Data centers near O’Hare win nearly $100M in local tax breaks, leaving suburban homeowners to cover the gap
More than a dozen data centers near O’Hare International Airport are receiving tens of millions of dollars in local property tax breaks this year, shifting the financial burden onto suburban homeowners even as local leaders tout the benefits of the explosive industry amid growing public backlash.
The impact lands hardest on homeowners in suburbs where the tax base leans on a handful of big businesses. In northwest suburban Northlake, the average homeowner would save more than $2,000 on their annual tax bill — a difference of almost 30% — if local data centers did not receive valuation reductions and incentives, according to the analysis.
At least 18 northwest suburban data centers won multimillion-dollar breaks in their taxable value from Cook County officials — in one case landing on a valuation far below what the business originally paid to buy its site.
Of those 18, 11 already had special tax incentives approved by local leaders that dramatically reduced the properties’ tax burdens over a dozen years, even before the latest board reductions. Twelve of them have a separate special state tax break that saves owners millions on sales and use taxes.
Combined, the assessment reductions and incentives knocked nearly $2 billion off the taxable property value of data centers across just three suburbs — Elk Grove Village, Northlake and Franklin Park — according to an analysis by the Illinois Answers Project and the Chicago Tribune. That translates to almost $100 million in tax savings that would have otherwise meant lower tax bills for neighboring property owners and more money for local infrastructure. The facilities represent a fraction of the more than 100 data centers already operating across Cook County, with more under construction.
Many of the reductions are decided in sparsely attended hearings, before agencies many taxpayers have never heard of. But the stakes are high as the county assessor, local taxing agencies and data center operators battle over how the properties should be valued for property tax purposes, often ending up tens of millions of dollars apart. How to value data centers in Cook County remains unsettled, and local governments sometimes disagree with the assessor.
Data center developers and their allies say the businesses need the breaks to operate successfully. The alternative, they argue, is that properties sit vacant or draw lower-value industries that would contribute less to the tax base.
Even with the tax breaks, “the data center is still paying a significant share in property taxes,” said Brad Tietz, Midwest director of government affairs for the Data Center Coalition, a proindustry lobbying group. “If you don’t get the project, you don’t get any of those revenues.”
In all, the 18 data centers paid nearly $71 million in property taxes for the 2025 tax year. The three data centers in Northlake alone made up about 28% of the city’s tax base last year. The Illinois Answers and Tribune analysis also included 10 data centers in Elk Grove Village, three in Franklin Park and one each in Des Plaines and Mount Prospect.
Tietz has already seen Illinois “begin to slip” in the rankings among states courting data center operators, with developers increasingly eyeing more tax-friendly states, he said.
Others argue that prime real estate near a reliable water supply, consistent power and fiber-optic lines on the outskirts of a major city are incentive enough.
“We are talking about corporations that are spending about $800 billion on building data centers this year,” said Kasia Tarczynska, a senior research analyst with Good Jobs First, a Washington, D.C.-based group that advocates against corporate subsidies.
“They have all the cash … to build these data centers, so for sure they have enough revenue and income to pay their taxes,” Tarczynska said. But for local taxing bodies like schools, libraries and villages, “those couple of millions of dollars a year might make a huge difference when it comes to funding basic services for people.”
Every assessment reduction means higher bills for other taxpayers.
Reductions
Many of the valuation cuts were fiercely opposed by Fritz Kaegi, the outgoing Cook County assessor. Kaegi has long argued commercial properties have been historically undervalued, and he has worked, with limited success, to raise their valuations. In recent years, he has turned his focus to data centers.
Kaegi has criticized attorneys who specialize in commercial property tax appeals. His team is now zeroing in on appraisers too, arguing that breaks granted to data centers rest on lowball estimates they present as the primary evidence in local appeals.
Elected leaders across the country are working to balance a tsunami of interest from data center developers against growing backlash from residents concerned that the facilities are draining water, polluting the air and spiking energy costs.
Data centers are a flashpoint in the property tax community because of wide disagreement over what should count in an assessment — a dispute that has produced yawning gaps between the first-draft values assigned by Kaegi’s office and what property tax attorneys argue on appeal the buildings are worth.
