Sunday, November 26, 2006

Taxes and Local Control

In my district, and most of the ones around me, you can pick any issue you would like, and I all but guarantee you that, these days, it takes a back seat to the issue of skyrocketing property taxes.

While we can debate ad nauseum the root cause or real fix for the problem, in the interim we are presently trying to lessen the dramatic negative impact that these taxes are having on residents in Cook County. (And by the way, to the extent that higher taxes result in less disposable consumer income, this is a problem for local businesses as well.)

We are hoping to call the "7% bill" for a vote this week, and everybody concerned can acknowledge that it will be a close vote. Yesterday, Crain's outlined a Civic Federation report on this issue, which stated in part:
Chicago homeowners would face a median increase of 36.4% in their 2006 property tax bills — up from 10.6% otherwise — if the General Assembly does not extend a 7% annual cap on most residential assessment hikes, according to a new report by the Civic Federation. Business groups say the cap shifts the tax burden to them, but the the Chicago tax-policy group says the value of residential property is growing so fast that, even with the cap, the median bill for industrial property will drop 10.8%, with a 4% median decline on office and retail buildings. The federation supports a three-year extension of the cap. (emphasis added)
As to the cries of doom from the opponents of the bill, I proffer this tidbit from the Tribune's article on the issue:
But the study found that commercial, industrial and apartment properties in Chicago are already expected to see their taxes go down in 2007, with or without the cap in place. Taxes on those properties would drop even further if the law were allowed to expire and more of the burden were shifted back to homeowners. (emphasis added)

"Although it is not a replacement for comprehensive reform of the property tax system, the `7% cap' has contributed residential stability to the Cook County property tax system by both limiting and smoothing annual increases in the taxable value of homestead properties," the report says. "The Civic Federation believes that the benefits of the [law] outweigh its costs in terms of tax burden shifted to non-homestead properties and homestead properties that are appreciating slowly."
Interestingly, what I find most telling about the issue has nothing to do with taxes. People, especially conservatives, are always talking about local control. Here we have a bill that is rooted in that very concept. There is nothing mandatory about the bill, it is opt-in legislation that allows a county to implement the provisions if it so chooses. Those county officials eventually have to stand before voters and answer for their actions.

It is hard to imagine a Representative from another county arguing that allowing Cook (or any other) County to implement this measure would negatively impact their constituents. During my ten years in the Legislature, I have supported countless local control measures for other regions. I hope that my colleagues will allow us to take those steps necessary to address our issues now.

Sometime soon, when I am not under the weather, we can take up the whole debate of how we assess properties, how we fund schools, etc. I just don't have the energy or time to really delve into it now.


At November 27, 2006 at 2:51 PM, Anonymous silentk said...

Honorable John Fritchey,

Being among the supporters that have already discussed this subject ad nauseum I can only begin to appreciate how you must feel on the topic.

That said, your continuing efforts and commitment to passing this opt-in legislation is to be highly commended, and greatly appreciated by your constituents. We know you'll go the extra mile to convince a few more non-Cook Representatives to support the bill.

As your constituent, it is frustrating to know how to effect change - since a call to My State Rep is a call to an already converted choir.

With limited resources, limited time, and layers and layers of complexities with the issue - it is also frustrating to know best how to educate and galvanize support, as we are up against such entities as the Chicagoland Chamber of Commerce and the sometimes unpredictable nature of the legislature. Add to that, taxpayers don’t see the effects of their assessments until a year and a half later when the 2nd installment bill comes and are lulled into a false sense of security. I cannot tell you of the number of taxpayers I have spoken to that do not realize this legislation is set to expire.

And so, my friend, this is a vote of confidence and encouragement wishing you to be at your best, and to give ‘em hell on the House floor.

At November 28, 2006 at 9:27 AM, Anonymous Anonymous said...

Why dance around the issue?

If it costs $xxxx dollars a year to live in the city, charge people $xxxx to live in the city. If they can't afford it, or don't like it, they can always find a different place to live.

Illinois has many diverse communities, and if you don't fit in one, live in another.

My power bill is about to jump 22%. Gas prices have jumped almost 100%. CTA fares jumped 20%. The cost of cable jumps every year.

Why do we expect the cost of living in the city to stay at 7%?

At November 28, 2006 at 9:35 AM, Anonymous Anonymous said...

I hate to see ownership of my house, which we have lived in for 17 years, be jeopardized because of politics. PLEASE help us pass the 7% bill. Thank you for your personal efforts Rep. Fritchey.

