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P R A C T I C E   L I M I T E D   T O   T H E   T A X A T I O N   O F   C O M M E R C I A L ,  I N D U S T R I A L  &  I N V E S T M E N T – G R A D E   R E A L   E S T A T E            

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State Cuts to Local Government

State cuts to Local Government Distributive Fund are property tax increases in disguise

Rockford Register Star

All working individuals in Illinois pay state income tax.

A portion of our state income tax is then distributed to local governments — our city and county. The portion each city and county receives is based on population. So we as taxpayers pay income tax to the state and a portion of that income tax is sent back to our town of residence.

That’s the Local Government Distributive Fund.

The LGDF began in 1969 and has historically been structured so that 10% of the total income taxes paid to Illinois is then distributed directly back to municipalities. In the last 10 years, Illinois has reduced the portion of income tax returned to cities and towns. Today, the LGDF receives only 6.06% of total personal income tax the state receives, a reduction of nearly 40%.

Tom McNamara, Mayor of Rockford

 

“Illinois has too many governmental units – too many to count – all needing property tax revenue”

A recent comprehensive analysis found the real number of government units in Illinois is 30% higher than the U.S. Census Bureau’s count. Too many government units mean too many taxes.

Illinois has more local units of government than any other state in the country – so many that four separate tallies of them give four different numbers.

The U.S. Census Bureau said Illinois has 6,918 local units of government. The Illinois Department of Revenue counts 6,042. The Illinois comptroller found 8,529.

Now a comprehensive analysis by the Civic Federation reports the number is 8,923.

All of those governments rely on tax money to operate, so it is no surprise Illinois shoulders the highest state and local tax burden in the nation, according to personal finance website WalletHub. It also has the second-highest property taxes in the nation.

Illinois has more units of government than any other state. It has more than neighboring Indiana, Iowa and Kentucky combined, according to the U.S. Census Bureau’s latest Census of Governments, which compares all states with the same criteria.

Consolidation faces unique challenges in Illinois: the Civic Federation’s analysis includes 57 pages of complex statutory rules and regulations from the Illinois Municipal Code governing the consolidation process for every type of government and kind of consolidation. Still, calls for consolidation are increasing. There are two bills currently that would help the efforts, with one specifically to consolidate school districts and the other to make it easier for Illinoisans to consolidate other local government.

Illinois has many governments serving few people

Counties

The Civic Federation report found 50% of Illinois’ 102 counties serve fewer than 25,000 people. Fifteen of those counties serve fewer than 10,000 people.

The report also found counties extended $2 billion of the $31.8 billion of property taxes levied statewide, which accounted for 35.3% of county budgets in 2018. While Illinois counties accounted for 6.5% of all property taxes extended in 2018, Cook County and all of the local government units within its borders levied $15 billion, 47.2% of all property taxes in the state.

Townships and municipalities

Townships serve as a layer of government between counties and municipalities, which leads to a redundancy of many services critics say can be performed without townships. Because of this service overlap and the fact that Illinois has more governments and townships than any other state, townships have recently become the target of consolidation efforts in Illinois.

The Civic Federation’s findings on townships and municipalities showed similar patterns of many units of government serving few residents. Illinois has 1,426 townships spread out across 85 of its counties, with 17 counties having no townships at all. The report found nearly half of the state’s townships, 709, serve fewer than 1,000 people. Townships, along with their road and bridge districts, accounted for $750.4 million of the property taxes levied in 2018, about 2.4% of all property taxes.

Illinois has 1,298 municipalities, the most of any state in the nation. A third of municipalities serve fewer than 2,500 people. Seventeen are coterminous, meaning the township and municipality share the same boundaries. Municipalities accounted for 18.9% of all property taxes extended in 2018, totaling just over $6 billion.

School districts

 Illinois has 852 public school districts, with one-third of them in Cook and the collar counties of DuPage, Lake, Kane, McHenry and Will. Because of the large number of districts, Illinois has one of the lowest residents-to-districts ratios in the country, with just 14,449 residents per school district. By contrast, Florida has an estimated 220,888 residents per school district. The report also found that two-thirds of the school districts serve fewer than 1,000 students, and 26 districts serve fewer than 100 students.

School districts accounted for the largest share of property tax extensions, more than $18.5 billion, about 58.3% of all property taxes levied in the state for 2018. School districts in Cook County alone accounted for $8.1 billion, or 53.7%, of the property taxes levied in the county.

