Illinois property taxes second-highest in the nation

A new report shows at the end of 2012 Illinois had the second-highest property taxes, just behind New Jersey:

Property taxes in Illinois average 2.28 percent of a home’s value, according to the Urban Institute. In New Jersey, they’re 2.32 percent, and in lowest-taxing Hawaii, they’re 0.27 percent. (The lowest among mainland states is Alabama, at 0.46 percent.)All the states that ranked ahead of Illinois in the 2007–11 chart saw their tax rates go up in 2012. But the rate in Illinois went up more…

What’s moving us up the list? Home values are down but taxing bodies’ appetites are up, as Costin sees it. Illinois home values fell farther and are improving more slowly than those in many other states. The latest Case-Shiller index data, which came out on New Year’s Eve, showed that while home values in the nation’s ten major cities have recovered, on average, to June 2004 levels, they’re only back to February 2003 levels in Chicago. At the same time, Costin says, “most local taxing bodies do the maximum increase they can do under the law each year.” Lombard and Lake County are notable exceptions, he says; both have reduced their rates.

When they’re asking for more total dollars in taxation on a smaller pot of aggregate home values, the tax rate is what goes up. It doesn’t necessarily mean that the amount of tax you have to pay goes up, as Cook County pointed out earlier this year.

While there are concerns about the federal budget as well as the monetary issues of the state of Illinois, these rising property taxes hint at another concern: the need for tax revenues for lower levels of government. These property taxes primarily go for local schools, cities, and other local services. See where property taxes go in one town in DuPage County. Or how one Chicago suburb is thinking about privatizing more of its roads to pay for their maintenance.

It is interesting to note that property taxes are higher in specific states but not others. For example, much of the Northeast and upper Midwest has higher property taxes but while Kansas and Texas do, Oklahoma does not. And, California does not. In a state where one city went bankrupt are others have looked to outsource municipal services, the property tax revolts of the 1970s (see Prop 13) have successfully kept property tax rates down (though home values are still high). Yet, if the money doesn’t come through property taxes, it likely comes from other sources.

Small city mayors return to normal life

While big city mayors get plenty of attention for trying to get stuff done, what happens to mayors of smaller communities when they leave office? Here are five examples from the Chicago suburbs:

The 57-year-old Birutis now works as the director of finance and administration for St. John the Baptist Catholic Church and school in Winfield. She took the job a few months before stepping down as mayor…

In September, DeWitte was named Kane County’s latest representative to the Regional Transportation Authority…

Mulder is a member of the Metra board, although she’s said she’ll step down when her term ends in June 2014.

She continues to lead the O’Hare Noise Compatibility Commission, a group dedicated to reducing aircraft noise in the neighborhoods surrounding the busy airport…

Since leaving the mayor’s office in Mundelein, the 49-year-old Kessler has continued working as a clinical psychologist and a professor of psychology at Roslyn Franklin University in North Chicago.

None of these mayors fought battles this large but for some reason I’m reminded of Cincinnatus and his return to normal life. From what I know of local government, many local officials get into it in the first place because of some issue they want to address or fix in the community in which they live. Such moves are rarely motivated by big party politics as local municipal elections in the US tend to be between local factions or unaffiliated candidates. And being a mayor is often not a full-time job so retaining a job still often matters. Yet, it is interesting to note that three of these five mayors are still involved with regional or intergovernmental boards. Being a mayor of a smaller community can lead to other positions that affect a broader range of residents.

While the article is headlined “Weren’t you the mayor?”, I suspect most residents in their communities wouldn’t know the former mayor if they saw them. Such is the fate of local officials in communities where voting turnout is often low.

Municipalities and Wall Street argue over using eminent domain to stop foreclosures

Some municipalities are considering using eminent domain to slow foreclosures – and Wall Street and those in real estate are not happy:

On Saturday, Mayor Wayne Smith of Irvington, N.J., will announce that his mostly working-class city is proceeding with a legal study of the plan. Irvington could try to head off legal action and repercussions through what are called “friendly condemnations,” in which incentives are used to persuade the owner to drop any objections, he said. “We figure if this program works it can help anywhere from 500 to 1,000 homes.”

This summer the similarly working-class city of Richmond, Calif., in a heavily industrial part of the San Francisco Bay Area, became the first to identify homes worth far less than their owners owe, and offer to buy not the houses themselves, but the mortgages. The city intends to reduce the debt on those mortgages, saying that will prevent foreclosure, blight and falling property values. If the owners of the mortgages — mostly banks and investors — balk, the letters said, the city could use eminent domain to condemn and buy them.

