The purpose of this primer is to outline the Illinois Department of Revenue s (IDOR) process in the determination of Cook County s equalization factor commonly known as the multiplier. It describes how the IDOR calculates the multiplier by conducting a sale ratio study and calculating assessment adjustment factors. Overview Multiplier Basics Multiplier Timeline IDOR Sale Ratio Study IDOR Assessment Adjustment Factors CCAO Criticism of the IDOR Sale Ratio Study Multiplier Basics The Illinois Department of Revenue (IDOR) conducts inter-county equalization to eliminate tax burden inequities among taxpayers who live within the boundaries of taxing districts that overlap two or more counties (Illinois Department of Revenue, 2010). The IDOR equalizes the overall assessment levels of each county to 33.33% of fair cash value (Illinois Compiled Statutes). Cook County s equalization factor, better known as the multiplier, is calculated by taking the State s statutory level of 33.33% and dividing it by Cook County s overall assessment level. For tax year 2009, the IDOR determined Cook County s level to be 9.89%, so the 2009 multiplier was 33.33% divided by 9.89%, or 3.3701. When the Cook County Board of Commissioners adopted classification in 1974, the mix of property value among different classes and the differing assessment levels of those classes meant that the County s multiplier would be greater than 1.0, even if the classes were assessed at ordinance levels. However, the actual assessment levels, as reported by the IDOR through their sale ratio studies, have historically been lower than the classification levels adopted by the County Board. This created a situation where the equalization factor not only reflected the property mix of Cook County (by equalizing assessments among the classes), but also the chronic under-assessing of all property types (by increasing the assessment levels of the under-assessed classes). The difference between de jure assessment levels and de facto assessment levels has widened over time, causing the multiplier to increase by over 125% since 1974, from 1.4453 to its current 3.3701 (See Appendix for Equalization Factor chart showing the annual multiplier from 1970 to 2009).
Multiplier Timeline The IDOR s process in determining Cook County s multiplier for tax year 2009 is outlined in the flowchart below. The following sections will detail these steps in the determination of the multiplier. IDOR 2008 Sale Ratio Study The IDOR uses 2008 sales and 2007 AV to calculate the initial median County level of assessment. 2009 CCAO Assessment The CCAO reassesses the City and applies residential assessment adjustment factors in suburban townships. CCAO Assessment Adjustment Factors The IDOR adjusts initial 2008 median County level of assessment to account for CCAO 2009 assessment. 2009 BOR Appeal Process The BOR reviews and reduces 2009 CCAO values through their assessment appeal process. Tentative Multiplier Using the calculations from the sale ratio study and the CCAO assessment adjustment factors, the IDOR issues the 2009 tentative multiplier of 3.1062. Tentative Multiplier Hearing The IDOR conducts a public hearing on the tentative multiplier. BOR Assessment Adjustment Factors IDOR factors the adjusted 2008 median County level of assessment to account for 2009 BOR action. Final Multiplier Using the calculations from the sale ratio study, the CCAO and BOR assessment adjustment factors, and any evidence from the tentative multiplier hearing, the IDOR issues the 2009 final multiplier of 3.3701 CCAO Research Department Primer 2 December 6, 2010
IDOR Sale Ratio Study Sale ratio studies use the recent sales and assessed values of all types of property to determine the overall assessment level of a jurisdiction. A sale ratio compares the assessed value of a property to a recent sale price to determine the assessment level of that property, as is shown in the equation below. Sale Ratio = Prior Year BOR AV Current Year Sale Price 2008 Example: 2008 Sale Ratio = = 2007 BOR AV 2008 Sale Price $25,000 $250,000 =.10 or 10% In the first step of calculating the multiplier, the IDOR conducts an annual sale ratio study to determine Cook County s preliminary assessment level (Illinois Compiled Statutes). The most recent IDOR sale ratio study for tax year 2009 compares 2008 sales to the 2007 Board of Review (BOR) final assessed values (AV). Current sales are compared to prior AV to eliminate the possibility of sale chasing 1 by the assessor, and the IDOR considers only those sales that are arm s length transactions 2 in their sale ratio study. A sale ratio is computed for each property in the County with an arm s length sale in the given year. The median sale ratio is then calculated by taking the middle value of all the sale ratios in a given class. Because Cook County classifies property, median sale ratios for each of the five major classes - vacant, residential, apartment, commercial, and industrial need to be calculated separately. To determine