State lawmakers are currently considering the Classrooms First Act, House Bill 7, which would form a commission to recommend merging 25% of Illinois’ district-level education administration while preserving schools. Illinois spends 2.5 times the national average on “general administration,” which is the cost of superintendents and board-level bureaucracy, and nearly half of its school districts serve only one or two schools.

Special districts

Special districts, or special purpose governments, are often created by referendum for airports, civic centers, conservation, mosquito abatement and other limited purposes. The Civic Federation report found Illinois has the most special districts in the nation at 3,204. According to the report, only three other states, California, Texas and Colorado, have more than 2,500 special districts. Combined, all of these special districts accountedfor $4.4 billion in property taxes for 2018, 14% of the state’s total.

Findings support increasing calls for consolidation

The Civic Federation’s study shows state and local leaders must consider consolidation to reduce redundant, overlapping or inefficient governments. Consolidation has been an increasingly discussed solution to reduce Illinois government and alleviate problems such as rising pension obligations, increasing administrative costs and high property taxes. While there have been efforts to improve consolidation mechanisms in recent years, calls for changes to make the process easier continue to grow.

The current processes for consolidating units of government vary significantly depending on the type of government and the type of action being pursued. Found in Appendix D of the Civic Federation’s report, there are seven different procedural structures concerning the annexation, consolidation, or dissolution of townships, seven for school districts, five for municipalities, and three for counties. Even mosquito abatement districts are covered by six such structures. These procedural rules are listed for every type of unit of government in Illinois, making the consolidation process unnecessarily complex and prohibitive to citizens and local governments.

The Citizens Empowerment Act, House Bill 433, would allow Illinoisans to petition for a ballot initiative to dissolve a unit of local government they find is no longer necessary, streamlining the process and placing power in the hands of local voters. This power would apply to all local units of government. It would enable 5% of the electors from the preceding election to place a referendum on the ballot to dissolve a unit of government. The measure would allow local residents to work around barriers to consolidation, such as protectionism by local officials, and pursue potential cost savings and improved efficiency achieved by other communities through consolidation.

HB 7, the Classrooms First Act, approaches consolidation through a deliberate, structured examination that creates recommendations for reducing school district administration by 25% to free $716.6 million for classrooms or as taxpayer savings. No schools would close as part of the process. No bureaucratic consolidation would occur without local voter approval.

Consolidation can help address Illinois’ notoriously high combined state and local tax rate – the highest in the nation according to some recent data – and second-highest property taxes. Along with improving opportunities for consolidation, lawmakers must pursue serious structural changes to Illinois such as pension reform in order to establish a sustainable and responsible path forward for the state.

Never spend the money until you have it in hand!

Federal guidelines may prevent Lightfoot from using relief money to pay down city debt

Interim rules list several things the federal aid can’t be used for — a list that includes “funding debt services.” That could derail a plan to use just over half of the $1.9 billion Chicago will receive to retire $465 million in scoop-and-toss borrowing and cancel plans to borrow $500 million more.

The city plans to reopen the downtown area June 3, 2020.
Mayor Lori Lightfoot wants to use just over half of the federal aid the city will receive to pay down debt, but federal rules may stand in her way.
File photo

The U.S. Treasury Department may have thrown a monkey wrench into Mayor Lori Lightfoot’s plan to use more than half of the $1.9 billion avalanche of federal relief funds on the way to Chicago to retire $465 million in scoop-and-toss borrowing and cancel plans to borrow $500 million more.

Interim rules released this week identify several “ineligible uses” for the $350 billion being doled out to state and local governments.

They include tax cuts, pension funds, “funding debt services, legal settlements or judgments and deposits to rainy day funds or financial reserves.”

General infrastructure spending is not covered either, with the exception of “water, sewer and broadband investments or above allocated under the revenue loss provision.”

“While the program offers broad flexibility to recipients to address local conditions, these restrictions will help ensure that funds are used to augment existing activities and pressing needs,” the guidelines state.

Lightfoot balanced her 2021 budget by refinancing $1.7 billion in general obligation and sales tax securitization bonds and claiming $949 million in savings in the first two years.

That approach extended the debt for eight years and returned Chicago to the bad borrowing days former Mayor Rahm Emanuel had ended.

The mayor’s financial team had told aldermen that more than half of the $1.9 billion avalanche of federal relief funds on the way to Chicago would be gobbled up by retiring $965 million in scoop-and-toss borrowing used to eliminate the pandemic-induced shortfall.

Lightfoot reiterated that promise to investors last week — amid heavy resistance from a City Council hell bent on using that money to address poverty, homelessness, mental health and economic disinvestment.