Take, for instance, the Microsoft Azure data center in Northlake. This year, Microsoft presented an appraisal during its appeal placing the value at nearly $250 million.
Kaegi’s office, though, had valued it at nearly $900 million. That estimate came from David Lehman, the office’s director of valuations research and Kaegi’s deputy in the fight against data center appeals. A certified appraiser, Lehman has taken the rare step of not only drafting his own reports but also defending them in appeals hearings, where evidence from appellants like Microsoft or other big building owners has historically gone uncontested.
Through a spokesperson, Microsoft declined to comment.
Lehman said the lowball tactics have cropped up in multiple ways. One is underestimating the value of the land. In places like Elk Grove Village, land is especially valuable for data centers because of its proximity to fiber lines, ready access to power, business-friendly local leaders, industrial-zoned lots and space to build big. Another tactic is to ignore the value of expensive systems such as backup power generators and chillers, with attorneys arguing those assets are not permanent fixtures that qualify as property. To block that loophole, Lehman contends data centers should be valued not by price per square foot but by kilowatt — how much power it can generate.
To Kaegi, prior property assessment cuts granted to data centers were “egregious” and deserved special attention for several reasons, chief among them that it’s a new industry where case law isn’t settled. The International Association of Assessing Officers has assembled a task force to study the issue.
“There’s an opportunity to set a norm here that can be very impactful,” Kaegi said in an interview. “These are also some of the biggest properties, so that’s generally the best bang for the buck for the taxpayer … Spend our time and resources on the things that make the biggest difference for the greatest number of people.”
Even so, “we recognize that it’s not a layup,” he conceded.
Appraisers choose from a range of methodologies that can produce drastically different final values: how much it would cost to replace, how much income it would generate if leased, and how it compares to similar buildings’ sales. Each approach leaves room for interpretation.
Kaegi’s job is to set values based on his office’s estimate of what the property would fetch on the open market.
But there’s a shortage of leasing and sales information for data centers, which are “probably the most secretive property type there is,” said Justin Eimers, an assessment advisor with the IAAO and the former county appraiser for Miami County, Kansas. “And understandably. They’re trying to stay competitive and … they want to keep their edges.”
Lehman’s analysis of the Microsoft property at 601 Northwest Ave. in Northlake included the site’s 2009 sale price: $182 million. Since then, Microsoft made at least $650 million in upgrades, according to permitting data the assessor’s office pulled. That’s how he reached his valuation of $873 million — more than three times the value estimated by a private appraiser recruited by Microsoft.
In his appraisal, Lehman counted those “major building systems,” such as backup generators and chillers, as “essential to the continuous operation of a data center.” He argued that “if any of these major building systems were to be removed, the facility would no longer function as a data center.”
Those systems count as “real property” and should be included in the assessed value, Lehman said. It’s a distinction that carries major weight, since those major building systems can cost tens of millions of dollars depending on a center’s size.
Illinois “gives a very, I think, unsatisfying definition in statute about what counts as real property,” according to Geoffrey Propheter, a University of Colorado Denver associate professor who studies property tax issues and incentives. But Propheter generally sides with Kaegi that vital equipment, such as backup generators that provide continuous power, should count as real property.
“What really matters here is whether or not, if you remove the fixture from the real property, does it change the value of the real property? That’s your litmus test for whether or not property should be treated as permanently fixed or not,” he said.
“I see it as HVAC in the house, or a boiler in an apartment building, right?” Propheter said. “And in those instances, those are permanent — from a legal standpoint, from an assessment standpoint — permanent fixtures.”
At his client’s request, Microsoft’s appraiser, Kevin Byrnes, valued the building as if “virtually all of the systems and installations apart from the base building and land” should not count toward its final value, Byrnes wrote in his appraisal.
Byrnes noted in an interview that Kaegi’s office previously treated data centers as “powered shells,” but in the “last few years, it seems like their values have gone up a lot higher than they used to set them,” he said. Now the office factors in how much tenants pay for power generation, or “kilowatt rent.”
