New video explains the perils of adopting Home Rule
Real Property Alliance works in communities statewide to help them understand the importance of knowing what adopting Home Rule might mean for your smaller Illinois community.
How Home Rule can rob property owners of a say in taxes
Home Rule comes up in every election. While it gives municipalities more local autonomy, when home rule powers are misused it can negatively impact real estate and private property owners. In short, attaining home rule status allows a municipality to take on debt or levy taxes without a referendum. Home Rule can help a community address specific needs, there’s ample opportunity for property owners to find themselves paying for the decision.
What is Home Rule and why is it a bad deal for state property owners?
Under the Illinois Constitution, subject to certain specific exceptions, a Home Rule municipality “may exercise any power and perform any function pertaining to its government affairs.”
The most prominent feature of Home Rule authority is the power to impose a variety of taxes. A home rule unit cannot tax income. A Home Rule unit can incur debt.
A broad range of taxation options are available to home rule municipalities. Prior to 1997, home rule units could freely adopt a real estate transfer tax, but changes in state law put limits on this.
Home rule units must go to a referendum to get a transfer tax adopted or increased. Except for this limitation—and a few others that are specifically set forth in state law—home rule units are free to enact any kind of tax (except an income tax) they want. Home rule units are even exempt from the Property Tax Caps law.
The Illinois Constitution specifically states that only home rule units can incur debt. This enables home rule units to do long-term financing of infrastructure projects. This can be good for a community and it can attract new businesses. This is a genuine benefit to being a home rule unit as economic development is important for all Illinois communities.
However, the question of how the debt will be managed and financed is an important issue for citizens in existing home rule municipalities or those who are considering becoming a home rule unit.
Who has Home Rule?
- Municipalities of at least 25,000 in population;
- Municipalities of any size if the voters approved home rule by referendum
- Counties with an elected chief executive (only Cook County Government)
What’s the impact?
Since the enactment of home rule in 1970, several onerous ordinances have been enacted which affect real estateand which should worry property owners. Here are a few examples that illustrate how good intentions can go wrong.
- Residential landlord/tenant ordinances (Chicago and Mt. Prospect have such laws);
- Multi-family Rental Licensure/Inspection ordinances;
- Developer land dedications or cash-in-lieu for schools and parks;
- Higher Property Tax Levies (Under the state law which imposes property tax caps, home rule units are exempt from the caps.);
- Pre-sale home inspection ordinances;
- Real Estate Transfer Tax (Under a state law enacted in 1997 and introduced by IAR, home rule units must seek voter approval in order to increase an existing transfer tax or impose a new one.)
What other implications are there?
Some home rule municipalities have implemented building code changes that go far beyond what the original purpose of the legal mechanism was designed to do. In some cases, municipalities have gone too far in making it hard for property owners to develop, sell or buy property.
- Prevent the sale/transfer of properties.
- Prevent the sale of “AS IS” properties.
- Force a property owner to convert/change the permitted use.
- Impose a fire sprinkler mandate with large renovations of a home.
What are some examples of Home Rule gone bad?
Since home rule was enacted in 1970, homeowners have seen abuses of home rule power in some municipalities including some of these more extreme examples:
- In 1998, Highland Park enacted a $10,000 residential “teardown tax.” In 2005, Evanston passed a similar tax. In 2008, Highland Park considered increasing its tax to $25,000.
- Several home rule municipalities have adopted what is known as a “zero-dollar transfer tax.” While there is no direct taxation cost to the seller, this is an attempt by the municipality to block a transfer in order to enforce building code regulations. (The municipality will deny issuance of the transfer stamps.)
- With some pre-sale home inspection ordinances, the municipalities will require an escrow deposit from buyers of “AS IS” properties that have totaled as high as $40,000.
- Impact fees in several municipalities are imposed for libraries, police cars, fire protection equipment and “public art.” No statutory authority exists for these fees but these municipalities claim their home rule status as the authorization. Impact fees are typically paid for by the developer or builder, but they often are passed on to a property owner.
- Since 1988, pursuant to a home rule ordinance, a tenant in Chicago is entitled to “damages” and attorney’s fees if the landlord did not return the correct amount for interest on the security deposit.