Politics of equalizing the property tax
FOR YEARS Illinois governors have played politics with the state's role in property tax administration. This has resulted in sharp distortions both in local tax levies and in state aid to local schools. The issue has finally come to a head this spring in the state Supreme Court and in the legislature.
The statutes direct the Department of Local Government Affairs (DLGA) to equalize countywide assessment levels among the 102 counties. If the job is well done, property tax burdens would be distributed fairly in all parts of the state. But DLGA has not been performing this duty. This has now been conceded by the governor and by a special legislative committee and confirmed in the findings of the Lake County circuit court. In January of this year, the Lake County court ordered the director of DLGA to establish a specific floor on countywide assessment levels throughout the state. The order sent shock waves through the property tax apparatus of the state, causing consternation in some areas and glee in others. DLGA promptly appealed to the Illinois Supreme Court which granted a stay of the Lake County judge's injunction and expedited a hearing on the appeal. Had not the high court acted, taxpayers in many counties could have received substantially higher tax bills next year.
They still may. Conversely, tax reductions—or at least larger shares of state aid—could go to those areas which have been unfairly treated by the failure to equalize properly.
Equalization: why and how?
Frank A. Kirk, director of the Department of Local Government Affairs and a defendant in the Lake County case, has argued that if it were not for state school aid and for local governments that overlap county lines, the state would not need to be in the equalization business at all. Kirk's point is that property taxes are collected by and for the support of local government. Let local officials tend to their own backyard.
Still, one cannot ignore the reality that $1.6 billion of state money also is distributed to local Illinois schools. One basis for this distribution is the equalized value of property in respective school districts. The amount of local property wealth available to support education in each school district remains at the heart of the state aid process, with poor school districts receiving proportionately more state school aid.
The valuation of property is determined by local assessors, and local assessment practices vary widely over the state. If the amount of taxable wealth in a county is significantly understated, the state must increase or "multiply" these stated assessment levels to bring that county up to some uniform or equal assessment level. The law directs that all counties shall be equalized at "full, fair cash value" by DLGA (Illinois Revised Statutes, chapter 210, sections 611, 627, and 630); "fair cash value" is defined at 50 per cent of actual value except in counties of more than 200,000 which classify real property for tax purposes, and Cook County is the only such county (sec. 482 (24)). Without such a compensating adjustment or equalization, school districts in counties with equalized countywide assessment levels below the statewide average would receive more than their fair share of state school aid. School districts in counties above the statewide average would be deprived.
The procedure of equalizing among the counties can be a relatively simple (though tedious) arithmetic exercise—provided one has all the necessary data. The state first must ascertain the existing assessment levels for each county. To do this DLGA monitors each real property sale within the state, some 260,000 transactions annually.
The countywide assessment levels before equalization indeed do vary widely among the 102 counties. Assessments in Johnson County averaged 6 per cent of fair cash value, the lowest among the counties in tax year 1973 (relating to taxes billed in spring 1974). Peoria County was highest with a 46 per cent countywide average assessment level, seven times higher than lowly Johnson County. The other 100 counties are distributed among this range of assessments.
Calculating multipliers
The realities of the equalization process are illustrated by the assignment of multipliers during the last full year of Gov. Richard B. Ogilvie's administration (1972). Thirty-two counties received multipliers of 1.00; yet the countywide" assessment levels of these counties (before "equalization") ranged from a low of 36.01 per cent for Effingham County to a high of 52.23 per cent for DuPage County. A multiplier of 1.00 obviously did not equalize. these differences. Gov. Dan Walker in his first year "froze" assessment multipliers, and they were frozen again by DLGA (July 1973) for a second tax
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year. Then in December 1974 DLGA Director Kirk in a press release announced that each county could expect to be assigned the same multiplier for the 1974 tax year as for 1973 unless any specific county had experienced wide variations in assessment levels.