the overall assessment level for all property in Cook County, the IDOR weights the median sale ratio by the total AV for each major class. The weighting procedure takes the AV for each major class and divides it by its median ratio, resulting in the estimated full market value of property in that class. The overall assessment level for Cook County is then calculated by totaling the assessed value of all classes and dividing that sum by the total estimated full market value of property in the County. The table on the next page illustrates this process for the 2009 sale ratio study. The median ratio for each class is used to determine the estimated full market value for that class. In the case of vacant land, the median 2008 sale ratio of 0.0965 was divided by the total AV of that class ($846,797) to determine the estimated full market value of all vacant land in the County, which was $8,775,098. The overall 1 Sale chasing is a term used to describe assessors setting the market value of a particular property at its sale price. 2 Arm s length transactions are considered to be pure market sales under no duress. CCAO Research Department Primer 3 December 6, 2010
assessment level for the County is then calculated by totaling the five major classes AV ($69,812,969) and dividing it by the total of the classes estimated full market value ($603,334,579). The result is 0.1157, meaning that Cook County s overall level of assessment, as determined through the IDOR s 2009 sale ratio study, is 11.57% of market value. Median sale ratio for vacant land: 0.0965 or 9.65% Cook County Sale Ratio Study 2008 Sales: 2007 Assessed Value Major Class 2007 BOR Median Sale Final AV Ratio Est. Full MV # Sales Used Vacant $846,797 0.0965 $8,775,098 133 Residential $43,354,556 0.0962 $450,671,060 12,353 Apartment $2,534,926 0.1080 $23,471,537 121 Commercial $18,745,510 0.1896 $98,868,724 308 Industrial $4,331,180 0.2010 $21,548,159 112 Cook County Overall $69,812,969 0.1157 $603,334,579 13,027 Overall median assessment level for Cook County:.1157 or 11.57% Estimated full market value = BOR Final AV / median sale ratio IDOR Assessment Adjustment Factors The 2009 sale ratio study is based on 2007 assessed values, so changes in AV due to the Cook County Assessor s Office (CCAO) 2008 and 2009 reassessments, as well as decreases on appeal made by the Cook County Board of Review (BOR), must be accounted for before determining the 2009 multiplier. The IDOR accomplishes this by calculating assessment adjustment factors (AAF), which reflect the changes in AV for all three assessment districts in percentage terms. IDOR Assessment Adjustment Factors CCAO Level Cook County s median overall level of assessment of 11.57% (based on 2007 AV) is first adjusted up by the CCAO 2008 AAF of 3.35%, which was determined during the prior year s sale ratio study. To determine the 2009 AAF, AV summary reports are created following the 2009 reassessment and sent to the IDOR. By comparing final 2008 BOR AV totals at the township and class levels to those from the CCAO s 2009 assessment, the IDOR is able to calculate percent changes in AV and then aggregate those changes to the assessment district level. 3 The district totals are then aggregated to the county level to obtain the overall adjustment factor, which was -3.30% in 2009. The chart on the next page summarizes the calculation of the 2009 CCAO assessment adjustment factors. 3 In 2009, the IDOR calculated assessment adjustment factors to account for the 2009 City reassessment as well as the 2009 suburban residential factors. CCAO Research Department Primer 4 December 6, 2010
2009 CCAO Assessment Adjustment Factors Major Class 2008 Final BOR AV 2009 ADJ AV CCAO AAF Vacant $854,115,003 $647,192,619-24.23% Residential $45,211,095,953 $42,504,543,569-5.99% Apartment $2,328,771,521 $3,036,500,444 30.39% Commercial $19,695,766,617 $19,654,262,006-0.21% Industrial $4,331,605,824 $4,188,543,711-3.30% Cook County Overall $72,421,354,918 $70,031,042,350-3.30% An adjustment factor is calculated for each major class. The 2009 CCAO AAF is -3.30%. CCAO 2008 Adjusted Assessment Level The calculation of the CCAO 2008 adjusted assessment level uses the 2009 CCAO AAF of -3.30% as well as the adjustments for the 2008 reassessment and appeals to the BOR, as is shown in the graphic below. Cook County s median overall level of assessment of 11.57% (based on 2007 AV) is first adjusted up by the CCAO 2008 AAF of 3.35%, then down by the BOR 2008 AAF of -2.46%. (The methodology for the calculation of the BOR AAFs is addressed on page 4). The overall assessment level is adjusted further down by the CCAO 2009 AAF of -3.30%. The resulting 2008 assessment level adjusted through the 2009 reassessment is 11.28%. CCAO 2008 level 11.57% CCAO 2008 AAF 3.35% BOR 2008 AAF -2.46% CCAO 2009 AAF -3.30% CCAO 2008 ADJ Level 11.28% Three-Year Average Calculation - Tentative The IDOR uses the average assessment level from the past three years ratio studies to determine the overall assessment