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By DONA P. GERSON
A member of the Evanston Zoning
Board of Appeals, she is administrative
assistant to Commissioner Joanne Alter,
Chicago Metropolitan Sanitary District.
Inflation of property values
combined with increased tax levies
Tax revolt in Cook County
WHEN 1976 real estate tax bills arrived
in the summer of 1977, howls of protest
rose from the homeowners in the
recently reassessed north quadrant of
Cook County. Hundreds of people
came to hastily arranged protest meetings, exchanged horror stories of whopping tax increases and listened to long
explanations of assessment, equalization and levies. They puzzled over
proposals of elected officials, found
little help from the leaders of the tax
protest group and in the end cursed
government, politicians, rotten luck and
went home and paid their taxes.
Property taxes are and have been the
major source of tax revenue for local
governments. They are raised locally
and spent locally. Over two billion
dollars in property taxes were levied in
Cook County in 1976. Over half this
amount was levied on property in
Chicago by seven major taxing bodies:
City of Chicago, Chicago Board of
Education, City Colleges of Chicago,
Chicago Park District, Cook County
Forest Preserve District, Metropolitan
Sanitary District of Greater Chicago,
and Cook County. Slightly less than one
billion in taxes were levied on property
outside of Chicago by 125 cities and
villages, 149 school districts and 10
junior college districts, 94 park districts,
30 townships, 36 library districts, 11
other taxing districts (fire protection,
public health, mental health and others)
along with Cook County, Forest Preserve District and the Metropolitan
Sanitary District.
Cook County, the state of Illinois,
and the 560 tax levying governmental
units are all involved in the determination of property taxes of the 1.3 million
parcels of property in Cook County
through assessment, equalization and
the levying of taxes.
Property taxes have a bad reputation.
No one likes them and yet they endure.
But in 1977 the combination of inflation
of property values and increased tax
levies stunned the reassessed homeowners of Cook County.
Cook County reassesses one-fourth
of the property each year. Before the
north quadrant was reassessed, Cook
County Assessor Tom Tully proposed
that the Cook County Board reduce the
rate of assessment of single family
residences from 22 to 16 percent of fair
market value.* In support of the lower
assessment rate, Tully cited sharp
inflation of value of single family
residences and noted that assessment
was now keyed to market value.
The proposal met with a mixed
response. Some taxpayers groups supported it, but school and park districts
with tax rate limits strongly opposed it.
Dr. Wesley Gibbs of Niles Township
High School said that by changing
assessment levels the Cook County
assessor would become a third force in
local-state development of school policy. Other administrators described
deficit spending and fears of a reduced
tax base. Tully pledged that no township would receive a decreased assessed
valuation.
With Tully predicting soaring assessment levels unless the rate for single
family residences was reduced, and the
the school and park boards fearing dire
consequences unless the rate was maintained, Cook County Board President
George Dunne said, "The Cook County
Board of Commissioners is placed in a
very uncomfortable position. In the case
of this proposal, we're damned if we do,
and damned if we don't." They opted for
"damned if we do" and voted a compromise 17 per cent rate of assessment for
single family residences. Tully was
pleased, the school districts were nervous and almost all of the taxpayers
were unaware of the drama that was
played out in the County Building.
The reduction in the rate of assessment did not reduce assessed valuation
because inflation was greater than the
reduction. The median value of one-family owner occupied homes in
Chicago Standard Metropolitan Statistical Area rose 60 per cent from 1970 to
1975 according to the U.S. Bureau of the
Census Annual Housing Survey of
Chicago for 1975. Reassessment of the
north quadrant of Cook County led to
an increase of 14.6 per cent of assessed
valuation.
While taxpayers received reassessment notices, they did not know how
reassessment might affect their tax bills.
An increase in the assessed value of
property does not in itself increase the
tax bill. If the amount of money to be
raised by property taxes (levies) remains
constant, the tax bill will be constant,
regardless of the assessed valuation.