At November 28, 2006 at 9:45 AM, Anonymous Anonymous said...

Hon. Fritchey,
I support the assessment cap, but it's only a bandaid. If expenditures weren't out of control, it wouldn't be an issue. Waiste, fraud, and abuse. Waiste, fraud, and abuse. That's all we ever hear about, and when elected officials get challenged on it, they dodge it by saying we have to do more for the kids. Why not tackle just one problem and attack it -like say pension reform maybe?

At November 28, 2006 at 1:11 PM, Anonymous Patrick L said...

Pretty soon the only ones who will be able to afford to live in Cook County will be the rich and politicians.
The rich are rich.

Politicians set their own hours, vote themselves raises, set up great healthcare and pensions for themselves and their families, eat and travel on stipends and lobbyists, "stumble" into 6 figure real estate deals, give their kids jobs set up the rich to profit off of taxpayers, ignore the ethics of those in their own parties, and retire to work in the Private sector ie lobby their old buddies. Then they heir their seats to family members. Boy life of a public servant in Illinois sure is hard.

Seriously John keep up the good work but try to put a little skip in your colleagues steps.

Patrick L.

At November 28, 2006 at 1:12 PM, Anonymous Patrick L. said...

Pretty soon the only ones who will be able to afford to live in Cook County will be the rich and politicians.
The rich are rich.

Politicians set their own hours, vote themselves raises, set up great healthcare and pensions for themselves and their families, eat and travel on stipends and lobbyists, "stumble" into 6 figure real estate deals, give their kids jobs set up the rich to profit off of taxpayers, ignore the ethics of those in their own parties, and retire to work in the Private sector ie lobby their old buddies. Then they heir their seats to family members. Boy life of a public servant in Illinois sure is hard.

Seriously John keep up the good work but try to put a little skip in your colleagues steps.

Patrick L.

At November 28, 2006 at 8:16 PM, Blogger Extreme Wisdom said...


Thanks for the informative post.

The tax problem in IL is directly related to the unnecessary (I say obscene) run up in education spending - pensions being the worst, but followed closely by massive featherbedding due to the non-benefits of "class size reduction" and special ed bloat.

Anon 9:45 had it right. This is a spending problem, not a taxing problem.

As a Cook Co. resident, I'd be the first to support a way to reduce (or slow the rate of growth of) my taxes. One upside of the bill failing however, would be the massive (and needed) backlash against IL political culture, which is owned lock, stock and barrel by big public labor, big labor, and big business.

None of these obscenely greedy interests feel the pinch of the burden placed on the property owner or small business man in this state.

I get a kick out of how you opened with debating "ad nauseum" about the causes of the problem.

Supporting this band-aid while also supporting hacking the jugular vein (the fake HB750 "swap" scam) is a perfect illustration of just what is wrong with IL.

The state needs a new Constitution that ties the hands not only of the legislature, but of the insatiable greed of the local governmental units (school districts in particular).

A Section capping SPENDING at inflation plus population growth for EVERY governmental entity in the state is necessary.

After HB750 passes, and the voters find out it has next to no "property tax relief," the above clause will poll well over 60 %.

At November 30, 2006 at 8:04 AM, Anonymous Anonymous said...

Hon. Fritchey,
Today, a Chicago Tribune editorial slammed the outrageous pension programs at all levels of local and state government. In their words, "This slow-mo pension meltdown badly needs a hero, a legislative leader who'll make fixing it his or her priority."
What do you say Hon. Fritchey? Don't you think it's time to take a stand? You're young and smart and can land on your feet no matter what happens. If not you, then who?

At December 2, 2006 at 12:03 PM, Anonymous Anonymous said...

Good thing you got that pay raise, huh, Honorable.

Can you get me one?

At December 2, 2006 at 12:17 PM, Blogger Hon. John Fritchey said...

8:04, I'll be announcing the first, albeit modest, step towards fixing some of the pension problems at a press conference with Commissioner Claypool tomorrow morning.

12:03, First of all, I voted against the pay raise, as I have every time the issue has come before us since I've been in the Legislature.

Secondly, I assure you that this job costs me a lot more than it makes me :)

As for your own pay raise, you're on your own for that one.

At December 2, 2006 at 10:46 PM, Blogger respectful said...

DuPage legislators want their county to have authority to impose higher cigarette taxes, but don't want to allow Cook county officials to keep the assessment cap. ONe shouldn't pass without the other.