level that is used for the multiplier calculation. The IDOR uses the three-year average to provide predictability in times of market fluctuations by smoothing out any dramatic oneyear increases or decreases in assessment level (Illinois Department of Revenue, 2010). To calculate the three-year average for 2009, the IDOR averages the adjusted overall levels from the 2006, 2007, and 2008 sale ratio studies. The 2006 and 2007 levels that were used in prior year s multiplier calculations, 10.79% and 10.80% respectively, are each adjusted by the CCAO 2009 AAF of -3.30%, resulting in an overall assessment level of 10.45% for 2006 and 10.46% for 2007. These levels are averaged with the 2008 level to obtain the 2009 overall CCAO assessment level of 10.73%. The calculation is shown in the box on the next page. CCAO Research Department Primer 5 December 6, 2010
Three-Year Average Calculation: Tentative 10.45% (2006) + 10.46% (2007) + 11.28% (2008) = 32.19% 32.19% / 3 = 10.73% Tentative Multiplier Calculation The IDOR calculates a tentative multiplier based on this three-year assessment level, releases it to the public, and conducts a public hearing where they invite arguments for and against the multiplier calculation. The tentative multiplier is determined by taking the statutory level of 33.33% and dividing it by the three year average of 10.73%, resulting in a tentative multiplier of 3.1062 for 2009. Tentative Multiplier Calculation Statutory Assessment Level / Three-Year Average Assessment Level = 33.33% / 10.73% = 3.1062 While the IDOR is calculating the tentative multiplier, the BOR processes the year s appeals according to their schedule. Decreases in AV granted by the BOR must be reflected in the equalization process, so an additional adjustment factor, three-year average, and multiplier must be calculated once the BOR has finished processing appeals. IDOR Assessment Adjustment Factors BOR Level The IDOR calculates the BOR AAFs in essentially the same manner as it does for the CCAO. The IDOR calculates percent changes in AV totals by township and class from 2009 CCAO AV to the BOR 2009 AV and then aggregates those numbers to the district level. The IDOR then aggregates the triennial district totals to determine the overall county adjustment factor that would account for BOR appeal action. The overall adjustment factor in the final multiplier calculation due to adjustments in the assessment at the BOR level for 2009 is -7.95%. The 2009 BOR AAFs for the major classes and Cook County overall are shown in the table below. 2009 BOR Assessment Adjustment Factors Major Class 2009 Assessor AV 2009 ADJ AV BOR AAF Vacant $606,109,241 $566,421,086-6.55% Residential $42,829,108,776 $42,047,066,950-1.83% Apartment $3,035,677,285 $2,465,317,905-18.79% Commercial $19,381,486,862 $15,945,737,654-17.73% Industrial $4,148,292,726 $3,409,816,604-17.80% Cook County Overall $70,000,674,890 $64,434,360,198-7.95% The 2009 BOR AAF is -7.95%. CCAO Research Department Primer 6 December 6, 2010
BOR 2008 Overall Assessment Level The BOR 2008 overall assessment level is calculated by adjusting the CCAO 2008 level by the BOR 2009 AAF of -7.95%, as is shown below, resulting in a final 2008 adjusted overall assessment level of 10.40%. CCAO 2008 ADJ Level 11.28% BOR 2009 AAF -7.95% 2008 ADJ Level 10.40% Three-Year Average Calculation -- Final The BOR 2008 adjusted overall level of 10.40% is used in the calculation of an updated three-year average assessment level, along with the 2006 and 2007 levels, which must also be adjusted down by - 7.95% to account for 2009 BOR action. The 2006 level of 10.45% was adjusted to 9.64%, and the 2007 level of 10.46% was adjusted to 9.64%. The IDOR then averaged the overall levels from the 2006, 2007, and 2008 sale ratio studies to obtain the 2009 overall BOR level of 9.89%, as is shown in the box below. Three Year Average Calculation: Final 9.64% (2006) + 9.64% (2007) + 10.40% (2008) = 29.68% 29.68% / 3 = 9.89% Final Multiplier Calculation The final multiplier is determined by taking the statutory level of 33.33% and dividing it by the three year average of 9.89% which results in a final multiplier of 3.3701. Final Multiplier Calculation Statutory Assessment Level / Three-year Average Assessment Level = 33.33% / 9.89% = 3.3701 Major Class Three-Year Averages The IDOR also calculates three-year assessment level averages for each of the five major classes of property. The table below shows most recent three-year averages for the major classes, along with the overall County assessment level that was used in the final multiplier calculation. CCAO Research Department Primer 7 December 6, 2010