But tax levies in suburban taxing
districts did not remain constant. (The
City of Chicago's levy was essentially
unchanged.) Levies of suburban municipalities increased more than 7 per cent
over the previous year. Financially
strapped school and park districts held
referenda to increase their tax rates, and
suburban elementary school levies rose
almost 14 per cent, high schools 7 per
cent and park districts almost 19 per
cent.
Increased levies by local governments
* The 1970 Constitution allows Cook County to classify
real properly for tax purposes provided that the level of
assessment of the highest class is not more than 2 1/2 times
the lowest class (Article IX, section 4 (b)). With
commercial/ industrial property assessed at 40 per cent of
fair market value, 16 per cent was the lowest possible rate
for single family residential properly or Class II, which
includes houses, condominiums, co-ops and small
apartment buildings with six units or less.
4/ January 1978/ Illinois Issues
and increased rates as the result of
referenda led to higher tax rates. Higher
rates multiplied by the higher assessed
valuation meant much higher tax bills.
When the tax bills were mailed out
and the dust settled, the impact of higher
taxes hit full force. The shock registered
very high on the taxpayers' equivalent of
the Richter scale. Some individual tax
bills in the reassessed portion of Cook
County rose 50 per cent, 100 per cent
and even more. Taxpayers were shocked
because they were unaware of the affects
of changes in assessments, unaware of
increased levies and tax rates, and
because the full increase was contained
in the second tax installment.
Changes in assessments
Because higher tax bills arrived after
the 1976 reassessment of property, the
first shots were fired at the assessor. And
there had been changes in assessment
practices, but all indications are that
these are changes for the better. The Civic Federation, a taxpayer watchdog
group, stated, "We feel that the quality
of assessment of homes for 1976 is the
best that we have had in Cook County
for many years."
Major changes in the Cook County
Assessor's Office came about after a
thorough study of that office by Real
Estate Research Corporation, which in
1971 recommended major modifications in the real property evaluation
process, including use of current information about sales and market prices
and greater uniformity in relation to
actual market values. Tully says significant changes resulted from adoption of
a new "Cost Manual" to replace the
outdated "1932 Cost Manual."
Since the 1971 report, the Assessor's
Office has new procedures, a professional staff, a computerized system, a
Classification Ordinance, and an updated Cost Manual. Current sales prices
of property are used in appraising the
value of property. These changes should
lead to assessments much closer to fair
market value. Market value based on
actual sales is more easily measured and
verified, less subjective, and therefore
more fair than previous bases for
assessment.
Back in colonial days, when the assessor went to George Washington's home
in Mt. Vernon, he simply counted the
number of fireplaces. Assessment of
value is much more complicated today.
The history of assessment in Chicago
and other cities indicates that the target
of assessment uniformity is not reached,
it is only approached. This is, in part,
because houses are not sold every year,
and estimates of value are therefore an
approximation, although an increasingly sophisticated approximation. A
statistical measure of the uniformity of
assessment is called the coefficient of
dispersion. The lower the coefficient of
dispersion, the greater the uniformity of
assessments. Cook County Assessor
Tully claims that with the new assessments, he is attaining a 7 per cent coefficient of dispersion on assessment of
single family homes. This would compare very favorably with the 20 per cent
coefficient of dispersion which is considered acceptable.
Owners of older homes, which were
generally underassessed under the
previous depreciation formula, have
done much of the complaining. In
contrast, a resident of a 1960's ranch
house in Evanston whose tax bill has
exceeded $2,000 for the last four years
received a slight decrease this year.
"We've been carrying the load for those
underassessed properties for years," the
Evanston homeowner said. "What are
they complaining about now? They've
had a free ride."
Fragmentation of authority
A property owner may remember last
year's tax bill and have an idea of the
proportion of tax going to the different
local governments. But no government
January 1978/ Illinois Issues/ 5
is responsible for next year's total tax
burden. There is no single official who
has the authority or the information to
say, "Next year your taxes will be so
many dollars."
