Waukegan, IL is a community of about 89,000 in Lake County Illinois. It is also a community whose property tax base appears to be crumbling. Its property tax rates are increasing far beyond what any other communities in Lake County have experienced. If this trend continues we see property values potentially stagnating or dropping as businesses leave for less cost prohibitive communities.
Communities that are fortunate enough to have excellent schools, good public services, and a relatively moderate property tax level are successful in attracting new businesses, in part because of the favorable business environment. The addition of new businesses further add to the tax base and helps keep tax rates down in what becomes a virtuous cycle.
At the other end of the spectrum are the less fortunate communities with poor schools and below average city services despite high property tax rates that are increasing rapidly. A vicious cycle emerges as industry leaves for other areas, the community's tax base drops further and the community is forced to increase property taxes even more on the remaining property owners in order just to maintain the services they have. Increasing taxes to improve the school and municipal services could serve to drive away more businesses as they seek communities with better services and more moderate taxes.
The warning signal that Waukegan may be falling into the second group lies in the profound increase it has experienced in effective tax rates over the last decade relative to other suburban communities. Below are the effective tax rates of four communities in Lake County as well as Aurora in Kane County as reported by The Civic Federation. We have included Aurora as it is also a larger, more mature community in a collar county that provides a reasonable frame of reference. An effective tax rate percentage is the median amount of taxes one would expect to pay as a percentage of market value. So with a 5% effective tax rate on a $100,000 property one would expect a $5,000 tax bill.
Effective Tax Rates
2003 2012 %Change
Lake Forest (Lake County) 1.20% 1.80% 50.8%
Buffalo Grove (Lake County) 2.11% 3.34% 58.5%
Fox Lake (Lake County) 2.14% 4.05% 89.3%
Aurora (Kane County) 2.23% 4.03% 81.0%
Waukegan (Lake County) 2.67% 7.19% 169.4%
As can be seen from above, Waukegan has a vastly higher effective property tax rate than any other nearby community and its rates are increasing at double or triple the rates of competing jurisdictions. From such a high base its escalating property taxes would have an ever more damaging impact on property values which would further damage the appeal of investing in this community. The real estate market could wither very quickly if buyers have no expectation of property appreciation, or even worse – an expectation of property value declines over time.
We should be quick to point out that by Cook County standards, Waukegan’s 7.19% effective tax is in line with industrial effective tax rates in communities like Elgin (7.40%) or Schaumburg (6.53%) while above other Cook County communities like Elk Grove (5.75%) or Glenview (4.90%). Relative to collar county communities, however, Waukegan’s property tax climate is becoming uncompetitive.
We have done many appraisals in the past year in southern Cook County where effective property tax rates are through the roof -- Harvey (15.1%) or Chicago Heights (11.30%) (2012 commercial property effective rates). These types of communities are not seeing the recovery in property values that are being experienced by Chicago or lower tax communities. In many cases their values are continuing to slide. These high tax communities have also demonstrated the same overly rapid increases in tax rates in a pattern that looks all too similar to Waukegan’s.
As appraisers our charge is to estimate a property value at a specific point in time. After the crash in property values of 2008-2009 we have endeavored to be more proactive in alerting our clients to areas of concern. There is cause to believe that the probability of value stagnation or decline is moving much higher in Waukegan, IL than in its neighboring communities. Higher loan to value ratios or more conservative lending policies may be required to protect investments here.