“First and foremost, we need to make sure that we address our structural deficit. We had to do some one-timers to close the budget gap for 2021 because we didn’t know whether there would actually be any other monies available. I’m looking to eliminate some of those one-timers and use some of the [relief] money to do that,” she said.

On Wednesday, the mayor’s budget office was asked how the mayor can still deliver on her promise to investors without violating Treasury Department guidelines.

“The Treasury guidance represents interim rules that have been put out for comment, and the City plans to seek clarification on the guidance as well as provide comment,” a spokesperson for the city’s Office of Budget and Management wrote in a terse emailed statement that hinted at an appeal.

If there is an appeal, the mayor is expected to argue the massive scoop-and-toss borrowing would not have been necessary if not for a precipitous drop in revenue directly tied to the stay-at-home shutdown triggered by the coronavirus.

Civic Federation President Laurence Msall has urged the mayor to eliminate scoop-and-toss and move toward eliminating Chicago’s structural deficit.

After reading the federal guidelines, Msall said it was “fortunate that the city has not yet issued the scoop-and-toss borrowing they had planned as a back-up” for the 2021 budget.

“It remains to be seen whether the interim Treasury guidance will completely prohibit the city from re-paying short-term borrowing it did in December,” Msall wrote in a text message to the Sun-Times.

“But, the fact remains that city leaders must use this reprieve wisely and come up with a long-term plan for how they will address their structural deficit and other budget stressors that will remain after the [stimulus] funding is gone.”

If the city’s expected appeal is not successful, Lightfoot would at least face less resistance from aldermen with their own wish lists, who must approve stimulus spending.

Ald. Gilbert Villegas (36th), Lightfoot’s former City Council floor leader, has introduced an ordinance calling for using $30 million of the new federal money to bankroll a guaranteed income pilot.

Ald. Jason Ervin (28th), chairman of the Black Caucus, has argued it would be a “slap in the face” to African Americans who have “suffered great atrocities over time in this country” to talk about giving 5,000 of Chicago’s neediest families guaranteed monthly payments when aldermen have just begun talking about paying reparations to Chicagoans whose ancestors were enslaved.

“It’s tantamount to being pushed to the back of the line again. African Americans — not only in the city, but in this state and in this country — have always been at the back of the line when it came time for resources,” Ervin told the Sun-Times last month.

“Resources for the descendants of slaves should take front-and-center if we’re gonna start giving money out to anybody. When you look at the atrocities that our community has endured over the years, it’s just appropriate that some level of understanding and remuneration be granted for such. This is not a new idea. This is not foreign.”

Chicago on the road to financial solvency, Lightfoot assures investors

The mayor also noted that more than half of the $1.9 billion in federal aid will be used to retire $965 million in scoop-and-toss borrowing — though she faces resistance from City Council members who call it a Wall Street bailout.

The Chicago skyline, viewed from the inbound Eisenhower Expressway.
The Chicago skyline, viewed from the inbound Eisenhower Expressway.
Ashlee Rezin Garcia/Sun-Times

Mayor Lori Lightfoot tried Thursday to convince investors she has put Chicago on the road to financial solvency, in hopes of minimizing borrowing costs when $1.4 billion in general obligation bonds are sold to bankroll her capital plan.

During the annual investors conference — held virtually for the first time after a year-long hiatus — the mayor didn’t shy away from the many challenges Chicago faces. She couldn’t. Investors asked her directly about their biggest concerns during a question-and-answer session moderated by Jennie Huang Bennett, the city’s chief financial officer.

Lightfoot argued she has had “a lot of successes” financially.

“If we hadn’t seen the COVID-19 meltdown in our revenue that directly affected our budget, we’d be talking about a budget surplus right now, just on the basis of the measures that we put in place before,” she said.

“No mayor likes to raise property taxes. But we did some incredibly smart things by having increases tied to” the consumer price index, Lightfoot added. “Nobody wanted to do that. But we were able to get together the majority we needed to bite that bullet so that we are having consistent revenue streams and not having these great swings.”

Even with that $94 million property tax increase and annual increases going forward, Lightfoot balanced her 2021 budget by refinancing $1.7 billion in general obligation and sales tax securitization bonds and claiming $949 million of the savings in the first two years.

That approach extended the debt for eight years and returned Chicago to the bad borrowing days former Mayor Rahm Emanuel had ended.

The mayor’s financial team has told aldermen that more than half of the $1.9 billion avalanche of federal COVID-19 relief funds headed to Chicago would be gobbled up by retiring all $965 million in scoop-and-toss borrowing used to eliminate the pandemic-induced shortfall.