In most cases, one authority doesn't
know what the next one is doing. The
village and the school district may have
different fiscal calendars. It's doubtful
that the village trustee and the school
board member discuss their proposed
levies, and it is most unlikely that either
of them know when the General Assembly, which has the authority in this case,
increases the tax rate limit for the
Metropolitan Sanitary District. Each
government makes decisions independently and hopes to get by for another
year. It's not surprising that the taxpayer doesn't know what's coming. No
one else does either.
The local official's task is made more
uncertain because the amount of revenue that can potentially be raised is
unknown, particularly in the year the
quadrant is reassessed. While the budget
and the levy are debated, officials know
neither the assessed valuation nor what
equalization factor the Illinois Department of Local Government Affairs will
assign so that Cook County's aggregate
assessed valuation, like that of other
counties in Illinois, will be 33 1/3 per
cent of fair market value as required by
law. Equalized assessed valuation is
unknown until the equalization factor is
assigned, and this takes place months
after
the levies are passed. Therefore,
the levies of those units of government
with tax rate limits are based on
educated guesses.
Often a small percentage of the
eligible electorate served by a local
taxing body votes at referendum elections to determine increases in tax rates.
For example, only 14 per cent of those
eligible voted at a referendum for
Evanston Township High School which
increased the maximum Education
Fund tax rate by 40 per cent for all of the
taxpayers in the district.
Fragmentation of authority is comfortable, in a way, for officeholders.
Local officials can honestly say that they
don't assess the property; the assessor
can honestly say he doesn't levy the
taxes; the local school board can say
that the equalization factor is unpredictable. And fragmentation of authority is
built into our system of local government. But fragmentation is not comfortable
for the taxpayer who doesn't know
what's coming and then can't find
anyone to blame. Of course, tax rates
are increased by direct vote of the
taxpayer/ voter in referenda, or by
elected representatives who vote to
increase tax rates, often in response to
demands for services. Under our theory
of democratic government, the voters
are responsible for increasing taxes. In a
sense taxpayers should say, along with
Pogo, "We have met the enemy and they
are us." But no one says that.
The double wallop
Cook County collects taxes in two
installments. Because the first tax bill is
sent out before tax rates are computed,
it does not reflect new rates or increased
levies. It is simply 50 per cent of the
previous year's tax bill. The total
increase in the 1976 tax bill is added to
the second installment, thus delivering a
double wallop. For example, in Evanston Township there was an average 20
per cent increment in the 1976 tax bill,
but since this was all contained in the
second tax installment, that bill was, on
average, 40 per cent higher than the first.
The letterhead of the tax-protesting
National Taxpayers' Union of Illinois
shows a coiled snake next to the slogan,
"Don't Tread on Me." At a North Shore
tax protest meeting sponsored by the
group, one of the protesters compared
the increasing tax bills to fascist Germany and drew cheers from the crowd
when he said, "This is a Nazi method,
not an American one." He was wrong.
Fragmented local government and
property taxes are as American as the
Electoral College.
There have been many official reactions to the tax protests. Interestingly
enough, proposals for relief did not
come from the local school boards
whose budgets take 60-75 percent of the
suburban Cook County real estate
dollar, nor from the city councils that
take approximately 20-25 per cent, but
from the Cook County assessor, the
Cook County Board president and the
state representatives. The reasons they
responded are probably political as well
as functional. They are professional
politicians, and they know that angry
taxpayers are angry voters. They also
have a broad view of the problem and
more knowledge of the legal and political machinery available for solutions.
Significantly, it is the political process
and the politicians who can channel
information, define the issues, develop
consensus and resolve conflicts. These
are the vital functions, sometimes
forgotten, that politicians perform
society.
Massive property tax relief is not
likely, but some adjustments may be
possible. And confidence in the equity
of the system is necessary. Proposal
under consideration, and some changes
have already taken place.
Short-range proposals attempt to
reduce the impact of sudden tax increases by giving relief to senior citizens,
increasing information about assessments, reducing assessment levels,
reassessing annually, challenging windfall
taxes and limiting dates for referenda.