At December 4, 2006 at 9:57 AM, Anonymous Anonymous said...

Hon. Fritchey,
It appears your press conference didn't get much coverage. Why did you do it on a cold Sunday morning?
Thanks for putting this on your radar. We'll be watching for your forthcoming major initiative on pension reform.

At December 4, 2006 at 10:30 AM, Blogger Hon. John Fritchey said...

Other than what it received in the Tribune, Sun-Times, Ch. 2,5,7,9,32, and 780AM, what coverage did you think I missed?

At December 4, 2006 at 10:46 AM, Anonymous Anonymous said...

I guess you did better than I thought. I get my local news off the internet versions of the Trib and Sun Times. Maybe I looked in the wrong areas.

At December 4, 2006 at 3:40 PM, Anonymous Anonymous said...

what is the exact bill number for the 7% cap. I would like to know exactly who, locally, voted against it!

At December 4, 2006 at 3:48 PM, Blogger Hon. John Fritchey said...

In its latest iteration, it's SB2300. The Sun-Times had printed a roll call, it may still be available online.

At December 4, 2006 at 4:08 PM, Anonymous Anonymous said...

Thank you! It was, indeed, on the Sun-Times web site. It looks like this vote shook out along party lines. Will the vote in January be during the final days of the 94th GA, or after the 95th GA takes over? How do you think the changes in officeholders will play out on this issue?

At December 4, 2006 at 4:17 PM, Blogger Hon. John Fritchey said...

It wasn't wholly on party lines by any stretch. A number of Republicans, both from inside and outside of Cook, were supportive, while a number of Democrats failed to support a Democratic initiative that was opt-in and had zero adverse impact on their constituents.

Apparently, local control only works for some people when they want it for their localities.

At December 5, 2006 at 4:52 PM, Anonymous silentk said...

Would you speak to the iteration of SB2300 - that it retains the $20,000 cap on the cap, as opposed to the $60,000 cap in the Senate version SB2691?

That it holds no Returning Vetrans Exemption, and that it includes language requiring calculations on the tax bill showing if you paid more/less/the same in taxes with the 7%?

Is this truly the best we can do?

At December 9, 2006 at 3:36 PM, Blogger John "Bob" Evans said...

Thanks for your support on the assessment cap. By smoothing out property tax increases, the cap allows more residents to enjoy home ownership without unexpected jolts to their housing costs. This in turn creates a more predictable and stable real estate market, which is good for everyone. Keep up the good work!

At December 26, 2006 at 3:44 PM, Anonymous Truthful James said...

Deeper into the Morass

As the County Assessor pleads for an extension and as the legislature adds more bends to the pipe of assessment and thus to the flow of taxes, it behooves us to look back and find out exactly how we got there. Much research needs to be done to validate the paper below -- not for assessing blame but to right the ship so that not just the machinations removed but the law is followed. For that is where all the research, including that of the Civic Federation, has fallen short. Nobody appears to care about the
law, but the violations of State statute and County Ordinance can not go unremarked.

And so we start this adventure.

The State statute permits Cook County only to use property classifications in setting assessment ratios. All other Counties are required to use Assessed Value (AV) at 33 1/3 % of Estimated Market Value. Cook was
permitted to have a differential between the lowest and highest AV ratio of 250%. Its ordinance said that residences would be assessed at 17%, later 16%, and Commercial would be assessed at 38%. That is inside the established 250% differential.

Regulation of the system was left up to the two Cook County review agencies. After that procedure, only the Illinois Court system remained.

In substance, that meant that, as designed, commercial property was paying 2.5 times the taxes that residential property of equal value paid.

However, over time residential AV ratios dropped down to around 10%. That meant that commercial property had to pay 3.8 times the taxes.

Not much satisfaction could be obtained from this closed loop system, although well connected lawyers like Burke and Kotlarz were able to do amazing things for their clients. Ma and Pa stores did not have much

Appeals were made to the State to intervene. A Property Tax Appeal Board (SPTAB) was established. That provided necessary relief, especially when it was pointed out that the 250% differential was being violated.

Refunds were ordered and taken out of the hide of current collections being sent by the Treasurer to the taxing bodies. The Taxing Entities had been previously informed that certain properties had paid their taxes under protest. Instead of the County sequestering the protested taxes, however, the money was passed on to the taxing bodies. Protests could take many years to resolve. Most local governments, under siege from their taxpayers to keep rates low, did not themselves lay the money aside. They spent it

Tax Caps had limited the ability of local governments to raise additional money. This provided impetus to spend the protested receipts. When the County controlled the Appeal process the waters were calm. The SPTAB was a different animal. It could order refunds not only for the current year but for prior years, all of which the County Treasurer would have to take out of current collections. The State ordered Refunds,
not only for the year in contention but also for prior years blew the balanced budgets.