Since then, intense pressure from Wall Street and real estate interests, including warnings that mortgages will become difficult or impossible for Richmond residents to get, has whittled away support for the plan. The city has yet to actually use its power of eminent domain, but it is already fighting two lawsuits filed in federal courts…

Opponents of the strategy, including the institutional investors BlackRock and Pimco, Wells Fargo and the Mortgage Bankers Association, say that taking mortgages by eminent domain is a breach of individual rights and that investors will not receive fair market value for the mortgages. In Richmond, Mayor Gayle McLaughlin has asked investors to come to the table to work out a price, but they have so far declined to negotiate.

An interesting convergence of rights. Typically, eminent domain usage tends to raise the ire of citizens but this article makes it sound like this is something residents want. Is this the case? One argument often leveled against eminent domain is that allowing another case gives governments more opportunity to do what they want when they want. However, with this strategy, the municipalities are trying to work for the residents and against larger entities.

I wonder if the only thing that would convince banks and mortgage holders to consider this would be bad publicity, something along the lines: “Those Wall Street banks want to take advantage of distressed communities and are unwilling to work with them to improve their neighborhoods or help their residents.” This would involve less of a legal strategy and more of a public relations strategy.

 

More California communities looking to outsource certain municipal services

Here is an update on a developing story: more California communities are considering outsourcing municipal services.

The San Bernardino City Council on Monday will consider a recommendation to seek a proposal from the San Bernardino County Sheriff’s Department on what it might cost for a contract. San Bernardino filed for Chapter 9 bankruptcy protection on Aug. 1.

Maywood in 2010 disbanded its police department, which had faced a myriad of lawsuits and reports of excessive force, and enlisted the county to patrol its streets. In an effort to close a $450,000 budget deficit, the city also laid off all its employees and contracted with the neighboring city of Bell to provide public services such as finance, records management and parks and recreation…

The central California cities of San Carlos, Half Moon Bay and Millbrae have also disbanded their police departments and contracted with their county sheriff over the past two years.

Fullerton debated the decision in August, but ultimately decided to stick with its own police officers.

Baldwin Park officials are waiting for the extensive second phase of its study, which could take up to six months, before making their decision on the controversial proposal. Among other things, it will look at the qualifications of Baldwin Park’s police employees and determine whether they would be able to transfer to the Sheriff’s department.

Two responses come to mind:

1. Outsourcing certain services may relieve local budgets but wouldn’t this eventually strain county-level budgets? And if so, won’t there be some way that counties then start asking for more money back from municipalities or individual taxpayers? This would seem to best work with smaller communities, say under 10-20,000 residents, who have to pay a lot just for start-up costs for services like police and whose addition to county rolls wouldn’t be too burdensome.

2. One question residents could ask about outsourcing is whether the level of municipal services will remain the same. Say a community outsources their police services to the county sheriffs; would the county have the same response time and be able to devote the same amount of energy to local issues? I wonder if the real issue in these communities as well as in many American communities is whether local residents will agree to service reductions in order to save money.

 

Claim: those new municipal fees are here to stay

More communities are charging residents more fees and they probably won’t be rescinded anytime soon:

As the nation’s cities attract an ever-growing share of the U.S. population, their capacity to honor service commitments, build and maintain necessary infrastructure, and meet their financial obligations will have a profound effect on local and regional economies, public safety, education, and overall quality of life for hundreds of millions of Americans. But U.S. cities are in a bind. Faced with a requirement that they balance their budgets every year, they have borrowed a page from the airline industry: increase fares (i.e., taxes) just a little if at all, and start charging big time for the “extras” that passengers (i.e., taxpayers) want. In the airlines’ case, it’s bag fees and the like that are going up. For cities, it’s charges for little things like, say, putting out fires…

In an annual survey [PDF] administered by the National League of Cities, more than four out of ten cities (41 percent) reported last year that they were increasing service fees in an effort to stanch the bleeding in city budgets. For the last two decades, when asked to identify a revenue action that their city had adopted in the previous year, city finance officers overwhelmingly selected “increase the level/rate of user fees or charges” and “impose new user fees or charges.”

Much like Newton’s Third Law, as cities raise fees, they decrease their reliance on taxes to support general municipal services. Back at the start of World War II, city taxes on sales, income, and property amounted to some 89 percent of all revenues cities raised (excluding aid from state and federal governments and borrowing or debt), with property tax generating 78 percent of “own-source” revenues. Fees amounted to some 11 percent. Today, nearly 40 percent of “own-source” revenues are derived from fees on services, and 60 percent from all other taxes (and less than 30 percent from the property tax). In other words, we have seen a sea shift over the last three generations from a city fiscal system that collected taxes—almost all of which were property taxes—to pay for the bulk of municipal services to one that identifies individual beneficiaries or users of services who can then be assessed a fee (e.g., fire suppression in Mondovi).

