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Cook County says raising taxes would hurt economy; Bank of America owes for county tax losses from 'discriminatory' lending

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By Jonathan Bilyk | Dec 7, 2019

Foreclose homes

Cook County has fired back at Bank of America’s assertion the county’s lawsuit over alleged discriminatory lending practices could be doomed,because the county’s tax collections didn’t drop, even as home values did.

In a recently filed brief, the county’s lawyers argue the bank’s assertions are misguided, at best, because the county didn’t collect as much as it could have if property values hadn’t crashed in predominantly minority cities and neighborhoods, and the county was restrained from raising taxes further, for fear of harming the region’s economy in the process.

“Raising the property tax rate itself, or raising other types of taxes, to try to mitigate the loss of property tax revenue due to a reduced tax base value … has its own negative effects on the County,” Cook County wrote in the brief filed Dec. 3. “These include political repercussions on County officials but, more importantly, they have negative effects on the County’s other revenues, and future revenues and growth, because they adversely impact the prosperity of businesses and the community at large, which the County ultimately embodies.”

The county’s filing came in response to an order issued by U.S. District Judge Elaine Bucklo, who directed Cook County to provide an answer to the question of precisely how the county can demand Bank of America pay the county to compensate for “tax-related losses,” when the county’s tax revenues never actually declined.

That order, in turn, had followed a request from Cook County, asking the judge to reconsider a decision from March 2018, in which Bucklo had limited the county’s ability to press its payment demands against Bank of America for the lender’s alleged misconduct.

The county and Bank of America have been locked in contentious court proceedings since 2014, when the county sued the Charlotte, N.C.-based bank for allegedly violating federal lending laws. The lawsuit accused Bank of America of making home loans to minorities with rates and terms allegedly more burdensome than loans offered to whites with similar financial history.

Cook County also filed similar lawsuits, with similar allegations, against mortgage lenders Wells Fargo and HSBC. Those lawsuits also remain pending in federal court in Chicago.

The lawsuits asserted the banks’ practices amounted to “reverse redlining,” and helped fuel the foreclosure wave, by pressing more minority borrowers into foreclosure and leaving communities with large numbers of those borrowers with large numbers of vacant homes. That, the county said, further depressed home values and cost the county and other local governments potentially billions of dollars in lost property tax revenue, while jacking up county costs to cover services related to the foreclosures and vacant properties.

Bank of America, however, asked the judge to dismiss the county’s suit, saying the county has yet to prove it actually lost money from the foreclosures.

In 2018, Judge Bucklo refused to completely dismiss the action, but limited the amount of money the county could demand in damages to the expenses the county may have incurred.

The county asked the judge to reconsider that decision, asserting a new decision in the interim from the U.S. 11th Circuit Court of Appeals in Atlanta in a similar lawsuit brought against the same group of lenders by the city of Miami, Fla. In that decision, the appeals court found a Florida federal judge had improperly dismissed Miami’s claims against Bank of America and Wells Fargo.

Bucklo, however, said she did not believe Cook County’s case aligns precisely with Miami’s, noting Cook County’s total property tax revenues never actually declined during the Great Recession, even though home values did.

Under Illinois’ property tax system, homeowners’ property tax bills can increase, even when property values decline, if a government body, like Cook County, doesn’t decrease its tax levy – or the total amount of property taxes demanded – when the “tax base,” or the value of the properties being taxed, declines.

In her most recent order, Judge Bucklo directed the county to explain why its tax collections didn’t decline, and show how the county’s situation is comparable to Miami’s.

Cook County responded to the judge’s order about two weeks later. In the filing, the county asserted the judge’s question  “incorrectly presumes” the county ever argued it had actually lost real money.

Rather, the county argued it has claimed from the outset that Bank of America’s alleged actions cost the county money that it would have collected, had the foreclosures the county blames on Bank of America and other lenders not occurred.

Cook County argued the question of whether the county’s tax collections actually declined is irrelevant to the lawsuit.

“… The fact that the County’s total property tax collections may have remained stable has no bearing on whether the County suffered damages or the amount of those damages on specific properties,” the county’s lawyers argued.

“Indeed, the fact that the total property tax revenues remained stable is a red herring.”

The county argued, again, its tax revenue losses could be calculated using the same “common hedonic regression analysis techniques” allowed by the 11th Circuit Appeals Court in the Miami case, and should be allowed under the federal Fair Housing Act.

The county said those losses are “readily calculable,” and required the county to “undertake other measures to make up that lost tax revenue.” Those steps included raising “the tax rates affecting all similar classes of property and, as Cook County has done, raise other taxes.”

The county said raising property tax rates to make up for the lost revenue would create an essential domino effect of harm to the county’s economy.

The county asserted “raising the tax rate disadvantages the County in competition for new businesses and business expansion compared to neighboring counties.”

“Indeed, just a one percent increase in property taxes decreases local economic activity by as much as 1.59 to 1.95 percent,” the county wrote in its brief. “This increasingly deleterious adverse impact on economic activity itself harms property tax revenues and all other taxes and fees, such as sales taxes and income taxes, that make up the bulk of the County’s total revenues.

“Worse, the adverse economic consequences of raising property taxes continue to harm total revenues on a going forward basis,” as a “reduced tax base along with the ‘significant reduction in property values … directly injured’ the County because it threatened the County’s ‘ability to bear the costs of local government and to provide services.”

The county asked the judge to again reconsider her 2018 decision, barring the county from seeking damages related to its loss of tax revenues.

Cook County is represented by Evangelista Worley LLC, of Atlanta, Georgia; Milberg, Tadler, Phillips, Grossman LLP and Milberg LLP, both of New York City; and James D. Montgomery & Associates of Chicago.

Bank of America and its subsidiaries are defended by Goodwin Proctor LLP of Boston and Washington, D.C. and Winston & Strawn of Chicago.

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Organizations in this Story

Goodwin Procter LLPU.S. District Court for the Northern District of IllinoisEvangelista Worley, LLCCook CountyBANK OF AMERICA

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