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Lawsuit over unequal property taxes

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* Interesting

The Illinois Supreme Court heard arguments Tuesday in a lawsuit by two homeowners challenging the state’s school funding system.

Ron Newell of Cairo and Paul Carr of Chicago Heights say the current method discriminates against taxpayers based on where they live and violates the equal protection clause of the state constitution.

They say they pay higher property tax rates because they live in poorer school districts, while owners of similarly valued homes in wealthier districts pay a lower rate.

“The plaintiffs having to pay more taxes… to reach the same level of funding… that’s unequal treatment,” said attorney Alexander Polikoff, who is representing Newell and Carr.

The case comes 15 years after the court issued a ruling upholding the state’s educational funding system, saying it was a matter of local control. But that decision was based on the effect of a property tax-based funding scheme on school students, not property owners.

Under the scenario presented to the court, a Chicago Heights property is taxed at a rate 2.5 times higher than a similar property in Winnetka, a wealthier suburb north of Chicago.

* Audio of the arguments…

Thoughts?

* Related…

* State Board of Ed. looking at changing the way state aid, grants are distributed: In the face of ongoing cuts in state funding for education, the Illinois State Board of Education is considering changes to the general state aid formula and poverty grant calculations. Several options were presented at the board’s meeting Wednesday in Bloomington. The board’s staff was directed to move forward with more detailed analysis of the impact of various options on school districts.

* College Illinois fund to take bath on car investment

* Next School Crisis for Chicago: Pension Fund Is Running Dry

* Lawmakers may again discuss education law in light of teachers strike

posted by Rich Miller
Friday, Sep 21, 12 @ 4:20 am

Comments

  1. Rich-With as much attention that is paid to pension reform and funding- insufficient focus has been focused the investment performance- Crains’ Pension & Investments ran an article this week which failed to get any local coverage and TRS certainly didn’t mention it- Apparently as part of TRS’ “emerging manager” program- TRS back in 2008 gave 75 million to a newly started women owned hedge fund- The Fund announced recently they are shutting down and returning only 50 percent of the contributed dollars which for TRS(according to the P&I article)will result in a $37.5 million loss- not a fortune but certainly not chump change- If the State is ever going to get out from under its pension problems- the Pension Systems need to have a single mandate- increase returns and refrain from social engineering- The legislature has imposed these nonsensical social obligations onto the Systems and historically there have been other notable losses resulting from investing with “emerging managers”-just think what the Schools could do with an added $37.5 million

    Comment by Sue Friday, Sep 21, 12 @ 7:30 am

  2. Interesting approach to the property tax issue. I’m not sure how successful it will be but it sounds plausible to me. In the end, hopefully we can scrap property taxes entirely and go with sales and income tax as primary funding sources for state and local governments.

    Comment by thechampaignlife Friday, Sep 21, 12 @ 8:43 am

  3. Ah, the old “Excess Market Value” argument. Ok, so similar, if not identical homes in one market are substantially lower than in a different market. That’s otherwise known as the effect of the first rule of real estate: “Location, Location, Location”.

    First off, most of the wealthy Chicago suburban school districts are currently getting little, if any money from the school aid formula. Their EAV per pupil is way too high. So, how is it going to improve school aid funding allocation if you turn a ‘zero’ into a negative number?

    It only works if the school district is currently getting substantial state school aid formula money and has areas where there are valuable properties - say, a school district like *cough* Chicago Public Schools *cough*…

    Secondly, let’s say the goal is to try and find a way to re-allocate locally generated property tax revenues from the application of some sort of ‘negative’ state school aid formula - so places like New Trier, St. Charles Unit 303, or Wheaton Unit 200 school districts would actually see local property tax revenues transferred to places like Chicago Heights or Cairo, IL.

    Yeah, that will work… Not! Talk about taxation without representation.