Kirk's announcement came as a shock to Paul Hamer, Northbrook, the plaintiff in a series of suits in Lake County (the principal suit is Hamer v. Mahin re Lehnhausen re Kirk, No. 68 MR 4318 filed in 1968) seeking to compel DLGA to comply with the letter of the law in fixing equalization factors (multipliers). Hamer presumed DLGA would not announce the multipliers for the 1974 tax year until conclusion of the case. He pressed for, and Judge Harry D. Strouse, Jr., granted an injunction order restraining DLGA from certifying final equalization factors for any county that would result in a level of assessment less than 42 per cent after equalization. Judge Strouse also summarized his frustrations in dealing with existing property tax assessment practices:
I take it that one of the real tragedies, I suppose of the fact that we're here at all, is that in this county, we pay a substantial sum to 18 local assessors and their offices to perform a statutory duty which everyone here has freely admitted they do not do. We then overlay on that a substantial amount of money to a Supervisor of Assessments to do county-wide what the local assessors fail to do and which the evidence is unequivocal is not done. We then pay another substantial amount of money to a Board of Review to do again throughout the county what the local assessors and the Supervisor of Assessments are supposed to do and that is not accomplished, and so we go to the State where for some 43 years the Department of Revenue, and now the Department of Local Government Affairs is paid to do the same thing and it obviously is not accomplished.
Multiplier politics before Walker
The Ogilvie administration opted for stable multipliers, in spite of a real estate market that was becoming more volatile with each successive year of inflation. Even Cook County's reassessments were not reflected in multiplier assignments. So it was no surprise when Chicago newspapers revealed in the summer of 1972 that equalization policies under Ogilvie had shortchanged Chicago schools $33 million for the 1972-73 school year. The newspapers noted that when DLGA records were finally made available to the press, there were no worksheets to demonstrate the basis for assignment of the multipliers in 1972. Reporters did not have access to complete files. Some of their suppositions about the multiplier process have been contradicted by court testimony, but their basic conclusions remain unshaken. DLGA professionals indeed did their preliminary calculations necessary to equalize but the final step to support many politically sensitive county multipliers are not in the files and cannot be inferred from the backup material.
DLGA records, now a matter of public record in the various equalization suits against the state, show that the political determination of specific multipliers was significantly more complex than alleged "to apparently be only in [former DLGA director] Lehnhausen's head" (Chicago Sun-Times, July 17, 1972). The Chicago schools alone receive over $350 million in state school aid. The determination of annual school aid for Chicago and other Cook County schools is a process for political negotiation, with the school aid formulas and Cook County multiplier as critical ingredients. School aid is but one plum in the total political pudding, so agreement on state aid dollars may not be reached until other political issues are mutually resolved. A concomitant issue of equal interest is the amount of local property tax revenue that the city of Chicago expects to generate from its property tax base. The politicians must agree on these aggregate money flows.
The school aid formula during the Ogilvie years was complex, with as many as six factors in the formula itself. If politicians could be assured the Cook County multiplier would remain unchanged, they could concentrate on the I school aid formula factors that woud
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The situation is different for most downstate counties. A large bloc of these counties did not (and do not) negotiate tax multipliers. This suggests some degree of harmony and tolerance to modest annual shifts in assessment levels or multipliers. Some rural counties simply are economically and politically stable; they experience no significant changes from year to year.
Other counties have conflicting interests within their boundaries. School districts may want a reduced multiplier for increased state school aid. Other local government officials may want to maintain a high multiplier to protect or inflate their local property tax base. County supervisors of assessment may want a 1.00 multiplier, as this is a "report card" on the supervisor of assessments' ability to meet state equalization policy (even if there is no equalization). Friendships naturally develop over the years between county property tax administration officials and state professionals. Local officials have been known to phone Springfield early in the multiplier calculation process to suggest that they were in the "1.00 range." Some unwritten but nonetheless generally understood "rules" of fairness also appear to have existed in the past within DLGA itself for minimizing the adverse impact from multiplier changes in any given year. These political and personal procedures in the assignment of county multipliers were the legacy that the Ogilvie administration left for its successor.
Frozen multipliers, frozen policy
The announcement of a freeze on assessment multipliers was a blitz move by the new administration. Some kind of equalization policy had to be announced immediately. Property tax bills in Illinois are calculated by county clerks in the spring following the assessment year. The state's announcement of multipliers is the last bit of information necessary to calculate individual tax bills. Traditionally governors have delayed the issuance of onerous multipliers or revealing their equalization policy until after November in an election year.
