delivery or demand side through its ownership of ComEd. And don’t forget that virtually everything Exelon and ComEd do – including their massive public relations campaigns and lobbying efforts to drastically increase our energy utility costs – are essentially funded by ratepayers through their energy bills. That’s right, not only are we subject to major rate increases, we’re actually funding Exelon and ComEd’s campaigns to make those increases happen.

So first, let’s review the Exelon bill (HB 3293/SB 1585). This legislation hits residential, business, and governmental consumers with a whopping $1.6 billion cost to subsidize some or all of Exelon’s nuclear plants through low carbon energy credits. Due to a cap in place on the residential but not commercial ratepayers, commercial customers will once again be hit the hardest. In fact, it’s estimated that BOMA/Chicago members and tenants alone will be stuck with a combined bill of at least $55 million in extra costs.

The second piece of legislation is known as the “Clean Jobs” bill (HB 2607/SB 1485), but don’t be duped by the name. It’s essentially a counter-grab by the renewable energy consortium that adds a ratepayer subsidy for publicly traded wind and solar companies. The bill also constrains market development and innovation by dictating solutions to achieve cleaner energy without addressing consumer roles or behavior in the marketplace, which is especially troublesome given BOMA/Chicago’s strong record on energy efficiency and sustainability measures.

The last but certainly not least detrimental is the ComEd legislation (HB 3328/SB 1879). While the first two bills attack ratepayers from the supply side of the equation by increasing rate-payer subsidies to publicly traded companies and mandating energy policies, this legislation attacks from the demand side by effectively providing ComEd with more monopolistic ownership and control over the electric system. Not only will this legislation introduce new costs and annual electric rate increases, it will also generate untold costs for re-regulating the market while stymying innovation in Chicago. Like the other two bills, this legislation does not allow consumers to access their own information so that they may play a role in market innovation and job creation, let alone contribute to a more sustainable environment.

Frustratingly, all three bills completely miss the point. To truly achieve a clean energy policy that actually reduces carbon emissions, consumers, the customers that would pay for all this, must have the ability to affect their own destiny. All three bills fail because they lack sophisticated consumer input and programs and suppress the development of any real market-based innovation.

All energy consumers, particularly sophisticated customers like BOMA/Chicago members, should have the right to access their own energy data, as well as measure, verify, and address their own reductions in carbon and energy efficiency programming, instead of being viewed by the legislature and the environmental groups as simply a source of funding for their own projects. Accordingly, BOMA/Chicago opposes these bills, and we will update you as events progress.

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Rauner’s Proposed Property Tax Freeze: The Devil’s in the Details

In last week’s State of the State address, Governor Bruce Rauner offered up a bold agenda to turn the state around while focusing on efforts to make Illinois competitive again. Some of his key points included increasing education funding, raising the minimum wage, reforming workers’ compensation and unemployment insurance, “modernizing” the sales tax, hiring more prison guards – and providing property tax relief.

Here at BOMA/Chicago, you can bet our ears perked up when Governor Rauner declared that the property tax burden is one of the biggest impediments to growth and proposed to freeze them for two years.

As our building owners and managers know only too well, property tax is one of the largest and least controllable expenses for commercial office buildings and continues to be an oppressive burden for commercial real estate in the City of Chicago. Our buildings pay some of the highest property taxes in the nation, with only marginal exceptions in New York City and Washington, D.C. According to our most recent Economic Impact Study, property taxes account for as much as 75% of a building’s operating expenses and consume as much as 25% of a building’s gross revenue.

More importantly, despite Chicago being a market where high commercial office rental rates are not the norm, property taxes consume a disproportionate share of gross operating expenses. Two leading sources of tax trends in U.S. markets maintain that Chicago has either the highest or second highest ratio of property taxes to operating expenses.