    Here’s a different (Highly Stupid) solution. Let’s do the following:
    1) Create a dual system of assessments (1 for school districts; 1 for all the other tax districts). News flash: Every assessment official statewide just resigned, effective immediately. Maybe every County Clerk, too…
    2) For the school districts, set all estimated market values (for property tax purposes) based upon current market values for locations like Chicago Heights, IL and Cairo, IL.
    3) Uncap all school district tax rates so they can go to whatever levels they want.
    4) Result will be that school district assessed values will plummet in the richer locations, but their school district tax rates (per $100 of taxable value) will soar to crazy levels.
    5) But, we’ll be treating everybody so much more ‘fairly’. %)

    Don’t these people have anything better to do with their time (and money)…

    Comment by Judgment Day Friday, Sep 21, 12 @ 8:57 am

  4. @thechampaignlife
    Amen. I’ve lived in my current house for eight years and with no improvements (unless you count a treehouse) my property taxes have increased 70%. And that is in spite of two successful appeals. BTW, my property tax was not reduced during the recent housing market collapse either.
    The reliance on property to assess wealth may have been necessary a hundred years ago but in this day and age it seems biased and outdated.

    Comment by Anon Friday, Sep 21, 12 @ 8:58 am

  5. I think the current State funding system for education is horrible, but that’s a legislative action. I’m not sure I follow the logic here for a court case. This seems like more than a stretch. Maybe they should be spending their time and money talking to the politicians who are keeping the same bad funding system… or maybe the people of Illinois are just giving up on the politicians and throwing up a hail-marry in the form of a court case.

    Comment by Ahoy! Friday, Sep 21, 12 @ 9:02 am

  6. “…scrap property taxes entirely and go with sales and income tax as primary funding sources for state and local governments.”

    Hate to tell you this, but that was looked into around some 20+ years ago. As I remember, just to move schools off the property tax bills was a giant jump in income tax rates up literally (at the time, late 1980’s/early 90’s I believe) to north of 10%.

    That was an internal IL DOR study at the time, I believe, and it died a very quick, and unlamented death. Percentages would be considerably higher now, and that would just be for the schools.

    If you want to get copies of the PTAX 250 County Summary reports for each of the 102 counties in the state, that will tell you how much money in aggregate you will need to raise to remove schools off the property tax bills statewide.

    Be forewarned, it’s going to be a really big number.

    Comment by Judgment Day Friday, Sep 21, 12 @ 9:09 am

  7. Sue,

    The use of pension funds to promote a social agenda is scandalous. While inadvisable for all investors, it is even worse when public monies are involved, and the pensioner has no say over the portfolio. Here is yet another reason why people should control their own individual retirement account (along with the ability to will the portfolio to their heirs).

    Perhaps we can put wind turbines on top of those Fiskars, load them onto a bullet train powered by corn ethanol, and we can have the mother of all boondoggles!

    Comment by Cincinnatus Friday, Sep 21, 12 @ 9:16 am

  8. There were successful school funding suits in the 70s in California and New Jersey. Since then the issues has been raised in many states. According to “School Funding Litigation: Who’s Winning the War?” John Dayton. Anne Dupre. 57 Vand. L. Rev. 2351 (2004), “To date, the highest courts in thirty-six states have issued opinions on the merits of funding litigation suits, with nineteen courts upholding state funding systems and seventeen declaring the systems unconstitutional.”

    If Bush v, Gore had precedential value this would be an easy call, at least if any students were named Chad.

    Comment by Bigtwich Friday, Sep 21, 12 @ 9:48 am

  9. Alexander Polikoff used to reside in Highland Park, but he was all over encouraging scattered site public housing for Chicagoans.

    Comment by Esquire Friday, Sep 21, 12 @ 9:59 am

  10. Individual house value assessments for tax purposes in Winnetka and Chicago Heights and Cairo, are a false equivalency. Each makes sense only in the context of its local marketplace. Otherwise we would have statewide residential assessments and one board of review for all of it. Thus there can be no reasonable claim of unequal treatment.

    Comment by walkinfool Friday, Sep 21, 12 @ 11:06 am

  11. I don’t seen a court agreeing with this case. Even if it is unequal, plaintiffs can move to another school district and therefore get property tax relief.

