March 13, 2024
Homelessness and a lack of housing affordability pose critical challenges for a growing number of people living in Chicago and at the same time contribute to a larger destabilization of the City’s ability to attract residents and businesses. These issues combined constitute the local dimensions of a national social and policy crisis that the City of Chicago and other governments must address with holistic attention to both their immediate humanitarian imperatives and impact on the larger community. Bring Chicago Home (BCH) advances not so much a solution as a response to certain aspects of a crisis that has arisen from a dynamic, evolving and complex set of policy and economic failures. However, there are a number of questions left open by the proposal in its current form. The referendum presents both an opportunity and a risk for Chicago. It is an opportunity to generate a new dedicated revenue stream for the homelessness crisis in Chicago that at the same time presents the risk of negatively impacting the real estate market, especially for a commercial sector already in distress.
The Civic Federation has serious concerns about both the tax as proposed and the program it is intended to serve as currently articulated. The referendum would establish a new graduated, marginal real estate transfer tax structure to fund homelessness programs. If the constitutionality of the referendum is upheld by the courts and it is approved by the voters, an implementation ordinance would then need to be passed by City Council. Our concerns focus on a lack of crucial information and analysis about the proposal, its implementation and its potential negative impact on the local economy.
The City’s work on this policy proposal is incomplete. Given the stakes, it is critical that City leaders move quickly to meet the moment with additional public-facing details about implementation and analysis of possible consequences, both positive and negative. The homelessness policy space into which the BCH proposal falls is wide-ranging and involves all levels of government locally and nationally and a potential international component should Chicago fail to care for the tens of thousands of migrants bused here from Texas and other border states. The City’s long-term homelessness challenge preceded the current migrant crisis. However, and as noted by proponents of BCH, Chicago may be at the precipice of their convergence, consolidation and exponential expansion.
The City of Chicago has existing low-income housing programs and services dedicated to unhoused people, as well as other proposals for generating additional funds for housing, such as the economic development and housing bond proposal. However, how BCH fits into this wider policy picture has not been sufficiently explained, nor does the proposal outline specific strategies it would implement separate and apart from the BCH proposal and how they are tied to broader housing and social services goals. Without well-articulated goals and metrics and a full accounting of alternative or related measures that would mitigate Chicago’s existing housing challenges, it will be impossible for the residents of Chicago to hold the City accountable for whether funds generated by the new tax have actually helped to improve the lives of people who are experiencing or at risk of homelessness.
The graduated real estate transfer tax has some advantages, but it is a volatile, economically sensitive revenue source. The chosen tax structure would shift much of the burden of the tax from residential to commercial property transactions, narrowing its impact to a portion of one sector of the economy. There has been insufficient attention by the City to the condition of the real estate market onto which the new tax would fall. Commercial real estate sales in the Chicago area were down 44% in 2023 from the prior year. The downtown Chicago office market saw vanishingly few sales and the buildings that did sell were at significant declines in sale price of as much as 63% from a decade ago.1 With so much uncertainty in the downtown real estate market, assessing the potential consequences of a new tax on a key economic sector should have been part of the policy evaluation process by the City, not only for its possible effect on the larger economy but on its potential adverse impact on achieving the broad stated objectives of the BCH proposal itself. As it is, the Civic Federation has stepped in with data and analysis that in significant part provides some estimates of potential impact.2
The Civic Federation’s critiques and concerns include:
- Plans for use of the funds have not been publicly articulated beyond a presentation from the City of broad strategies to address homelessness and affordable housing;
- The reasons for the marginal rate structure of the tax have not been sufficiently explained, separate and apart from the still open legal question of its legality as a referendum question on which the Civic Federation takes no position;
- The proposal lacks sufficient oversight and accountability measures to ensure that funds will be effectively and efficiently utilized for the intended purpose;
- Because the proposed tax structure would significantly shift the transfer tax burden to a single sector—from residential to commercial property transactions—it has the potential to have precipitously negative impacts on an already struggling commercial real estate market that includes already depressed downtown properties as well as multi-family housing across a broad portion of the city;
- The volatility of the tax, which arises from both the potential diminution of property values and avoidance strategies seen in other cities, means that it could fall short of the Bring Chicago Home funding goals, which would prevent the City from achieving the stated goals; and
- The measure does not address or reduce significant existing barriers to creating affordable housing through both alternative and companion measures available without tax consequences, such as reforming aldermanic prerogative or changing the zoning code.
The following sections present the Civic Federation’s critiques, concerns and accompanying recommendations to address those concerns, organized by the following topic areas:
- Planning and articulation of goals of the Bring Chicago Home proposal;
- Financial stewardship, capacity and accountability;
- Barriers to affordable housing;
- Potential impact of the tax on the real estate market and the economy; and
- Acceptability of the tax structure.
The Civic Federation developed this position based on empirical research; communications with representatives from the City of Chicago about the financial, operational and implementation questions surrounding the proposal; and an extensive analysis of property transfer data provided by the Illinois Department of Revenue. The findings of our research and data analysis can be found in an accompanying white paper.
The Federation recognizes that the referendum question on the March 19 primary ballot is in flux due to ongoing litigation. If the referendum question is approved by voters and upheld by the courts, the City Council will need to pass an ordinance to implement the measure. If the referendum question is struck down, the City could put forward a revised version of the measure on the November 2024 general election ballot. Regardless of the court outcome, there is time to improve the measure and the level of transparency from the City surrounding plans for Bring Chicago Home. We offer these recommendations to improve the efficacy and transparency of the measure.
References
- Rachel Herzog, “Chicago-area commercial property sales down 44% in 2023,” Crain’s Chicago Business, January 25, 2024.
- See the Civic Federation, “Graduated Real Estate Transfer Tax and Bring Chicago Home Proposal: Data and Policy Analysis,” March 13, 2024.