Because data center rental income is based on power capacity, Lehman argued, value per kilowatt is more relevant than value per square foot of the building. In one calculation for the Microsoft building, he estimated the total development cost was $5,200 per kilowatt, or $821 million.
Other assessors across the country are doing the same, the IAAO’s Eimers said, including in Virginia, one of the leading markets for data center development.
“That’s the way the market is acting; that’s what buyers and sellers are looking at. As an assessor … you’re trying to replicate the market, so you want to look to what buyers and sellers are looking at,” Eimers said.
Byrnes wouldn’t say which measurement he thought was most fair. “There’s many ways to sort of skin the cat,” he said.
The board set the Microsoft data center’s final value at about $364 million.
In another case, the owner of an Elk Grove Village data center argued the facility was worth about $21 million — roughly $1 million less than the owner paid for the property in 2016. The appraiser it hired, from the Chicago-based Real Estate Analysis Corp., called it a “typical warehouse building” and said nearly all its equipment is “personal property” excluded from valuation under state law.
Experts described the tactic as a variation of the “dark store theory” — an argument big-box retailers have used in property tax valuation battles contending they should be valued as if the buildings were shuttered and vacant because they would be difficult to sell for other uses.
“It’s kind of like (saying), ‘I would be an Ironman triathlete if I didn’t have cheeseburgers and milkshakes,’” Kaegi said. “It’s a way to sort of wave away a large element of the value … by saying, ‘it’s not real estate, it’s personal property.’”
The industry’s newness makes data center buildings especially hard to assess, according to Propheter. Unlike apartment buildings or office towers, data centers have rarely changed hands on the open market and leasing information is largely unavailable, making it difficult to find comparable sales.
Some appeal appraisals have relied on sales of much smaller or older buildings, or buildings in less desirable areas without access to the same power and fiber lines.
“There’s absolutely no aggregator, there is no system in place, either by data center conglomerates or by any other third-party proprietary or even government … I cannot go look up wholesale lease prices for a variety of data centers,” Propheter said. “It just highlights this information problem that there is no infrastructure yet to widely disseminate information about the state of the market.”
“It means everyone can cherry-pick … because everyone’s got slightly different information,” he said.
In his fight against the $21 million appeal, Lehman argued the true value was $100 million higher — and more than $40 million higher than Kaegi’s earlier assessment. He estimated that land, building and site improvements were worth at least $67 million, and that the center’s 2018 mortgage was worth $235 million. He also cited national reports showing data centers as a growing industry and Illinois as “far and away the most dominant data center market in the Midwest.”
The Board of Review ultimately sided with Kaegi and Lehman, holding the $70 million value Kaegi had initially set. But it was one of just four cases in which the board kept Kaegi’s valuation in place, out of 13 data center appeals Lehman personally contested with the board.
A mountain of appeals
Property owners, especially commercial ones, have little to lose by appealing their assessments. Many property tax attorneys work on contingency, taking a cut of the savings if they secure a reduction. Lehman said the appraisers that attorneys hire are also incentivized to “race to the bottom,” offering lower early estimates than their competitors to win business.
The county’s Board of Review received 290,000 appeals for its 2025 session. Of those, more than 32,000 were commercial cases. Lehman, who has a staff of three but wrote the appraisals himself, can choose only a few major battles to fight in a short window. The board wades through the appeals in weekslong chunks by township, always under pressure from the next assessment cycle around the corner.
Commercial cases are more complex, typically involving hundreds of pages of appraisals and legalese from the appellant. Until recently, the assessor didn’t present arguments to support specific property valuations, leaving the Board of Review’s staff with little to weigh against the appeal.
“ Given the limited availability of comparable data center properties, comparable sales were of limited usefulness and represented only one of several factors considered in the board’s evaluation,” Board of Review spokeswoman Sharon Pannozzo said in an email. “The board evaluates the complete record before making an independent determination based on facts and applicable law.”