But let’s not celebrate a property tax freeze too soon. The harsh reality is that our state’s financial condition is deplorable with a Fiscal Year 2016 budget deficit around $9 billion, projected first year revenue loss from the temporary income tax hike rollback at $3.9 billion, and measures to shore up state employee pension plans reliant on a ruling by the Illinois Supreme Court. Not to mention the additional funds necessary to invest in education and hire more prison guards as called for by the Governor.

We also want to be careful that we’re not robbing Peter to pay Paul by exchanging a property tax freeze for a “modernized” sales tax – which more than likely means extending sales tax to services – or any other taxes or fees that could be just as burdensome on the commercial real estate industry as a property tax hike.

The Governor will deliver his Budget address on February 18, and we look forward to hearing more details about how he will implement a property tax freeze given the state’s current fiscal condition and we will continue to monitor this important issue for our members.

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Stay Safe During Bitterly Cold Temperatures and Dangerous Snow Conditions

By Mark Peterson, External Affairs Officer, FEMA Region V

CHICAGO – Dangerously low temperatures and accumulating snow are in the forecast for much of the Midwest and the U.S. Department of Homeland Security’s Federal Emergency Management Agency (FEMA) wants individuals and families to be safe when faced with the hazards of cold temperatures and winter weather.

“Subfreezing temperatures and wind chills can be dangerous and even life-threatening for people who don’t take the proper precautions,” said Andrew Velasquez III, FEMA Regional Administrator. “It is important for everyone to monitor their local weather reports and take steps now to stay safe, whether traveling or at home, during times of extreme cold temperatures.”

During cold weather, you should take the following precautions:

  • Stay indoors as much as possible and limit your exposure to the cold;
  • Dress in layers and keep dry;
  • Check on family, friends, and neighbors who are at risk and may need additional assistance;
  • Know the symptoms of cold-related health issues such as frostbite and hypothermia and seek medical attention if health conditions are severe.
  • Bring your pets indoors or ensure they have a warm shelter area with unfrozen water.
  • Make sure your vehicle has an emergency kit that includes an ice scraper, blanket and flashlight – and keep the fuel tank above half full.
  • If you are told to stay off the roads, stay home. If you must drive, don’t travel alone; keep others informed of your schedule and stay on main roads.

You can find more information and tips on being ready for winter weather and extreme cold temperatures at http://www.ready.gov/winter-weather.

FEMA’s mission is to support our citizens and first responders to ensure that as a nation we work together to build, sustain, and improve our capability to prepare for, protect against, respond to, recover from, and mitigate all hazards.

Follow FEMA online at twitter.com/femaregion5, www.facebook.com/fema, and www.youtube.com/fema.

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Annual BOMA/Chicago food drive aims to collect 75,000 pounds of food

By Paul Morello, PR Manager, Greater Chicago Food Depository

Each year, 812,000 men, women and children – 1 in 6 in Cook County – turn to the Greater Chicago Food Depository’s network of agencies for assistance. The need is significant, but every holiday season, our community unites to provide a response.

The annual 1 City, 1 Food Drive campaign combines the efforts of more than 500 partner food drives to collect nonperishable food items at 250 public donation locations throughout Chicago and the Cook County suburbs from Nov. 1 through Dec. 31. This year’s goal is to collect the equivalent of 1.5 million meals for our hungry neighbors.

“Our community’s response to hunger through the 1 City, 1 Food Drive effort is inspiring,” said Kate Maehr, Food Depository executive director and CEO. “It’s an incredible example of our community’s generosity and ability to make a difference.”

1 City, 1 Food Drive would not be possible without the support of longtime food drive partners, including the Building Owners and Managers Association of Chicago. Since 2008, the BOMA/Chicago food drive has collected more than 206,000 pounds of food.

This year, Food Depository collection barrels will be in more than 140 BOMA buildings and member businesses from Nov. 12 – Dec. 12. The goal of the BOMA collection is 75,000 pounds of food. Buildings are also encouraged to turn their lights green from Nov. 24 – Dec. 5.

The food collected makes an immediate impact on hunger in our community.
“Honestly, the canned food I get from the pantry is all I have to eat sometimes,” said Magdalena Arroyo.

