O’Hare-area data centers win nearly $100M in tax breaks

More than a dozen data centers near O’Hare International Airport are receiving major local property tax breaks this year, with an analysis by the Illinois Answers Project and the Chicago Tribune finding the relief adds up to nearly $100 million in tax savings across a small group of suburbs.

The analysis found that assessment reductions and incentives removed nearly $2 billion from the taxable property value of data centers in Elk Grove Village, Northlake and Franklin Park. The facilities examined are part of a much larger footprint: more than 100 data centers are already operating across Cook County, with more under construction.

At least 18 northwest suburban data centers received multimillion-dollar cuts in taxable value from Cook County officials. In one case, the final valuation fell below what the owner originally paid to buy the site. Of those 18 facilities, 11 already had special local tax incentives approved by municipal leaders, and 12 also have a separate state tax break on sales and use taxes.

The properties still paid substantial tax bills. Altogether, the 18 data centers paid nearly $71 million in property taxes for the 2025 tax year. In Northlake, three data centers alone accounted for about 28% of the city’s tax base last year.

Where the tax fights are happening

The disputes are unfolding in appeals hearings that often draw little public attention, even as the differences in valuation can stretch into the tens of millions of dollars. Cook County Assessor Fritz Kaegi, local taxing bodies and data center owners have been battling over how the properties should be valued, and the article said the issue remains unsettled in Cook County.

Data center developers and industry advocates say the tax treatment is necessary to make projects work.

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 pro-industry lobbying group. "If you don’t get the project, you don’t get any of those revenues."

Tietz said he has already seen Illinois "begin to slip" in state rankings for attracting data center investment, with operators looking more closely at other states.

Critics argue the industry does not need such public support. "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."

Valuation battles

Kaegi has argued for years that commercial property has been undervalued and has made data centers a particular focus. His office has challenged appraisals submitted in tax appeals, saying they understate land values and exclude costly systems such as backup generators and chillers.

To Kaegi, prior property assessment cuts granted to data centers were "egregious" and deserved added scrutiny because the industry is new and case law is not settled.

"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.

One of the clearest examples is the Microsoft Azure data center in Northlake. Microsoft submitted an appraisal valuing the property at nearly $250 million. Kaegi’s office valued it at nearly $900 million. David Lehman, the assessor’s office director of valuations research, said his office counted the site’s 2009 sale price of $182 million and at least $650 million in upgrades shown in permitting records.

Lehman argued those "major building systems", such as backup generators and chillers, are "essential to the continuous operation of a data center." He wrote that "if any of these major building systems were to be removed, the facility would no longer function as a data center."

Lehman said such systems should count as real property. He has also argued data centers should be valued by kilowatt rather than by square foot because power capacity drives the market.

"When you build a $500 million data center, it should be valued at $500 million, and it shouldn't be appealed down to $250 million, and that's what I think is wrong with the system", Lehman said.

Experts cited in the article said the work is unusually difficult because data centers rarely sell or lease in ways that create transparent market comparisons.

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 sided with Kaegi on whether essential equipment belongs in assessments.

"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."

Justin Eimers, an assessment advisor with the IAAO and the former county appraiser for Miami County, Kansas, said data centers are "probably the most secretive property type there is." He added: "And understandably. They’re trying to stay competitive and … they want to keep their edges."

On valuations tied to power capacity, Eimers said, "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."

Microsoft’s appraiser, Kevin Byrnes, said the assessor’s office used to treat 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. On valuation methods, Byrnes said: "There’s many ways to sort of skin the cat."

The Board of Review ultimately set the Microsoft property’s final value at about $364 million.

Appeals and settlements

The article described a system under heavy strain. The Cook County Board of Review received 290,000 appeals for its 2025 session, including more than 32,000 commercial cases. Lehman, working with a staff of three and writing appraisals himself, has contested only a limited number of major cases.

"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 Board of Review said it makes its own decisions based on the record before it. "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."

School districts also face risk when large appeals move to the state Property Tax Appeals Board, which can take years and issue retroactive refunds. "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."

In one Northlake dispute, Kaegi said he was blindsided after Digital Realty and the Leyden Township school district reached a settlement valuing a property at $61.5 million after both the district and assessor had opposed a larger reduction at a hearing.

"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 said the settlement figure was close to the district’s own appraisal, and he predicted the broader tax issue around data center equipment "will go on for a while."

A spokesman for Digital Realty said 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."

Lehman offered a broader criticism of the property tax process: "Nothing about this system is fair for the average taxpayer, for the homeowner." He added, "Nothing."

Incentives layered on top

Separate from appeal reductions, 11 of the 18 data centers in the analysis operate under Cook County property tax incentives for newly built industrial buildings or projects replacing abandoned or rehabilitated industrial property. Once granted, the incentive reduces taxable value by 60% for 10 years, then gradually returns it to baseline over the final two years. The incentives can be renewed an unlimited number of times.

In Elk Grove Village, active incentives on five data center complexes erased more than $280 million in taxable value last year, resulting in about $14.5 million in total tax savings this year. The article said the average Elk Grove Village homeowner’s property tax bill would have been roughly $33 lower this year without those incentives.

The article also said the Busse/Elmhurst tax increment financing district diverts property tax growth from more than half a dozen data centers into a village-controlled infrastructure fund rather than to local governments. Elk Grove officials said that fund has supported road reconstruction, sewer upgrades and street lighting.

Mayor Craig Johnson said the headline savings figures do not capture the full picture because the data centers now generate more tax revenue than prior users of the sites.

"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.

Johnson said without incentives, projects could move elsewhere, including nearby DuPage County. He said Elk Grove Village has never renewed the specialized tax breaks and called the arrangement a "short-term pain to the government bodies for the long-term benefit" of attracting business. He also said data centers create fewer conflicts than some industrial alternatives.

Northlake Mayor Jeffrey Sherwin said his city supports incentives only when a project is expected to increase tax revenue over an existing use.

"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."

Sherwin also said public sentiment has shifted quickly. "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."

Tarczynska disputed the idea that the subsidies were decisive in places such as Northlake and Elk Grove Village, pointing to the region’s large industrial sites, fiber-optic access, power, water and customer base. "Localities in the region already have all those things going on for them", she said. "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."

Policy debate widens

The local property tax incentives come on top of at least $278 million in estimated state tax breaks for data centers, plus additional federal incentives through the 2025 One Big Beautiful Bill Act, the article said.

Cook County leaders have signaled they may revisit the current incentive structure. In December, a property tax reform working group coordinated by County Board President Toni Preckwinkle’s office recommended replacing the county’s "by-right, shall-issue" programs with a more tailored approach that includes tiered awards and reviews.

At the state level, the Illinois General Assembly did not pass legislation this spring that would have created stronger water and energy use standards for data center construction. Gov. JB Pritzker then issued an executive order on June 5 temporarily pausing applications for the state’s data center tax credit program, though the order does not block new development or impose regulations.

Tarczynska said lawmakers should go further. "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."

Johnson, meanwhile, said Elk Grove Village continues to embrace the sector. Referring to data center company Aligned’s plan to replace several high-vacancy office buildings with new data center space while ADP sublets space elsewhere, he described the outcome in simple terms:

"That’s gold", he said.

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