CHICAGO– An unusual legal challenge could upend the future of a ballot measure in Chicago that would raise property taxes on luxury real estate sales to fund homeless services.
Such citywide ballot measures are rare in the nation’s third-largest city, but other cities, including Los Angeles, have passed similar so-called “mansion taxes.”
A Cook County judge rejected the measure last month, but supporters of the measure, called Bring Chicago Home, hope it will be overturned.
Early voting for Chicago’s March 19 primary has already begun, so the measure will remain on the ballot while it is processed through the courts.
Here we discuss the voting measure and the problems surrounding it in more detail.
The referendum asks Chicago voters to support an increase in the transfer tax on properties over $1 million. It is a one-time buyer fee.
Chicago’s rate is currently 0.75% on all real estate sales. The proposal revises the tax structure: 2% for properties over $1 million, 3% for properties over $1.5 million and up to 0.6% for properties under $1 million.
Most home sales in Chicago are under $1 million, so the majority of home buyers will pay less. Proponents’ analysis shows that about 95% of homebuyers would see a decline.
According to the National Association of Realtors, the average sales price in the Chicago area is about $350,000. A buyer would currently pay $2,625 to the city. Under the new structure, that would drop to $2,100.
Additionally, it is a marginal tax, meaning the increased rate only applies to the portion above $1 million. For example, on a $1.2 million property, $1 million would be taxed at 0.6% and the remainder at 2%. Currently the buyer pays $9,000, which would increase to $10,000.
Bring Chicago Home’s backers estimate the change will generate $100 million annually. It will be reserved solely for homeless services, including mental health and job training.
Chicago spends about $50 million in city funds for such services. Advocates say having a larger dedicated funding source would make a huge difference, including for prevention.
“It allows us to move the needle in a way that we can’t do right now,” said Doug Schenkelberg, executive director of the Chicago Coalition for the Homeless.
According to the coalition, approximately 68,000 Chicagoans are homeless and racial disparities exist. About half are black. The definition of homeless includes people with no fixed address, whether sleeping on a friend’s couch or on the street.
Brian Rodgers, 50, struggled with homelessness for years after serving a prison sentence for a theft conviction. Not knowing where he would stay made it difficult to find work.
“It feels like you’re out of balance. It feels like you don’t know where or when it’s time to leave or if it’s time to have a bed to sleep in,” he said. “These kinds of unstable situations make for unstable decisions.”
About 17,000 of Chicago’s homeless population, or 25%, are children.
Electa Bey, 66, became homeless when her husband died unexpectedly due to illness in 2019. They were evicted. It took months to find public housing for the four grandchildren she was raising.
Family took them in, but it was far from the children’s school. They spent more than two hours each way on public transportation.
“They couldn’t play with their friends. Their homework was not always completed. They fell asleep on trains and buses,” she said. “Children are so deeply affected.”
Real estate groups say the new tax will disproportionately impact commercial properties as the downtown area recovers from the downturn of the coronavirus pandemic.
Downtown office vacancy rates reached a record high of 23.8% at the end of 2023, according to CBRE Group Inc., a real estate services company.
“We don’t think it’s right to punish one industry, the real estate industry,” said Amy Masters of the Building Owners and Managers Association of Chicago, one of the groups filing the lawsuit. “We need to think about other ways we can work together to support those who don’t have a home.”
They call the tax an unfair burden on Chicagoans and say the change will discourage business.
After a trial in January, a Cook County judge sided with them in February.
There isn’t much legal precedent for ballot questions in Chicago.
First, such binding citywide ballot initiatives are unusual in the city. The last was in 1993 and, according to the Chicago Board of Elections, focused on new district maps.
Real estate groups argue the proposed change violates state law because it asks voters to approve a tax cut and raise it at the same time.
However, supporters are questioning how the lawsuit was filed.
The lawsuit names the Chicago Board of Elections, which says it is not the correct defendant. Instead, the board, which prints the ballots, claims it should be the city of Chicago that should put the question on the ballot with a City Council vote in November.
Judge Kathleen Burke rejected Chicago’s attempt to intervene, which would have allowed the city to join the lawsuit. Both the municipality and the election commission have appealed.
In the meantime, the judge’s written order states that votes on the measure cannot be counted even if the question remains on the ballot. Those votes are held until the measure is approved by the courts, even if that happens after the election.
“Votes are still being collected,” said Max Bever, spokesperson for the election council. “They will not be tabulated, counted or made public at this time.”
The fate of the measure hangs in the balance for first-term Mayor Brandon Johnson, who defended the effort.
“We are confident that the referendum is legally sound and that the final arbiter should be the voters of the city of Chicago,” Johnson’s office said in a statement after the judge’s ruling.
Other cities have raised so-called “mansion taxes,” with mixed results.
In 2019, voters in suburban Evanston approved an increase from 0.5% to 0.7% on sales over $1.5 million and to 0.9% on sales over $5 million. Leaders there reported little impact on home sales and noted a steady annual increase in revenues, which are being used in part for reparations for Black residents who faced decades of racist housing practices.
Voters in Santa Fe, New Mexico, approved a referendum in November to support affordable housing initiatives.
Los Angeles voters supported a similar measure in 2022. But there is also a legal challenge. Los Angeles’ measure includes a 4% tax on properties between $5 million and $10 million and a 5.5% tax on properties above $10 million. It has generated less than expected and some blame it on the decline in luxury real estate sales.
Backers in Chicago say they studied those referendums to determine the city’s proposed rates.
“It’s a historic opportunity,” said Bring Chicago Home spokesman Jose Sanchez.