Given the election outcome, the Ogilvie administration further chose to defer the multiplier problem for the incoming governor. Time was running short by January. Walker's sudden announcement of a multiplier freeze would buy breathing space and protect the "honeymoon" period. Moreover, there was the possibility that some taxpayers might erroneously equate Walker's announcement of a freeze on multipliers (only one element in determining property taxes) with his predecessor's election eve proposal to freeze outright the dollar amounts of local property taxes.
Walker also enjoyed other interim political advantages in freezing equalization multipliers. School districts in the sparsely populated southern counties would continue to receive disproportionately more state school aid under the maldistribution. Twenty-one of the 28 counties receiving sizable windfalls in the southern half of the state were in Walker's column the prior November. The shortchanged school districts, on the other hand, tended to be concentrated in the Republicandominated suburban Chicago communities. Any cries of anguish from these quarters could be muted by a new, more generous school aid formula. Finally, Walker was able to toss, with some success, the political hot potato of property tax equalization in the direction of the state legislature.
The Clarke subcommittee
During the Clarke subcommittee hearings and deliberations, there was little surprise (or publicity) when DLGA Director Kirk announced in July 1973 that the administration would, extend the policy of frozen multipliers for a second tax year. The midsummer timing of the announcement should have assured minimum notice, except for some confusion within the upper June 1975/Illinois Issues/181
ranks of the Walker administration itself over the Cook County multiplier. No one has said that the politics of the multiplier are simple at any level, and some confusion arose as to whether the multiplier factor itself was to remain unchanged or whether the valuation of the local property tax base was to be protected in the instance of Cook County. Startled cries echoed in Chicago's city hall when DLGA announced that, in spite of the second year of the multiplier freeze. Cook County's multiplier would be reduced from 1.59 to 1.48.
Effect on Chicago
Throughout most of 1974 the governor, the General Assembly, and the courts each deferred to the other in acting decisively to alleviate statewide property tax inequities. Once again, after the 1974 elections, the Walker administration could no longer delay an announcement on multiplier policy for property taxes to be billed in the spring of 1975 and announced that multipliers essentially would remain frozen. Paul Hamer in the Lake County case pressed for an injunction against the state's issuance of the same multipliers for the third straight year. Judge Strouse called for DLGA to explain the policy announcement and then exercised his jurisdiction to direct the property tax equalization function in the state of Illinois.
A new commission
Seasoned observers of the State House scene in Springfield question whether such a commission can be totally independent of political blocs that thrive on the life-blood of money flowing into the coffers of school districts and local governments. Nonetheless, two principals in the present situation—the governor and the legislature—seem bent on the concept of a new commission to restore order out of property tax chaos. Such is the essence of political strategy—the original Illinois Tax Commission lasted 25 years until a "better idea" came along. That was the Department of Revenue, and the irony should not be lost on those who have concern for equity in property tax administration.
If the foregoing has seemed to place the blame chiefly on governors and administrators, this is the misreading of a complex situation that begins with marked differences in assessments at the local level. Director Kirk in his December 1974 announcement defended his action on the basis that DLGA studies had shown that increases in county multipliers would further magnify unjustified differences in taxes for properties of equal market value within each county. "Improvements in assessment practices at the local level," he said, were "the key to making the system more equitable." But this is another part of the forest.
The appeal to the Supreme Court
These are procedural grounds upon which the high court could dissolve the injunction and thus, in effect, toss the ball to the legislature without passing judgment on the merits of Paul Hamer's taxpayer law suit. On the other hand, the 1970 Constitution (Art. VI, sec. 4) gives the court "original jurisdiction in cases relating to revenue . . . and as may be necessary to the complete determination of any cases on review." Thus the court would appear to have ample powers to act if it decides to do so.
