Chicago ‘mansion’ tax to fund homeless services faces legal limbo

CHICAGO (AP) — An unusual legal challenge may upend the future of a Chicago ballot measure that would hike a real estate tax on high-end property sales to fund services for homeless people.

Such citywide ballot measures are rare in the nation’s third-largest city, but other cities, including Los Angeles, have approved similar so-called “mansion taxes.”

A Cook County judge last month rejected the measure, but backers of the effort, called Bring Chicago Home, hope it will be overturned.

Early voting for the March 19 primary in Chicago has already started, so the measure remains on the ballot as it’s being settled in the courts.

Here’s a closer look at the ballot measure and the issues surrounding it.

The referendum

The referendum asks Chicago voters to support an increase on a transfer tax for properties over $1 million. It’s a one-time buyer’s fee.

Chicago’s rate is currently 0.75% on all property sales. The proposal overhauls the tax structure: 2% for properties over $1 million, 3% on properties over $1.5 million and down to 0.6% on properties under $1 million.

Most Chicago property sales are under $1 million, so the majority of home buyers will pay less. Analysis by the proponents shows roughly 95% of homebuyers would see a decrease.

The Chicago area’s median sales price is roughly $350,000, according to the National Association of Realtors. A buyer would currently pay $2,625 to the city. That would drop to $2,100 under the new structure.

Also, it’s a marginal tax, meaning the increased rate applies to only the portion above $1 million. For example, on a $1.2 million property, $1 million would be taxed at 0.6% with the remaining at 2%. Currently, the buyer pays $9,000, which would jump to $10,000.

The revenue

Backers of Bring Chicago Home estimate the change will generate $100 million annually. It will be set aside solely for homeless services, including mental health care and job training.

Chicago spends about $50 million of city funds for such services. Advocates say having a bigger dedicated funding source would make a huge difference, including for prevention.

“It allows us to move the needle in a way we can’t do now,” said Doug Schenkelberg, executive director of the Chicago Coalition for the Homeless.

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Roughly 68,000 Chicagoans experience homelessness and racial disparities exist, according to the coalition. Roughly half are Black. The definition of homeless covers people without fixed addresses, whether they are sleeping on a friend’s couch or the streets.

Brian Rodgers, 50, struggled with homelessness for years after serving time for a theft conviction. Not knowing where he was going to stay made it hard to find work.

“It feels like you are off balance. It feels like you don’t know where or when it is time for you to leave or it is time for you to have a bed to sleep,” he said. “Unstable situations like that create unstable decisions.”

About 17,000 of Chicago’s homeless population, or 25%, are children.

Electa Bey, 66, became homeless when her husband unexpectedly died from illness in 2019. They were evicted. It took months to find public housing for the four grandchildren she’s raising.

Family took them in, but it was far from the children’s school. They spent more than two hours each way commuting on public transportation.

“They couldn’t play with their friends. Their homework wasn’t always done They were falling asleep on trains and buses,” she said. “Children are affected so profoundly.”

The opponents

Real estate groups say the new tax will disproportionately affect commercial real estate as downtown recuperates from a coronavirus pandemic downturn.

Vacancies in downtown offices reached a record high at the end of 2023 at 23.8%, according to CBRE Group Inc., a real estate services company.

“We don’t think it’s right to penalize one industry, the real estate industry,” said Amy Masters of the Building Owners and Managers Association of Chicago, one of the groups that is suing. “We need to think about other ways that we can work together to support those who are unhoused.”

They call the tax an unfair burden to Chicagoans and say the change will discourage business.

After suing in January, a Cook County judge sided with them in February.

The legal fight

There isn’t much legal precedent in Chicago for ballot questions.

For one, such binding citywide ballot initiatives are unusual in the city. The last one was in 1993 and focused on new ward maps, according to the Chicago Board of Elections.

Real estate groups argue the proposed change violates state law because it’s asking voters to approve a tax cut and increase simultaneously.

However, supporters have questioned how the lawsuit was filed.

The lawsuit names the Chicago Board of Elections, which says it isn’t the proper defendant. Instead, the board, which prints ballots, maintains it should be the city of Chicago, which put the question on the ballot with a City Council vote in November.

Judge Kathleen Burke has rejected Chicago’s effort to intervene, which would allow the city to join the lawsuit. The city and Board of Elections have each appealed.

In the meantime, the judge’s written order says votes on the measure can’t be counted even as the question remains on the ballot. Those votes are sequestered until the measure is approved by the courts, even if that happens after the election.

“Votes are still being collected,” said Max Bever, an elections board spokesman. “They won’t be tabulated, counted or made public at this moment.”

The fate of the measure is high stakes for first-term Mayor Brandon Johnson, who championed the effort.

“We firmly believe the referendum is legally sound and the final arbiter should be the voters of the city of Chicago,” Johnson’s office said in a statement after the judge’s ruling.

Precedent

Other cities have raised the so-called “mansion tax” with mixed results.

In 2019, voters in suburban Evanston agreed to an increase from 0.5% to 0.7% on sales greater than $1.5 million and to 0.9% on sales over $5 million. Leaders there reported little impact on housing sales, noting a steady increase in revenues annually, which is being used in part for reparations to 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 backed a similar measure in 2022. But it’s also under a legal challenge. Los Angeles’ measure includes a 4% tax on properties between $5 million and $10 million and a 5.5% tax on those over $10 million. It has generated less than anticipated and some blame it for a drop in luxury property sales.

Backers in Chicago say they studied those referendums to determine the city’s proposed rates.

“It’s an historic opportunity,” Bring Chicago Home spokesman Jose Sanchez said.

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