On Thursday, Lightfoot and Bennett reiterated that promise to investors — even though there will be heavy resistance from a City Council dead-set against what some aldermen call a Wall Street bailout.

“We had to do some one-timers to close the budget gap for 2021 because we didn’t know whether there would actually be any other monies available. I’m looking to eliminate some of those one-timers and use some of the [relief] money to do that,” she said.

As for spending the rest of those relief funds, Lightfoot added: “People have to feel these monies. They have to feel like we have heard them. That we understand their pain. And that we’re doing things to relieve that pain so they can also recover. If individuals and families don’t recover in a holistic way, our recovery will be muted at best.”

There were three elephants in the virtual room.

One was Chicago’s chronically under-funded pensions.

That problem, the mayor argued, can be solved only in Springfield. But instead, the General Assembly made things infinitely worse by passing a “disastrous” firefighters pension sweetener “under the cover of darkness in the lame-duck session,” Lightfoot said.

“Putting more stress on a broken system — pension funds that are severely under-funded — in the midst of an economic crisis makes no sense to me whatsoever,” she added.

“At some point, it’s my hope that everybody involved will get serious and come to the table. We know what the solutions are. What we’ve been lacking is the political will.”

The second elephant in the virtual room was what Lightfoot called the “unprecedented uptick in violence.” Once again, Lightfoot blamed the pandemic.

“When you think about public safety, it’s not just a police or law enforcement [problem]. It’s a lot of social services. A lot of community groups on the ground. Every single part of that infrastructure — from the courts to the prosecutors — have been dramatically impacted by COVID-19 shutdowns and closures and we’re still coming out of that,” she said.

The flip-side of that coin is police reform and accountability.

A former Police Board president who co-chaired the Task Force on Police Accountability, Lightfoot argued the path to progress on those fronts is “long,” and measured “in months or years” — not days.

But she argued the Chicago Police Department has made great strides — in training, in community service (done weekly by every front-line officer) and in a homicides clearance rate once “in the teens” but now above 60%.

Elephant No. 3 was the nonstop tension between City Hall and the Chicago Teachers Union that triggered a teachers strike and nearly prompted a second walkout over reopening Chicago Public Schools.

Lightfoot was asked about that in the context of Chicago’s population losses.

“One of the first questions that young families have about whether or not they’re gonna stay in the city is, what’s the quality of the public school system? Can I walk to my neighborhood school? What is that gonna look like?” the mayor said.

“And, no question, this conflict is not helpful, to say the least.”

Oracle going to Tennessee, will create 8,500 jobs

Tennessee officials will reportedly supply the private company Oracle with more than $100 million in incentives.

This according to The Nashville Business Journal, which reported the news Friday.

“Oracle will benefit from more than $100 million of state-level incentives and related spending for its record setting tech campus on the Cumberland River’s East Bank waterfront,” the publication reported.

“Bob Rolfe, commissioner of the state Department of Economic and Community Development (ECD), confirmed in an interview that the state’s investment will exceed the $100 million mark.”

The incentives, The Nashville Business Journal went on to say, include two highway underpasses that will connect to Oracle’s waterfront campus. Another incentive is one of the largest job grants in state history.

MarketWatch reported last month that Oracle intends to deliver 8,500 jobs and invest $1.2 billion in Nashville.

The Tennessee Star reported in January that Metro Nashville officials evaluated whether to spend $13.8 million in new infrastructure costs to allow Oracle to set up shop in Davidson County.

Metro Nashville At-Large Council Member Steve Glover said at the time that “the money basically was already committed.”

“The governor and the state are dumping a lot of [state] money in it. It will create more jobs,” Glover said at the time.

“Believe me, with the mess that we’re in financially we come out ahead on it. But I don’t understand why we are debating it so hard because we basically had the money that we have already approved. The basics were already done.”

ECD officials said at the time that they had not provided Oracle with any state incentives.

According to its Facebook page, Oracle is a cloud technology company that provides computing infrastructure and software.

The Nashville-based News Channel 5 reported last week that members of the Metro Nashville Council had approved the agreement, “the largest economic development deal in Tennessee’s history.” The vote, the station reported, was unanimous.

“Metro will reimburse Oracle half of the property tax revenue they generate over the next 25 years, or until the company’s $175 million investment is paid off. The other half of the new property tax base would benefit the city’s general operating fund,” the station reported.