If property owners don’t get the relief they’re seeking at the county level, they can take their case to the state’s Property Tax Appeals Board, whose clean-slate approach to evidence means appellants’ appraisals may carry even more weight. Unlike the Board of Review, PTAB sometimes takes years to reach a decision and can award retroactive refunds if it grants a reduction. Appellants can also take their case to circuit court.
“When you have a system that does not hold appraisers accountable for unreasonably low values, and you have a system that incentivizes high-value property owners to appeal, what happens is you overwhelm the system,” Lehman said. “The assessor is overwhelmed with appeals. The board is overwhelmed with appeals. PTAB is overwhelmed with appeals, and circuit court is overwhelmed with appeals.”
The risk of paying out past refunds from current budgets can push local taxing districts — especially schools, the biggest stakeholders among property tax collectors — to strike preemptive settlements with large property owners before PTAB rules, sometimes involving multiyear deals to lock in tax certainty.
“You want to minimize the refund,” said Ares Dalianis, an attorney at Franczek PC who serves as general counsel to multiple Illinois school districts that intervene in property tax appeals where large property owners are seeking breaks. Though districts can “recapture” refunded money by raising their property tax levy the following year, “school districts don’t want to pass on this additional tax burden to the rest of the community. The recapture amount is sometimes $3, $4, $5, $10 million every year.”
(Editor’s note: The Franczek firm represents the publisher of the Illinois Answers Project, the Better Government Association, in unrelated matters.)
In one case, though both the assessor and the school district fought a data center cut, that didn’t mean they were allies.
Data center owner Digital Realty hired the appraisal firm Urban Real Estate Research Inc. to appeal a Northlake property assessment Kaegi’s office initially valued at $191 million. The appraisal from the data center owner came in at $56.2 million.
Lehman prepared his own appraisal. He argued his opponent had drastically underestimated the value of the facility’s power-generating capacity and noted it sold for $137 million nearly a decade earlier.
Immediately after the hearing, however, Lehman and Kaegi were floored to learn that Digital Realty had already reached a settlement with the Leyden Township school district, valuing the property at $61.5 million, and that the Board of Review supported it.
“I was appalled,” Kaegi said. “The whole idea of intervening and appearing more before the Board of Review kind of gets undermined if you have taxing bodies unilaterally surrendering.”
Dalianis, who represented the school district in the settlement, said the negotiated value was close to the appraisal the district had professionally done. He predicted the underlying battle — how equipment is treated — “will go on for a while.”
A spokesman for Digital Realty reiterated that the settled amount was “supported by several independent appraisals. We remain committed to the Chicagoland area for the long term, paying our fair share and being a good neighbor in the communities where we operate.”
Two other data center cases that Lehman fought ended up being settled as well.
“Nothing about this system is fair for the average taxpayer, for the homeowner,” Lehman said. “Nothing.”
Incentives
Eleven of the 18 O’Hare-area data centers included in the Illinois Answers and Tribune analysis operate under special tax incentives, which Cook County grants to newly built industrial buildings, or those replacing abandoned or rehabilitated industrial property. The tax breaks have become perfunctory, automatically granted if a property meets the qualifications.
Once in place, the incentive automatically reduces a property’s taxable value by 60% for 10 years, then gradually returns to baseline over the final two years. Incentives can be renewed an unlimited number of times.
Elk Grove Village is now home to 20 data centers, with another five under construction.
Active tax incentives on five data center complexes in Elk Grove Village erased more than $280 million in taxable value last year, adding up to about $14.5 million in total tax savings this year. Without those incentives, the average Elk Grove Village homeowner’s property tax bill would have been roughly $33 lower this year, according to the analysis.
The relief for local homeowners would be more dramatic if not for the Busse/Elmhurst tax increment financing district, which diverts property tax growth from more than half a dozen data centers into a special infrastructure fund controlled by the village, instead of flowing to local governments and easing the tax burden on neighbors.
The incentives and Board of Review reductions mean tens of millions fewer dollars infusing the TIF district, which village officials say they have tapped for road reconstruction, sewer upgrades and street lighting projects.
Elk Grove officials have asked the county to approve tax incentives for all five facilities currently under construction, plus two existing facilities.
