Sunday, January 13, 2008

The fine print on the CTA Bailout

While everyone is cheering the (nearly) done deal to bail out the Chicago Transit Authority, one small provision in the new funding bill may cause additional hardship for sellers of property in the city of Chicago.

Everyone knows that the bill increases the sales tax by 0.25% in Chicago and by 0.5% in the collar counties. These sales tax increases leave a $100-million hole in the budget for the CTA. Illinois lawmakers have left it up to the Chicago City Council to finish the task by authorizing the City Council to add another $3 to the real estate transfer tax.

Currently, the City of Chicago imposes a $7.50 tax of each $1,000 of sales price on the buyer of real estate in Chicago - or $750 per $100,000. The Illinois legislature has authorized Chicago to raise this tax to $10.50 per $1,000 - or $1,050 per $100,000.

The funny part - if any part of this could be considered funny - is that the City Council knows that it would surely be political suicide to try to enact this tax on top of the $276-million in taxes and fees the City just passed to balance the 2008 budget. So the Mayor's office tried to convince Illinois lawmakers to give the authority to raise the Real Estate Transfer Tax directly to the CTA Board of Managers. But alas, the CTA Board has no taxing authority of its own. The prospect of giving it that authority created so much disagreement among Illinois Legislators that it threatened to kill the transit funding deal altogether. The proposal was withdrawn as quietly as it was proposed.

So, back to the tax at hand. On last year's average single family home sale of $254,000, the tax would change from $1,905 to $2,667, a $762 increase. On last year's average condo sale of $334,000, the tax would change from $2,505 to $3,707, a $1,002 increase.

This would give Chicago the distinction of having one of the largest transfer taxes in the U.S.

I fully support keeping the CTA funded, but I just cannot fathom what bailing the CTA out of its financial mess has to do with buying and selling real estate.

Prospective sellers in Chicago, learn soon who your local Alderman is. The law that authorizes the City Council to pass this tax lasts for six months. You can expect legislation to pop up quietly and without much notice on several occasions in the coming months. You may only have a few hours to voice your concern before the City Council votes on the measure.

At the City of Chicago's website - follow the links for Local Government.
At the Chicago Association of Realtor's website - choose Advocacy, then Issues & Legislation to keep your eye on any City Council action on the transfer tax.