“Council Member Zulfat Suara added an amendment to the resolution that would use generated tax revenue for affordable housing initiatives.”

– – –

Chris Butler is an investigative journalist at The Tennessee Star. Follow Chris on Facebook. Email tips to chrisbutlerjournalist@gmail.com.

Cook County’s Way of Reviving Tax Delinquent Properties Isn’t Working, Study Finds

A South Shore house acquired by the Cook County Land Bank
A South Shore house acquired by the Cook County Land Bank in a scavenger sale was on the market for $255,000 in 2018. Becky Vevea / WBEZ

A new report finds that Cook County’s process to return delinquent properties to the tax rolls is largely failing to do so and suggests a bottom-to-top overhaul of the system may be in order.

The analysis by the University of Chicago’s Center on Municipal Finance focuses on the county’s scavenger sale, an auction held every two years, in which private entities may bid to acquire an interest on a property with severely delinquent taxes. Since 2007, more than 50,000 properties have been listed in the scavenger sale, but the analysis finds that ultimately only 7% have returned to normal market conditions.

“The properties that enter this system seldom get out of it,” said Christopher Berry, professor at the University of Chicago and director for the Center for Municipal Finance, which published the report. “And even those that are claimed … many of those end up back in the system anyway.”

Jurisdictions across the country are saddled every year with the problem of properties whose taxes have not been paid. In Cook County, that problem mushroomed after the real estate crisis of 2008, when real estate values — particularly in communities of color — nosedived. Many underwater homeowners walked away. Before properties are listed in the scavenger sale, the county attempts to recoup the unpaid taxes through the annual tax sale. But those that attract no interest from private bidders then end up in the scavenger sale.

In Cook County, the report finds that most properties listed in the sale are vacant, unimproved lots.

“The quality of properties from a commercial perspective in a scavenger sale is much lower [than in an annual tax sale],” said Max Schmidt, former associate director of research for the Center for Municipal Finance at UChicago, who worked on the analysis.

“This is where the properties that are vacant — that have been for 10 years — this is where they’re ending up.”

The report finds that only 6% of scavenger sale properties received bids, and of those, more than half end up back in the tax delinquency system because bidders declined ultimately to exercise their option to take ownership of the real estate. Additionally, it notes that the pool of bidders is small and dominated by shadowy financial institutions whose motives are unclear. It also said scavenger sale properties fall disproportionately within communities of color in western and southern Cook County, such as Thornton Township, which accounted for nearly one quarter of all listings.

“It’s the new redlining, as far as I’m concerned, and we just don’t talk about it,” said Cook County Commissioner Bridget Gainer. After seeing the glut of delinquent properties that followed the 2008 financial crisis, Gainer established the Cook County Land Bank Authority, which has participated in the scavenger sale since 2015. Its goal is to help small-scale developers access listed properties by helping them navigate the complex legal processes that are involved.

“This isn’t intentional, but the [scavenger] sale really works when you’re in a high property value community,” said Gainer. “But what kind of got overlooked … is this system really is broken when it comes to communities in which there was a lot of vacant properties or the property values were lower.”

Gainer agrees with the study’s suggestion that it’s time for wholesale reform of the scavenger sale. But she disagrees with the conclusion that there is little or no market demand for scavenger sale listings that are in lower-income areas, particularly when it comes to residential properties. Instead, Gainer argues that there would be great demand among small-scale, neighborhood developers, if only the complexities around ultimately acquiring those homes could be simplified.

Cook County Treasurer Maria Pappas has called for reform to the system. Her office issued its own analysis of the scavenger sale in December, with many findings similar to the UChicago report. Pappas said she hopes that the growing evidence will prompt hearings in Springfield. She also hopes it will prompt new legislation to reimagine how local governments can make decisions about tax delinquent and vacant real estate in their jurisdictions.

“No suggestion is a bad suggestion when there is a positive outcome,” Pappas said.

Berry said he would like to see lawmakers collect information about how other states and cities dispense with this problem, and compile a list of best practices. He noted that New York City bundles and sells properties that are repeatedly tax delinquent to nonprofit organizations that have an interest in community revitalization. That could yield benefits to some communities where the private market isn’t clamoring for real estate.

“Rather than trying to auction them off, try instead to think about what instead is their best and highest use given the reality of the lack of market demand for them,” Berry said. “Suppose instead you took these properties and turned them into a park or a community garden. That would fail at the goal of returning them to normal market conditions, but it might not be a failure of policy.”

Odette Yousef is a reporter on WBEZ’s Race, Class and Communities desk. Follow her @oyousef.

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