Tax breaks run amok

by Mike Kroll

A tax break for fraternal, social and veterans organizations is translating into losses of revenue for school districts and higher taxes for other property owners. Such organizations can now benefit from a quietly awarded yet substantial property tax break courtesy of the Illinois General Assembly -- whose membership includes many who are also on the rolls of these organizations. Hundreds of these groups across the state have already seen their property tax bills slashed by 85 percent with a hundred or so more to soon reap this financial windfall. In Knox County alone, 12 organizations currently save nearly $23,000 in property taxes annually and at least three more will soon be eligible to participate.

It just sounds so warm and fuzzy to contemplate a state legislator standing before an audience of veterans or Masons promising to substantially reduce the group's property tax bill. Were it not specifically forbidden by the Illinois Constitution, one wouldn't be surprised to hear that same legislator promise to totally eliminate the property tax burden for such a group. It seems to be good politics but what are the real ramifications of this fiscal policy?

Lobbyists for American Legion and VFW posts across the state successfully argued that these groups perform valuable charitable works within their communities and deserve to be rewarded for maintaining a meeting place. They claimed that the financial burden of property taxes is forcing many local groups to close and sell their real estate and, therefore, reduce the level of community service the group provides. The lewislature responded with a tax break up to 85 percent for qualified groups.

The problem then becomes how to fund the tax-supported bodies that depend on property tax receipts for income. The ones most affected are the local schools. On a statewide average, local school districts account for slightly better than half of most property tax bills, even more if you add the levy for community colleges. When the tax burden is reduced on these organizations, it doesn't mean the schools necessarily see a reduction in property tax revenue.

Knox County Supervisor of Assessments Joyce Skinner is candid in her judgment on this practice. ''Quite frankly, I believe there are simply too many exemptions in our property tax code. Too few people understand how property taxes work. When you reduce the total assessed valuation through exemptions -- in most cases -- the property tax revenues aren't lost but shifted among the remaining property owners in the form of higher tax rates. We end up shifting the tax burden to those less favored by the legislators, such as homeowners and small businesses.''

When a tax body such as a school district submits their property tax needs to county officials they don't provide a tax rate but a required dollar amount, a levy, that must be raised. The County Clerk's office determines the tax rate necessary to generate the dollars specified. When the total assessed evaluation is reduced, the rate that must be applied to each parcel necessarily increases unless a rate cap is reached.

The Illinois Legislature's first foray into this new exemption included only ''veterans' organizations chartered under federal law if the property contains the principal building for the post, camp or chapter.'' Groups must fill out a Department of Revenue form and submit supporting documentation to the Supervisor of Assessments' office to qualify for the exemption. Once qualified the assessed valuation is reduced by 85 percent and frozen at that level. Even if the fair market value of the building increases in subsequent years, all future property tax bills will be calculated at the frozen reduced value. To maintain this exemption each group must resubmit an application annually but they need not resubmit the supporting documentation unless there is a change.

This was such a popular move that non-veterans groups wanted to share in the savings. Beginning in the 2001 tax year, fraternal organizations chartered in Illinois before 1900 that prohibit both gambling and the use of alcohol on their property became eligible to apply for the same 85 percent exemption. Yet a third broadening of eligibility for the exemption goes into effect in tax year 2002. Now fraternal organizations whose national headquarters was located in this state before 1927 or who received an Illinois charter prior to July 1896 can apply for the exemption, even if they permit gambling or alcohol consumption.

The initial law permitted American Legion posts in Abingdon, Galesburg, Knoxville, Oneida and Williamsfield to receive the exemption along with the Galesburg VFW hall. The second variation of the statute cleared the way for six Masonic lodges across Knox County to participate. The most recent expansion should permit three more Galesburg area organizations (the Elks, Moose and Knights of Columbus) to apply for the exemption.

Determination of eligibility for these exemptions is made by the Supervisor of Assessments' office and so far only one applicant has failed to be approved. The Victoria American Legion Post sits on village-owned land and was therefore deemed ineligible by Skinner. According to Chris Gray (who has been delegated responsibility for this tax by Skinner) no group has yet applied under the latest set of exemption qualifications. City of Galesburg Assessor Darrel Lovell's office has sent letters to the Elks, Moose and Knights of Columbus informing them of their potential eligibility to participate.

This table helps illustrate the impact of these exemptions. It lists each of the eligible (or presumed eligible) organizations and shows the relevant years' fair market value and assessed value. Township assessors are responsible for determining these figures with the assessed valuation calculated as one-third of the property's fair market value. The freeze valuation reflects the 85 percent exemption and remains constant or frozen in subsequent years while the fair market and assessed valuations will most likely increase over time.

Property taxes are determined by applying the total tax rate, here represented by the year 2000 rate (since the 2001 rate is yet to be determined). The table also shows the 2000 tax rate for the appropriate public school district and both rates are applied to the freeze valuation to illustrate the best guesstimate of a year's total property tax bill and the portion devoted to schools. The final column shows the savings afforded each organization by participating in the exemption program.

The chart shows that the total estimated tax savings summed across all 12 currently participating organizations is nearly $23,000 -- approximately $12,000 of which would have gone to public schools. If the three Galesburg fraternal organizations anticipated by Lovell to qualify are included the property tax savings jumps another $6,400. Statewide, the savings is in the tens of millions.

Taxpayers may want to ask themselves if this program of exemptions is really serving the noble purpose claimed or simply a political chit being played by members of the state legislature. Clearly, the motives behind deciding which organizations qualify and which do not must be examined in light of the arbitrary distinctions made by the enabling statutes. Is this responsible social engineering through the tax code or political pandering to favored groups that count many Illinois legislators and voters among their membership?

Uploaded to The Zephyr website March 20, 2002

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