Relief to senior citizens
The impact of increased taxes is
greatest on persons on fixed incomes
and special laws already exist for
persons over 65, specifically the circuit
breaker and the homestead exemption.
The circuit breaker offers a cash rebate
from the state to low income senior citizen homeowners and renters for
a portion of property taxes. Legislation
passed in 1977 increases the maximum
rebate to $650.
Where the circuit breaker distributes
state funds to low income seniors,
homestead exemption removes $1,500
equalized assessed valuation for each
home owned by senior citizens from the
tax base, thereby redistributing the tax
burden to the other local taxpayers.
Assessor Tully, speaking before a
subcommittee of the House Revenue
Committee, proposed that the General
Assembly act quickly to increase this
exemption to $3,000.
New legislation requires that the
mailed notice of an assessment change
should also contain information about the current and previous year's full
market valuation, percentage of assessed valuation, an explanation
of the relationship between assessment
and the tax bill, equalization and the appeal procedures.
Reduction of assessment
After the angry response to the 1976 bills, Tully again proposed that Class II
single family residences be assessed at 16 per cent, and the
Cook County Board agreed. Reassessment of
the next quadrant, northwest Cook
6/ January 1978/ Illinois Issues
County, will be 16 per cent of fair market value for single family residences, and 1977 assessments on homes in the north quadrant will be reduced to 16 per cent. However, reduction of tax bills will not materialize if tax rates increase as anticipated.
Modifying the impact
Annual rather than quadrennial reassessment of Cook County property would distribute inflationary increases each year rather than once every four years. Real Estate Research Corporation reported that 39 states had annual reassessments in 1971. Assessor Tully appointed a blue ribbon committee to consider assessments and tax relief and asked the committee to consider the practicality and feasibility of annual assessments as well as the manpower and resources necessary for administration. Tully says it might be possible to institute annual assessments by 1980.
There are also proposals to reduce the impact of the second tax installment by increasing the number of installments or redistributing the anticipated increase.
Windfall is a term applied to taxes raised as a result of increased equalized assessed valuation. That is, if a taxing body is limited to a rate of $2.00 per $100, and reassessment results in an increase from $100,000 to $150,000 equalized assessed valuation, the taxing body can levy and collect $3,000 rather than $2,000 without changing the tax rate. The additional $1,000 is a "wind-fall." Many people feel that the purpose of limited tax rates is undone when assessment values change rapidly. A class action suit has been filed to return unexpected revenue to the taxpayers.
State Rep. Woods Bowman*(D., 11 th District) intends to introduce a number of legislative proposals dealing with the whole range of adjustments to the impact of sudden tax increases. He is also proposing an intracounty equalization system to distribute the tax burden more equitably throughout the county each year. State Reps. James McCourt (R., 11th District) and John Porter (R., 1st District) have also announced their intentions to seek
legislative remedies. Limitation of referendum elections to designated election days is part of a new election calendar passed by the General Assembly. Although an amendment to that bill allows for emergency referenda to be held, with the
circuit courts deciding whether a request for a referendum by a local governmental unit qualifies as an emergency.
It will take effect December 1, 1978.
School aid formula
The taxpayers are not the only ones suffering. Many school districts are balancing between increased property tax revenues and decreased state funds. State support of the schools is keyed to the complex resource equalizer formula. But, generally, when equalized assessed valuation rises for a school district, state support is reduced; when school enrollment drops, state support is reduced. Both are happening at the same time. Take the case of Arlington Heights School District #25. They passed a referendum and increased their tax rate $.52. Their equalized assessed valuation also rose significantly. Increased tax rate multiplied by increased equalized assessed valuation means a lot of money. But the increased revenue will pay off a deficit and District #25 will lose about $1.8 million in state funds this year. Costs are going up, state support going down, and another referendum is unthinkable. This problem is not limited to Cook County but affects school districts throughout the State, according to State Supt. Joseph M. Cronin.
