High rise: Evanston voters create a progressive ‘mansion tax’

An increase in Evanston’s “mansion tax” will tighten the city’s squeeze on property owners making their way out the door.

You can move out of Evanston, but some residents will pay more to leave because voters Nov. 6 approved a higher tax on the city’s priciest house sales.

Voters narrowly approved a ballot question asking whether to increase the city’s real estate transfer tax, also known as its “mansion tax,” on home sales of $1.5 million or greater, according to Crain’s Chicago Business.

The tax hike will impose differing transfer tax rates on real estate sales. Taxes on a sale worth between $1.5 million and $5 million will increase 40 percent. Sales that surpass $5 million will spike by 80 percent. 

Prior to the referendum, Evanston imposed a flat transfer tax of $5 for every $1,000 of home value. For Evanston homes priced between $1.5 million and $5 million, the tax on home sellers will jump to $7 per $1,000 of home value. That would be $10,500 on the sale of a $1.5 million home, which is $3,000 more than under the previous rate.

Sellers listing their homes at over $5 million will see their mansion tax leap to $9 for every $1,000 of market value. The tax on a $5 million sale will be $45,000, which is $20,000 more.

Revenue from the mansion tax goes to the city’s general fund, and is used to fund services including public safety, parks and recreation, and street maintenance.

The tax hike’s impact on revenue creation is likely to be minimal, however. As Crain’s points out, 17 Evanston homes sold for $1.5 million or more during the past year. The city recorded only two home sales greater than $5 million during that time. The median value of an owner-occupied home is $356,600, according to U.S. Census Bureau data. The tax on selling that median-priced house would be $1,783.

Evanston’s mansion tax referendum echoes a policy trend that has also taken hold at the state level, in which political leaders propose raising the tax burden on affluent but small segments of the population as a way to maximize revenue. Led by House Speaker Mike Madigan, the Illinois House of Representatives in May passed a resolution in support of a progressive income tax structure. Fortunately, unlike Evanston’s mansion tax referendum, the progressive tax resolution was nonbinding.

While these measures may play well politically, they fail to address the structural factors starving Evanston of tax revenue. Rising pension costs coupled with declining property tax revenue – the primary funding source of those pension costs – have the city looking at a $7.4 million budget deficit for the coming fiscal year. As the Evanston Review reported in October, local leaders are weighing a number of painful cuts, including police and firefighter layoffs, to fill that hole.

Neighboring Chicago also levies a real estate transfer tax, collecting $5.25 for every $500 on the transfer price for a piece of residential property. Local leaders this year floated an additional mansion tax amounting to 1.2 percent of the value of any home priced over $1 million. Outgoing Mayor Rahm Emanuel rejected the measure. Emanuel has for years, however, authorized a bevy of tax hikes aimed at paying down Chicago’s massive pension debt. Nevertheless, the Windy City’s pension debt stands at $28 billion, according to financial watchdog Truth in Accounting.

In order for the city to resolve its budget bind, Evanston must first address its spending problems. The city could start by trimming $700,000 in wasteful spending the Illinois Policy Institute identified in an October report.

But more fundamental reforms must be delivered at the state level. When state lawmakers reconvene next session, they should immediately begin the push for an amendment to the state constitution’s pension clause. Such an amendment would protect pension benefits that workers already earned while enabling communities such as Evanston to slow the growth of future, not-yet-yearned pension benefits.

Without a constitutional amendment, growing pension costs will continue to haunt Evanston homeowners.