[After the above was written, the Illinois Supreme Court (4/16/75) upheld the arguments advanced by the plaintiffs, but refused to order new tax multipliers for 1974 tax year because this would delay tax collections. The Lake County circuit court order was reversed, but the Supreme Court said the Lake County court should retain jurisdiction and the plaintiffs should seek relief as to 1975 and subsequent tax years.] ť
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If the state were to equalize the assessment levels of all counties at some common figure, say 40 per cent of fair cash value, then one would calculate "multipliers" by dividing the target policy level by the existing assessment level of each county. Johnson County would receive (40—6) a multiplier of 6.67, and Peoria County would receive a "negative" multiplier of (40—46) 0.87 to deflate its countywide assessments down to the illustrative 40 per cent statewide equalization level. A county would receive a multiplier of 1.00 if its countywide assessment level exactly equaled the state's policy target.
The law says property shall be assessed at 50 per cent of fair cash value. The judge complained this job has not been done for 43 years — by local assessors, supervisors of assessments, boards of review nor with equalization by DLGA
The disarray in multipliers assigned the last year of the Ogilvie administration has received all the recent notoriety, but no prizes can be awarded for originality. Whether one wants to dig back as far as the old Illinois Tax Commission in the 1930's and early 1940's or more recently to the Department of Revenue before 1970, the specter of tax multiplier improprieties is ever present. Only four years after a major restructuring of property tax policy, then Director of Revenue Richard J. Daley (now mayor of Chicago) announced in December 1949 that all counties (except DeKalb) could expect to receive the same multipliers as the previous year. Gov. William-G. Stratton discovered in 1953 that a sharp increase in multipliers overall would shift a greater portion of school finance and poor relief from his budget to local taxpayers. Gov. Otto Kerner learned in 1964 that sudden changes in county multipliers could incur the wrath of taxpayers adversely affected.
generate the desired dollar figures. If not, the anticipated multiplier changes themselves had to be taken into account in the complex negotiations. The actual computer runs and other worksheets relating to the Cook County multipliers in 1970-72 probably indeed do not exist in any single file. Different pieces of the puzzle nonetheless were calculated by the Office of Superintendent of Public Instruction, in the legislature, in DLGA, and by units of local government. All these elements contributed in the assignment of the Cook County tentative multiplier during the Ogilvie years, and little was left to chance.
Paul Harrier's tax equalization suit against the state had already been in Judge Strouse's Lake County court three years when Dan Walker was inaugurated as governor in January 1973. Four weeks later Walker called a Chicago press conference to resurrect the charges of improprieties under his predecessor's administration. The new governor accused the Ogilvie administration of "woeful manipulations" of state equalization factors affecting local property taxes. Then Walker announced that he was ordering a freeze on changing the property tax multipliers despite the sharp inequities, because there would be "grave consequences in terms of state aid to schools and real estate taxes" if corrections were made immediately and without consideration by the state legislature.
The General Assembly responded in its own time by establishing a special joint subcommittee. More commonly known as the "Clarke Property Tax Subcommittee" (after its chairman, Sen. Terrell Clarke, R., Western Springs), this body set a target date of March 1974 for a report. Deliberations were not helped by the chaotic 1973-74 session, and the first draft of the subcommittee report was not issued until October 1974. One proposal clearly stood out among the recommendations:
The subcommittee called for a new state commission independent of the governor's executive agencies that would perform the politically volatile tax equalization function.
Suddenly the Chicago schools were threatened with a $15 million reduction in school finances, and the local tax-generating capacity of the city had been cut 12 per cent. The General Assembly was pushed into controversy. Legislators responded with a special bill essentially guaranteeing Cook County schools no fewer dollars of state school aid than they had received the previous year. The legislature nonetheless was carefully sidestepping the basic issue of determining a "proper" multiplier for Cook County.
The governor in his state of the state message this year endorsed the concept of a new, independent tax commission to perform the state's equalization function. The proposal, as noted, also has the support of the Joint Subcommittee to Study the Property Tax. The subcommittee has proposed that a new state property tax commission should be responsible "for administering all aspects of the state's role in property tax administration."
As this is written, the Illinois Supreme Court has under advisement the plea of the attorney general on behalf of the Department of Local Government Affairs to dissolve the Lake County injunction. The attorney general argued in part that assessments may not be increased by the court without giving due notice to affected taxpayers and taxing bodies. DLGA had already certified multipliers for 65 counties to compute this spring's taxes. The attorney general also argued that the Lake County court does not have extra-territorial jurisdiction to take action affecting property and taxpayers in other counties.