Elk Grove Village Mayor Craig Johnson, who welcomed the town’s first data center in 2000, called the tax savings figure misleading. He noted that even with incentives, data centers generate far more property tax revenue than the industries that previously occupied the same properties.
“Do we love having to (give incentives)? No. But we are put in this position, and we have to find the best way to stay successful,” Johnson said.
Foregoing the incentives, Johnson said, would risk data center operators passing over Elk Grove Village in favor of towns in nearby DuPage County, where industrial properties are not assessed at a higher level than homes, the way they are in Cook County. He said the village has never renewed the specialized tax breaks, describing the tradeoff as a “short-term pain to the government bodies for the long-term benefit” of winning businesses. Data centers, he added, are better neighbors than many other industrial uses — they have tight security, draw little truck traffic and donate to community causes.
Mayor Jeffrey Sherwin of Northlake agrees. Sherwin said his city only recommends tax incentives in cases where officials are confident a deal would generate more taxes than an existing property. That has been the case for the Digital Realty data center, which operates under an incentive but paid more than $2 million in taxes last year. Its owners were paying $617,000 a decade earlier, when it was being converted into a data center.
“We always look at, ‘Will tax revenue increase as a result?’ And if it does, then that’s fine,” Sherwin said. “We don’t need to be hogs about, ‘if we don’t give them the (incentive), we could get all this (additional revenue).’ But then maybe we wouldn’t have the development.”
The mayor added that he has been taken aback by the surge in public backlash against the facilities.
“Five years ago, data centers were welcome,” Sherwin said. “I don’t know what’s caused things to turn around … but now it’s like they’re Darth Vader.”
Others are skeptical the tax breaks made the difference in developers’ decisions to build in places like Northlake and Elk Grove Village. The two communities offer uniquely spacious industrial tracts at the nexus of major fiber-optic lines and on the doorstep of one of the world’s busiest airports, with ample access to power and water and a dense customer base in Chicago.
“Localities in the region already have all those things going on for them,” said Tarczynska of the anti-incentive group Good Jobs First. “So when these companies come and say, ‘Hey … You need to give us a subsidy … If not, we’ll go somewhere else,’ it just doesn’t square.”
Tarczynska pointed to a 2018 study of dozens of tax incentives granted to corporate operators around the country. It estimated the break made a decisive difference in profitability for only about one-quarter of the facilities studied.
Cook County leaders have signaled a new willingness to reconsider tax incentives in recent months. In December, a property tax reform working group coordinated by County Board President Toni Preckwinkle’s office published a report recommending that the county transform its current “by-right, shall-issue” programs to qualifying companies into something more tailored, with tiered awards and reviews.
For data centers, the county-approved property tax subsidies were layered atop at least $278 million in estimated state tax breaks, plus additional sweeteners from the federal government via the 2025 One Big Beautiful Bill Act, President Donald Trump’s tax and spending legislation.
After the Illinois General Assembly this spring punted on legislation that would have established strong water and energy use standards, Gov. JB Pritzker issued an executive order on June 5 temporarily pausing applications for the state’s data center tax credit program. T hat order does not prevent new data center development or impose regulations.
Tarczynska said lawmakers and taxpayers would be best served by a pause in both incentive programs and new data center construction.
“This is … such a fast-developing and growing industry and public officials are just a few steps behind it,” she said. “Moratoriums on the construction of data centers would really give states time to really catch up with the industry, with what’s going on and create rules and policies that would protect the state budget, but also people.”
But Elk Grove Village’s Johnson isn’t slowing down.
One data center company, Aligned, is tearing down four high-vacancy office buildings in town, including the former ADP payroll building, to build new data center space. ADP is subletting space at the Zurich headquarters in Schaumburg instead. It’s a win-win, Johnson said. The obsolete buildings are gone, Zurich fills up vacant space, and his village remains on the cutting edge.
“That’s gold,” he said.
Read how the Illinois Answers Project and the Chicago Tribune reported this story here.
Quig is a reporter for the Tribune. Nitkin is a reporter for the Illinois Answers Project.