BOMA Chicago, Coalition Of Businesses File Lawsuit To Stop Transfer Tax Vote

An industry group that has blasted a proposal to hike the real estate transfer tax on Chicago property sales of $1M or more filed a lawsuit Friday aimed at knocking the measure off of the March ballot.

Chicago’s Building Owners and Managers Association is leading a coalition of contractors, developers, investors and CRE interests in seeking an injunction that would prohibit the Chicago Board of Election Commissioners from putting the proposal before voters in a March 19 referendum.

The Chicago City Council approved a measure last November to put the tax on voters’ ballots, with revenue designated for fighting homelessness. A study found that sales of nonresidential properties would account for about 75% of the increased revenue the real estate transfer tax would generate. 

“This referendum substitutes real public policy discussion with a cynical manipulation of voters,” BOMA Chicago Executive Director Farzin Parang said in a release. “It’s time to gather all stakeholders to develop a thoughtful, realistic plan of action that has a real impact on homelessness and improves our city.”  

The proposed tax would create a tiered system that lowers the burden on property sales of less than $1M to 0.6% and increases the rate on sales larger than $1M. The transfer tax on property sales between $1M and $1.5M would be 2%, while the transfer tax on property sales over $1.5M would increase to 3%, quadrupling the current rate.

City council members approved the ordinance, referred to by supporters as Bring Chicago Home, in a 32-17 vote in November.

BOMA and the coalition objected to the referendum on several grounds, including that the ballot language asks a three-part question that requires voters to weigh in with a single yea or nay on three separate policies, in violation of municipal code and the Illinois Constitution. The coalition also argued the portion of the proposal that would lower taxes on sales under $1M doesn't belong on a ballot at all, citing a state statute that only allows the city council to hold referendums on increases.

BOMA and its partners argued the law was created to prevent “the practice of legislative log-rolling,” or “bundling unpopular legislation with more palatable bills so that the well-received bills will carry the unpopular to passage.” 

In addition, the coalition cited state Supreme Court precedent requiring that referendum questions be self-executing, or able to stand on their own. The transfer tax language leaves certain questions unanswered that a governing body would need to address, including how it would manage the homelessness fund and how it would spend the money, the coalition said in the release.

“As of today, however, the City has not published a detailed plan that addresses public questions about the fund, instead promising a new advisory board to make recommendations and establish goals for the fund after its approval,” the coalition said. 

If passed, BOMA and its backers said the tax would have far-ranging ripple effects impacting every neighborhood in the city, claiming the city already has the highest commercial property tax in the country. In one study by the Lincoln Institute of Land Policy and Minnesota Center for Fiscal Excellence, Chicago ranks second in commercial property taxes, behind Detroit.

“The transfer tax increase will have real world consequences,” Neighborhood Building Owners Alliance President Michael Glasser said in the release. “It is already challenging to finance investment in housing, and even more challenging to finance affordable housing. This measure increases the cost of that investment: it does not make housing more affordable, more available, or better in any way. It is hard to see how this will help the homeless.” 

Chicago property values are in a free fall, particularly in the office market, where a local investor purchased a distressed office building across the street from the Willis Tower this week for an 89% discount on the property’s value a little over a decade ago. Menashe Properties scooped up 230 W. Monroe St. in September at a $75M discount from its last sale in 2014.

Some city council members at the November vote nodded to the distress in the market and the burden the tax could place on commercial real estate.

“If the real estate transfer tax is to be a less volatile stream of funding for homelessness, we have to work to support the recovery of our commercial industry,” 11th Ward Alderwoman Nicole Lee said at the time.