Major Class Three-Year Average Assessment Levels Major Class 2006 2007 2008 Three-Year Average Vacant 4.60% 6.03% 7.31% 5.98% Residential 8.83% 8.66% 9.21% 8.90% Apartment 7.91% 8.78% 8.73% 8.47% Commercial 12.86% 13.31% 15.26% 13.81% Industrial 14.95% 14.36% 16.04% 15.12% Overall Level 9.64% 9.64% 10.40% 9.89% Final Multiplier 3.3701 The three-year average assessment levels for the major classes reveal that each of the classes is assessed below its statutory level. For example, the residential three-year level is 8.9%, which is below the 10% assessment level required under the 10 and 25 Ordinance implemented in assessment year 2009. This means that the IDOR, through its sale ratio study, has determined that residential property in Cook County is assessed at 11% below its ordinance level. In the case of commercial property, the three-year assessment level of 13.81% can be interpreted to mean that those properties are being assessed at almost 45% below their ordinance level of 25%, though there has been some debate as to whether the IDOR sale ratios indicate true assessment levels. CCAO Criticism of the IDOR Sale Ratio Study The CCAO has long maintained that the IDOR sale ratio study does not accurately reflect the true median assessment levels of the commercial and industrial classes. Documented statements from Assessor Houlihan at IDOR Tentative Multiplier hearings have recommended changes aimed to improve the accuracy of the commercial and industrial assessment levels produced through the sale ratio study. Prior recommendations include: Allow the use of appraisals, as permitted in the Property Tax Code, for types of properties that are not well represented in the study. This is particularly important for large commercial properties in downtown Chicago, as these properties sell infrequently and are therefore underrepresented in the study. Adjust sales of commercial and industrial properties to account for business enterprise value and the terms of any current leasing arrangements. The CCAO maintains that these two issues result in overestimates of sale price, which then artificially deflate commercial and industrial assessment levels. 4 Account for current and intended use of the property in the study. The CCAO position on this issue is that the IDOR should remove all sales from the ratio study where the intended use is different from the current use of the property. This is especially important in cases where commercial and industrial buildings are converted to condos. The IDOR has defended the accuracy of its sale ratio study, maintaining that all classes are properly represented. They are opposed to the use of appraisals or sale adjustments because these changes could open the study to further criticisms due to their subjective nature. The IDOR did respond to CCAO 4 See primer on Commercial Market Value Issues for a full discussion on this topic. CCAO Research Department Primer 8 December 6, 2010
concerns on the current versus intended property use issue by agreeing to exclude sales that have building permit information documenting a change in use in the year after the sale, but this time restriction is somewhat problematic. There have been well-documented cases where a change in property use occurs two or three years after the sale due to the time it takes to convert and develop the new intended use; such sales would still be included in the ratio study and could affect the calculation of overall assessment levels. Despite disagreement on the proper treatment of commercial sales in the sale ratio study, the CCAO and the IDOR have developed a solid working relationship over the past decade. The IDOR consults with the Research Department when considering changes to the methodology used in calculating the multiplier, and asks the Research Department to examine each year s tentative and final multiplier before they are released to the public. It will be important for the CCAO to continue to work with the IDOR as changes in the use of foreclosure sales in the sale ratio study are introduced in 2011, and as the IDOR continues to refine the methodology used to calculate the multiplier. CCAO Research Department Primer 9 December 6, 2010
Additional Reading The Illinois Property Tax System. Illinois Department of Revenue (2002). http://www.revenue.state.il.us/publications/localgovernment/ptax1004.pdf Publication 136 Property Assessment and Equalization. Illinois Department of Revenue (2010) http://tax.illinois.gov/publications/pubs/pub-136%20.pdf CCAO Research Department Primer 10 December 6, 2010
References Illinois Department of Revenue (2002). The Illinois Property Tax System. http://www.revenue.state.il.us/publications/localgovernment/ptax1004.pdf CCAO Research Department Primer 11 December 6, 2010
Appendix Cook County Equalization Factor Chart Tax Year Multiplier Tax Year Multiplier 1970 1.5900 1990 1.9946 1971 1.5900 1991 2.0523 1972 1.5900 1992 2.0897 1973 1.4813 1993 2.1407 1974 1.4453 1994 2.1135 1975 1.4183 1995 2.1243 1976 1.4153 1996 2.1517 1977 1.4153 1997 2.1489 1978 1.4966 1998 2.1799 1979 1.6016 1999 2.2505 1980 1.7432 2000 2.2235 1981 1.8548 2001 2.3098 1982 1.9288 2002 2.4689 1983 1.9122 2003 2.4598 1984 1.8445 2004 2.5757 1985 1.8085 2005 2.7320 1986 1.8486 2006 2.7602 1987 1.8916 2007 2.8439 1988 1.9266 2008 2.9786 1989 1.9133 2009 3.3701 CCAO Research Department Primer 12 December 6, 2010