In addition to proposals for legislative changes, several groups are focusing on the equity of tax assessments. Confidence in the basic equity of a tax system is necessary. Local studies allege that some assessments are too low and that certain types or classes of property (land, high priced houses, commercial and industrial property) are underassessed, but evaluation of these studies will take time. (Is the sample sufficient? The data accurate? The assumptions valid?) While a complaint form for underassessed property filed at the assessor's office will be investigated, Tully says only 20 such complaints were received in 1976. If allegations of underassessment continue, that number may increase.
Long-range changes
John Castle, director of Illinois Department of Local Government Affairs, gets complaints about property taxes from all over the state. "Ifs not a Cook County problem," says Castle. In addition to administrative reform of the
property tax, castle warns to consider total reform of the tax system. "The people applauding an increase in the Homestead Exemption at the taxpayer protest meeting don't realize who will pay the portion of the taxes from which senior citizens are exempted — the rest of the taxpayers will pay it. What we need is total reform," says Castle. One specific reform Castle would like to see is the separation of property taxes from the state school aid formula.
Shifting some of the tax burden to state, county, or school district income taxes has also been suggested. Cook County Board President Dunne suggested an increase in state income tax might give relief to property taxes. Norman Beatty, executive director of the Civic Federation, suggested a county income tax. School district income taxes have also been proposed. The prospect of hundreds of different local income tax systems makes the administration of property taxes look simple.
Why don't governments spend less, or at least less of the property taxpayers' money? Actually, the seven major governments in Chicago have become less dependent on property tax in the last 10 years, according to Lavern Kron, director of research of the Civic Federation: "In 1966 these seven governments received 41.3 per cent of their revenue from property tax. In 1976 they received 31.2 per cent of their revenue from property tax."
Dunne says, "We reached the saturation point on property taxes five years ago. Cook County has not increased its corporate levy in five years." The county has turned to other sources of revenue such as the liquor tax, but these are not available to school districts, park districts and special purpose governments.
Everyone dislikes the property tax — until the alternatives are considered. But there are still advantages to this tax. It is enforceable and collectible, even when the taxpayers are upset; it yields a substantial amount of money, and it is an institution. "After 100 years of intense criticism from economists, public administrators, and the general public, it remains the single most important tax source of local government revenue," states Diane B. Paul (The Politics of the Property Tax, D.C. Heath & Co., 1975).
Continued on page 29
January 19781 Illinois Issues / 7
Property tax revolt in Cook County
Continued from page 7.
Yet, real estate does not represent wealth in the same way it did many years ago. Appreciation in the value of real estate does not mean an increase in current income especially for those whose incomes are fixed. The possibility of people selling their homes because they can't afford to pay taxes hovers in the background of any discussion of rapidly rising property taxes. "To tax and to please, no more than to love and to be wise, is not given to men," said Edmund Burke more than 150 years ago.
But men, and women, are still trying to tax and to please. Assessor Tully's committee is to report by January 15, 1978. Cook County Board President Dunne also appointed a committee to study the equity of assessment practices, and Gov. James R. Thompson has asked the Department of Local Government Affairs to hold hearings on property taxes.
Tom Tully's announcement that he will not be a candidate for reelection was the first surprise in the 1978 race for Cook County Assessor. The second surprise, perhaps, was President of the Senate, Thomas C. Hynes' announcement to run for that office. (See "Politics" on page 33 of this issue.) That race is worth watching, for while political campaigns do not usually lend themselves to discussion of the "issues," they can register shifting voter attitudes.
Meanwhile, like Old Man River, the administration of the property tax system just keeps rolling along. Property in the northwest quadrant of Cook County was reassessed at the end of 1977, and the southwest quadrant will be reassessed in 1978. School districts, park districts, cities and villages and other taxing bodies are deciding their 1978 tax levies now. And Cook County, the second largest county in the U.S., will send out property tax bills to the 1.3 million taxpayers again this spring.
January 1978/ Illinois Issues/ 29
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