I wonder about several pieces of this:

1. What about the declining federal and state support for communities? If the federal government and individual states have less money themselves, there is less to pass along to communities as well as other taxing bodies.

2. The share of revenue from property taxes has decreased over time and I wonder how much of this is tied to an increasing number of taxpayers arguing against paying more property taxes. This has been gaining steam since the 1970s (see more about Prop 13 in California) and limits what communities can collect. It sounds like more communities see fees as a solution but is this because their other options are limited? Of course, municipalities aren’t the only ones who get money from property taxes as there are others who take more of this pie.

3. It would be interesting to see these numbers alongside figures about the size of municipal budgets and what the money is spent on. As fees increase, where is the money going and how much is it contributing to or paying for larger budgets? Some of this increase could be hard to stop; communities do age, infrastructure needs replacing, and the costs of services tend to go up.

Oddity of Illinois Home Rule allows municipalities to get into a lot of debt

The Chicago Tribune has an interesting piece of how the Illinois oddity of granting Home Rule powers to municipalities starting in 1970 can lead to overborrowing:

The state used to cap how much towns could borrow on the backs of taxpayers. Even for loans under the cap, the state forced cities and villages to put many “general obligation” borrowing deals before voters. The intent was to protect taxpayers from massive debt.

But local officials complained they needed easier ways to borrow. Chicago’s first Mayor Richard Daley led the charge for municipalities to set their own rules. The result was the 1970 Illinois Constitution and a concept that transformed how the city and suburbs are governed: home rule.

It has let towns borrow as much as they want, and raise many taxes, all without direct voter input. Any town with at least 25,000 residents gets the power. Smaller towns can vote it in via a referendum measure…

The vast majority of states — including all of the largest ones — do not offer municipalities such blank checks.

Ken Small of the Florida League of Cities said he would worry if his state had Illinois’ loose rules.

Read on for details on how several Chicago suburbs have accumulated massive amounts of debt.

I don’t think I’ve ever seen any municipal leaders denounce or reject Home Rule powers. Indeed, they tend to accentuate the positive sides of the powers as they allow municipalities more local control and the ability to finance projects on their own rather than having to rely on outside funding. And this would seem to fit with what many suburban residents tend to want as well: more local control, meaning that “big government” doesn’t control everything.

But, as this article suggests, local government officials aren’t necessarily any better at handling financing and borrowing. I was struck by reading this piece and an earlier one featuring the plight of Bridgeview, Illinois that a number of these borrowing situations arose when smaller communities wanted to jumpstart economic development. Struggling to do things on their own, they borrowed lots of money for retail, residential, and entertainment projects intended to bring in more tax dollars through property and sales taxes. A number of these projects didn’t pan out, possibly because of unrealistic hopes and also because the economic crisis made it difficult even for established and more financially stable communities to pursue larger developments. The lesson here? Perhaps slow and steady really is better here as big change for small communities is difficult to attain.

Another issue: the article suggests Chicago led the way to get the 1970 legislative act passed. Were some communities opposed to this or did they get behind Chicago as this could also benefit them?

Burr Ridge seeking donations from public to meet city’s needs

In an era of declining revenue, a few communities are trying a new tactic: ask residents to donate money for needed city purchases.

The leaders of west suburban Burr Ridge have a list of dozens of items they want for the community, including a new patrol vehicle, a portable Breathalyzer and even a cordless saw.

But because they didn’t make it into the budget, they have put them on a wish list and are asking residents for help…

Stricker said village officials came up with the idea last year after learning that west suburban Riverside has a similar program. He said the village is still establishing a tax-exempt 501(c)(3) program, but added that residents have already given funds.

In 2011, Burr Ridge resident Alan Rose, the CEO of Rose Paving Co. in Bridgeview, donated $5,800 to the Police Department for new Taser devices, according to village documents. Resident Joyce Walsh also donated $5,000 to the Police Department in 2011 for its efforts in protecting the village.

As the article notes, Burr Ridge is pretty wealthy. The village of just over 10,500 residents, the median value of owner-occupied housing units is over $706,000, the homeownership rate is just over 95%, and the household median income is over $143,000, and 2.4% of the residents live in poverty. Perhaps in this sort of setting a donation program could work.

But, I can’t picture this as a viable long-term strategy for most communities. Could a local government wait for benevolent citizens? Could residents or businesses make donations and expect something in return like policies or decisions that benefit them? Public-private partnerships and cooperation in places like Chicago are one thing but relying on the public for donated money seems bound to lead to more trouble.

I wonder if this also could raise significant questions about what local communities really do need to purchase: if an item doesn’t make it into the budget, is it really necessary in the first place? Take the Burr Ridge items mentioned above: how worse off will the community be if the government doesn’t have a cordless saw or portable Breathalyzer?