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Rockford’s proposed Property Tax Refund Program could cause tax rates to rise

Initially, the Rockford Homebuyer’s Property Tax Refund Program appears to be a well-intentioned proposal to eliminate some of the blight in the city and to revitalize home values.

The program gives property tax refunds for three years to those who build single-family homes, or buy foreclosed or “short-sale” homes as their primary residence, anywhere within the City of Rockford, if the homes are under contract by the end of the year.

After the property owners, who purchase a qualifying home, pay their normal property taxes, the city will refund those taxes in one lump sum every year for three years.

According to the program’s website www.homebuyerstaxrefund.org, the ultimate goal of the Program is to enliven our housing market, strengthen our community, and create a stronger tax base — which in the end lowers taxes for all the citizens of Rockford.

First, the City of Rockford, the Rockford School District and the Park District represent 80% of the local property tax bill if all participate in the refund program. If no other taxing districts sign the Intergovernmental Agreement, only 80% of the property taxes will be repaid.

The Refund Program could have a negative effect on overall home values because few if any of the current owner-occupied homes on the market for sale by the end of the year would qualify for the property tax refund.

Existing home owners trying to sell their properties at a fair market value would be at a distinct financial disadvantage being forced to compete with the sale of homes that include three years in property tax refunds provided by these public taxing districts.

For example, an existing homeowner in Rockford selling his (not qualified for refund) home for $150,000, paying $6000 in annual taxes, would have to reduce the home’s sale price by $14,400 in order to compete on a level playing field with a similarly priced home receiving a refund of 80% of its annual property tax bill for three years.

Foreclosures and short sales may help the banks and lenders; new homes may help builders but it doesn’t fix the root problem of investing in Rockford’s real estate – high taxes for all property owners.

The Tax Refund Program would not create a stronger tax base as promised. The number of homes that currently meet the criterion is small – only 10 building permits were issued last year and only 95 homes on the market today would qualify for the program according to a March 18 article in the Rockford Register Star and posted on the city’s property tax refund website.

The Register Star reported that proponents of the program estimated it would only cost the city $116,000 in forfeited taxes if 250 homes valued at $60,000 were approved for the program.

The school district would forfeit more than double that amount and multiplied by the three year refund would equal a combined “loss” of approximately $1.5M for the taxing districts.

If the price of residential property decreases further, as predicted, the program would not lower the property tax rate – the rates would increase – because all taxing districts in Winnebago County are subject to Tax Caps.

Under Tax Caps, local taxing districts have held their levies at the same level for multiple years, and would do so again with or without tax refunds. The refunds are paid after property tax levies are calculated and the tax rates are determined.

Tax Cap legislation was amended by Springfield in 2006 creating loopholes that removed restrictions, as requested by the taxing districts for their general funds and for the previously capped transportation funds of school districts, allowing tax rates to increase above statutory limits.

Real Estate agents also reveal that vacant properties at the time of sale, such as distressed homes or new homes – do not provide “move up buyers.” Therefore, sellers of higher priced homes are also negatively impacted.

Why not consider refunding a percentage of the property taxes for all owner-occupied homes that are sold within the city limits by the end of the year, not just a chosen few – a level playing field might actually increase home values while lowering the tax rates and spurring economic development, which would ultimately lower property taxes?

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