    It’s an issue of local control and the appropriate place to decide on changes of this sort is the legislative (and to some extent executive) branch of government. If you don’t want the state of IL deciding which textbooks you are going to be using, don’t ask it to be in charge of funding your schools.

    Comment by cermak_rd Friday, Sep 21, 12 @ 11:08 am

  12. @walkingfool
    I don’t think they are protesting the assessment. They are suing over the unequal tax rate.

    Comment by Anon Friday, Sep 21, 12 @ 11:09 am

  13. The plaintiffs lose based on a little known principle of law which states: “Fool, that’s what you get for putting a McMansion in the middle of raised ranches.”

    Comment by Cook County Commoner Friday, Sep 21, 12 @ 12:01 pm

  14. Judgement day,

    It is only a big number if you keep the level of spending the same.

    With so much ed $$ going to manage a completely unnecessary government entity, of course the state take-over of taxes would be huge.

    The answer is to abolish the “district” entity, make each school independent, and have the money follow the child. This reform would allow for massive cuts in overall spending while funneling more money into classes and schools.

    It also solves the “equal protection” issue. Conversely, there is no solution to that issue under a district system, as the bureaucracy destroys any real connection of money and children. (Chicago spends $12K/child. So what? It isn’t spent on the child.)

    Of course, the labyrinth of complexity of the districts system (bonds, taxes, contracts, property, boards, special ed, state and federal mandates) are all designed to destroy accountability and efficiency. They are designed to over-employ adults, not educate children.

    Thus, any reform that entails cutting property taxes, entails a phased in re-write of the school code, effectively dismantling the failed district system and replacing it with independent schools.

    Here’s a dated, but still essentially robust, way to do it.
    http://extremewisdom.com/wp-content/uploads/fundamental_execsumm.pdf

    As for getting rid of property taxes all together…

    It’s not the best idea. There is some truth in the notion that local is better than state and federal.

    The way to implement the benefits of “subsidiarity” is to enact reforms that TRULY empower local citizens (not local Boss-Hoggs elected by special interests in off-year 5-8% turnout elections).

    If you got rid of school districts and their impact on property tax bills, the property tax issue would fix itself.

    Comment by Bruno Behrend Friday, Sep 21, 12 @ 12:34 pm

  15. Judgment,

    Psychologically, 10% might seem like a big number but the fact of the matter is that you’re already paying that. You’re just paying it as 5% income and 5% (or whatever the percentage is) property tax. If you still pay $3000 per year in taxes, does it matter if it’s $1500 property and $1500 income tax or all $3000 as income tax?

    Bruno,

    I’m not arguing for elimination of local taxes. In fact, I’d argue that the counties continue to set the rates and collect the taxes for the locals. They’d just do it via income and sales taxes rather than property tax.

    Comment by thechampaignlife Friday, Sep 21, 12 @ 1:57 pm

  16. Sceaming Mad- Rich you need to open a new thread- TRS just announced its decision to reduce its actuarial assumptions from 8.5 percent to 8 percent resulting in an immediate need to increase state funding next year by 300 million and according to TRS’ own announcement 30 BILLION over the next 30 years- How can a group of people not answerable to the state as a whole be allowed to have such a dramatic impact on the entire population- Governor Quinn- you need to fire the Board which still hasn’t released its FY 2012 yearly returns and assign all investment responsibilities to someone solely responsbile to the Governor and hopefully you hire Goldman Sachs or Blackrock because the people you have now seemingly are going to handicap the state’s finances to the point where you have no money for anything else

    Comment by Sue Friday, Sep 21, 12 @ 2:28 pm

  17. Sue, from what Schnorf says, the liability goes up, but the reduced interest means payments go down, so it’s mostly a wash. We’ll see.

    Comment by Rich Miller Friday, Sep 21, 12 @ 2:49 pm

  18. Rich- That is not what TRS posted on its website- The Board says contributions will need to be increased 300 million next year and 30 Billion between 2014 and 2045

    Comment by Sue Friday, Sep 21, 12 @ 2:59 pm

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