At the same time the County made a conscious decision to fight the outward stream of commercial and industrial companies. NEW commercial and industrial projects were taking advantage of the County's 'tax abatement' -- more properly reduced taxable valuation -- programs. That did not help the bulk of the commercial and industrial property owners for whom the SPTAB could be a life saver

No property is being taxed against its AV anyway. The State, using its additional authority examines prior year real estate sales in every County and then assigns a general multiplier to all property to bring the assessment ratios up to 33 1/3 percent -- the Equalized Assessed Valuation (EAV). In case you haven't noticed, the multiplier for Cook County keeps increasing most every year. It is now up to 2.7320. All AV are multiplied by this. Like the dirty rain it falls on the good and the bad alike.

What this means is that Cook County has been woefully off the mark in its assessment procedures. In many Counties the equalizer is 1.0. In these Counties, the Townships provide the first evidence of valuation and the work of the Townships is validated by the County which can assign Township multipliers to bring the valuation up to (or down to) the statutory ratio. Cook County assesses all property at the County level only.

The drop in residential valuation ratios has been what affects the State multiplier. As of the year just past, we note that Homeowners whose true assessment ratio has dropped to no more than 12.2% are
now paying higher taxes than residential property owners in DuPage and Lake and Will County for property with the same market value.

Commercial Property Owners whose AV ratio is actually 38% are paying taxes against an EAV ratio of 103.8% -- the taxable value is greater than the Estimated Market Value and not incidentally 211% greater than that
paid on parcels with the same market value by property owner in the collar counties.

(Is it any wonder that new projects demand all the bells and whistles of TIF, tax abatement and sales tax rebate?)

But back to the SPTAB, which issued reductions in AV to conform to the statutory spread. Given the 10% ratio on homes, that meant a reduction in AV to 25% for fortunate appealers.

To his credit Assessor Houlihan tried, two triennials ago, to restore order, mitigate the effect of tax appeals and lower the multiplier. He appears to have raised the target ratio on residential properties to somewhere around 14% from 10%.

This forty percent increase generally, plus the normal increase expected over a triennial raised the AV for Chicago residences on the order of sixty percent. It woke up Chicago taxpayers who equated proposed valuation increases with tax increases.

It would also have freed the Assessor's hands with regard to commercial property, emasculated the SPTAB, and likely lowered the State's equalization factor to around more manageable 1.1x.

Unfortunately, it also affected too many political interests.

The County and other taxing bodies regularly announce that there has been no increase in taxes. What they mean is there has been no increase in tax rate. Increased valuation allows them this privilege, while they pocket additional dollars. The last thing the machines need is huge waves of dissatisfaction, even if it is misplaced. Politicians do not go against the tide.

In response to citizen misapprehension and the failure of the political system to support his effort, the Assessor was forced to retreat. Thus came the 7% solution. He knew that at the end of the three year period the valuation would have to increase to its true level. And a second 7% solution which artfully used
the EAV and increasing homeowner exemption packages to avoid the increasing number of SPTAB ordered refunds. The legality of his tactic is under review in the Courts.

Now comes a third artful solution now being discussed in Springfield.

The failure of the County to correctly and legally apply assessment ratios at the outset -- well prior to the Mr. Houlihan's arrival -- has resulted in the morass we now face. There is no attempt at rectifying that problem.

Some believe commercial and industrial properties should bear an ever higher percentage of the property tax burden. They do not understand that the burden is shifted on a property by property basis back to the resident in job loss and in lower levels of new development, in higher prices at stores, and eventually in pock marked vacancies in neighborhood strip centers.

Applying analysis on a classification by classification basis is a mugs game. Taxpaying Taxpaying is not a team sport. Just as every property differs, so does every owner. It is not the voters versus the rest. It is not class struggle -- although certain politicians would have us think so.

The Civic Federation alludes to the fact that the growth in the commercial/industrial sector has not kept pace with the grown in the residential sector. This is to be expected given the differential taxation
in Cook County and the fact that most new properties are priced to meet the demands of the upper middle class returning from the suburbs. There is no surprise there.

The pertinent question remains -- can the City and the County ever recover and restore the balanced approach already codified?


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