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Originally Posted by moorhosj
To clarify, we are talking about property taxes, so a lower rate for you means a higher rate for me. In other words, a tax increase. It feels like you support higher taxes in this case because you are personally involved in the industry. You understand the ins-and-outs of this market and can see why taxpayer subsidy might be necessary. However, when you aren't personally involved in an industry, you tend to have no patience for tax increases and assume everyone is looking for a handout.
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It’s not so much because I’m in the industry, but because it makes sense. We have a problem in this country that we assume that businesses get “loopholes” and hence automatically they are “gaming the system” and hence it is a perpetual talking point that stops all further discussion.
There are loopholes out there and yes, many get abused. But many of them are based on sound and fair principles.
As a homeowner, it would be in my interest to have a commercial property next door be in good financial standing. The owner of the building next door also feels the same way, obviously, and the last thing he wants is for his building to be vacant for two years.
But assuming it is, and because of severe hardship he appeals his property tax and gets a deduction, that is similar to a restructuring of debt—albeit it is temporary—and it’s an agreement with the tax levying body. With zero revenue the building owner can use their capital to make mortgage payments, keep the lights on, maintain the property, fix it up, market it, and then lease it to a new tenant. Then, the vacancy ends and the property tax rate comes right back up to where it was before, if not higher. Community benefits.
Conversely, if in the same scenario the property still has to make the same property tax payments as before it was vacant—but with zero revenue—then it’s a ticking clock. Instead of maintaining the property or investing into it, they expend capital paying taxes. The property becomes run down, and the risk of defaulting on the loan increases every month. Eventually you run the risk of bankruptcy and/or foreclosure. At that point property tax payments stop altogether. Maintenance stops, the building deteriorates, the building goes into receivership, etc etc. At some point it may get a new owner, but perhaps at a lower price—but this process can take years before you’ve got a functional property back on the tax rolls.
The latter scenario happens all of the time even WITH property tax breaks with substantial vacancy. Think of how much eliminating those tax breaks will strain the system further. The community gets no benefit from a foreclosed or distressed property anyhow, and they get no benefit when an owner simply walks away from it. There are properties like this all over Chicagoland now, they are called Zombie properties.
The communit benefits and ultimately gets more tax revenue and economic activity when it gives an engaged property owner an opportunity to turn around a sinking ship.