She’s a client at the Benton House food pantry on the Southwest Side of Chicago. The pantry is just one of many Food Depository agencies that receives shelf-stable food from food drives. She was recently laid off from her waitressing job.

“I use the beans and rice with some canned vegetables and that’s basically an entire meal,” she said.

For Susan Davidson, the canned items she receives at Benton House help feed her family.
“With living expenses rising, we have to stretch so much. This is just a godsend,” she said.
Susan’s husband is working full-time at a factory while she stays home to take care of their two autistic children.

“As long as I’ve got some rice and canned tomato sauce, I can make dinner,” she said.
Anyone can get involved in the 1 City, 1 Food Drive effort and every donation makes a difference in the lives of hungry individuals in our community. Here is a list of most needed food drive items:

  • Protein
    • Canned Beans
    • Peanut Butter
    • Tuna
  • Fruit and Vegetables
    • Canned Vegetables
    • Canned Fruit
  • Shelf Stable Grocery Items
    • Stew
    • Jelly
    • Canned Chili
    • Soup
    • Pasta Sauce

Click here for more information about the BOMA/Chicago Food Drive and the 140+ locations throughout Chicagoland to donate through December 12.

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Advocacy Challenges in the Wake of Illinois 2014 General Election

By Curt Fiedler, Morrill and Associates
Ron Tabaczynski, BOMA/Chicago Director of Government Affairs

Advocacy is often cited as the most important function performed by BOMA/Chicago on behalf of its members. As a trade association, BOMA/Chicago has an impressive history of effectiveness in representing member interests on issues concerning codes, taxation, energy, and labor. By building and maintaining relationships with officials at all levels of government, we have been able to impact regulations and legislation.

Our organizational reputation, expertise, and experience provide the foundation for advocacy success, but these resources are heavily bolstered by our involvement in the political process. Through our Political Action Committee, we support candidates that demonstrate a willingness to consider the perspective of commercial real estate and who appreciate the contribution that a competitive market makes to the economy.

When it comes to state government, BOMA/Chicago’s legislative team consists of in-house staff and a team of state lobbyists. Morrill and Associates has worked with BOMA/Chicago to monitor, support, defeat or amend legislation and executive action that affects the commercial office industry.

The 2014 Illinois General Election is now behind us and a new Republican Governor is preparing to take office. In the General Assembly, the House and Senate Democrats will retain their supermajority caucuses. The retention of “supermajority caucuses” will make relationship building between the legislative leaders and the Governor-elect that much more important because the Democratic caucuses will continue to have the ability to override any gubernatorial veto.

The election of a Republican governor also significantly changes the legislative dynamics in Springfield from one-party control (Democratic legislature and Executive) to a two-party balance (Democratic legislature; Republican Executive). This new dynamic, which inherently forces both parties to work together on issues, will impact every issue in Springfield for the next four years. The Democratic legislative leaders will want more active participation from Republican legislators on certain issues, and they will want the Republican governor to help generate that legislative support. Likewise, the Republican governor will request the Democratic leaders approve, advance, or concede certain matters over the course of the legislative session.

Another layer of complexity for Governor-elect Rauner will be the effectiveness of the communication between the administration and legislature (at all levels) during the transition period. The Quinn administration was viewed as ineffective due to its inability, on all levels, to effectively communicate with the legislative branch.

It is anticipated that many of the current state agency directors and staff will be replaced. The ability to find workable solutions to the various budget and policy issues faced by the new administration will depend upon the communication between newly hired administration staff – within both the executive branch and state agencies — with legislative leaders, individual legislators and legislative staff.
But there is opportunity in this adversity. BOMA/Chicago and Morrill & Associates have been through similar transitions and changes in Illinois legislative dynamics. As always, the team is prepared to engage on every level with the new administration and legislature on your behalf.
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Make your voice heard.
https://www.bomachicago.org/advocacy/contact-your-legislator

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