Opinion ID: 2222232
Heading Depth: 1
Heading Rank: 2

Heading: challenges to the department's methodology

Text: The plaintiffs advance eight statistics-based arguments to support their contention that the Department failed to exercise considered judgment, as required by section 148a, in setting the 1985 multiplier. In the plaintiffs' view, the Department set the multiplier through a mechanical production, ignoring the plaintiffs' arguments that the Department's samplings, procedures and estimates were inaccurate, incomplete, and ill-considered. An explication of the statutory requirements is necessary to address the plaintiffs' arguments. Section 146 of the Revenue Act sets forth the procedure the Department is to use in calculating the multiplier for each county. (Ill. Rev. Stat. 1985, ch. 120, par. 627.) The Department is mandated to compare the assessed valuations, as revised by boards of review or boards of appeals, as the case may be, to the estimated 33 1/3% of the fair cash value of the property, which is to be established through the analysis of property transfers, property appraisals, and such other means as [the Department] deems proper and reasonable. (Ill. Rev. Stat. 1985, ch. 120, par. 627.) From this comparison, the Department is to determine the percentage relationship between the property valuations as set by the county assessors and the estimated 33 1/3% of the fair cash value of the property. After determining this ratio, the Department shall then ascertain the percentage to be added to or deducted from the aggregate reviewed assessment on property    in order to produce a ratio of assessed to 33 1/3% of the fair cash value equivalent to 100%. (Ill. Rev. Stat. 1985, ch. 120, par. 627.) This complicated process has further intricacies in Cook County, which is permitted by the Constitution of 1970 (Ill. Const. 1970, art. IX, § 4(b)), to classify property for purposes of taxation. Each classification of property has its own level of assessment, varying between 16% and 40% of market value. As such, for Cook County, the Department determines the median level of assessment for the major classes of property and for the subclasses within one class. After these amounts are determined, the Department calculates an overall county weighted median level of assessment. The method for determining the median level of assessments, known as the sales ratio study, is set out in section 1(20) of the Act: The term `33 1/3%' means 33 1/3% of the actual value of real property, as determined by the Department's assessment to sales ratio studies for the 3 most recent years preceding the assessment year, adjusted to take into account any changes in assessment levels implemented since the data for such studies were collected. In compiling such sales ratio studies the Department shall exclude from the reported sales price of any real property any amounts included for personal property and sales finance charges. Ill. Rev. Stat. 1985, ch. 120, par. 482(20). The source of data for the Department's sales ratio studies are declaration forms (known as green sheets) that are required by section 3 of the Real Estate Transfer Tax Act for each transfer of property. (Ill. Rev. Stat. 1985, ch. 120, par. 1001 et seq. ) The green sheets, to be filed with the county's recorder of deeds, must report, inter alia, the full consideration for the property transferred, the legal description of the property, and information as to whether the transfer is between relatives or is a compulsory transaction. (Ill. Rev. Stat. 1985, ch. 120, par. 1003.) The recorder of deeds transfers the green sheets to the county assessor, who inserts the most recent assessed value for the transferred property and transmits the forms to the Department at least once monthly. (Ill. Rev. Stat. 1985, ch. 120, par. 1003.) The Department, to compute the average median level of assessment upon which the 1985 multiplier was based, used sales ratio studies for the three preceding years  1982, 1983, and 1984. The plaintiffs contend the methodology used by the Department was improper, as the Department refused to supplement its samples of sales prices, obtained from the green sheets, with appraisals of the property. The plaintiffs view section 146 as placing a statutory duty upon the Department to supplement the sales price information with appraisals of property. This court, in Airey v. Department of Revenue (1987), 116 Ill.2d 528, 539-40, rejected a contention that the Department's failure to use property appraisals violated section 146 as well as accepted assessment standards. Under section 146, the Department is directed to ascertain the median level of assessment in each county through analysis of property transfers, property appraisals, and such other means as it deems proper and reasonable. This court held in Airey that the statute requires only that the Department use such means as it deems proper and reasonable. A statutory provision, it was held, is generally directory if it `merely directs a manner of conduct for the guidance of the officials.' ( Airey, 116 Ill.2d at 540, quoting Andrews v. Foxworthy (1978), 71 Ill.2d 13, 21.) The direction to use property appraisals is plainly such a guideline. Airey, 116 Ill.2d at 540. Despite our decision in Airey that the statute does not require the Department to use appraisals to ascertain the median level of assessment, the plaintiffs contend that appraisals are necessary for the Department to exercise considered judgment in setting the multiplier. The plaintiffs base their contention on section 148a of the Act, which requires the Department to hold a hearing at which all interested parties may submit their arguments in support of or adverse to the Department's estimated multiplier and further provides that the Department, shall, after the hearing, either confirm or revise such estimate so as to correctly represent the considered judgment of the Department respecting the estimated percentage to be added to or deducted from the aggregate assessment. (Emphasis added.) (Ill. Rev. Stat. 1985, ch. 120, par. 629a.) The plaintiffs contend they have demonstrated that the Department's exclusive reliance on sales ratio studies in Cook County prevents uniformity in equalization and leads to an artificially inflated multiplier. We consider that the Department correctly states that the plaintiffs are attempting to impose the use of property appraisals in the equalization process where neither statute nor considered judgment requires it. In ascertaining the legislative intent, we look first to the language of the statute and, if the legislature's intent may be ascertained from the language it used, it will be given effect without resort to other aids in construction. ( Conner v. Copley Press, Inc. (1984), 99 Ill.2d 382, 387; Interlake, Inc. v. Industrial Comm'n (1983), 95 Ill.2d 181, 192.) Where the terms of a statute are not defined by the legislature, as we have here, it will be assumed that they were intended to have their ordinary and popularly understood meaning, unless to do so would defeat the perceived legislative intent. ( People v. Fink (1982), 91 Ill.2d 237, 240.) The term considered judgment is self-explanatory; it denotes the granting of a discretion or latitude of decision by the legislature to the Department in deciding whether the estimated multiplier is correct. The legislature, then, intended that the Department would have discretion to either confirm or revise its estimated multiplier after listening to the arguments and proofs of interested parties at the public hearing. The statute does not require the Department to modify or revise the estimated multiplier after the public hearing, but states the Department may modify or revise it if to do so would correctly represent the Department's considered judgment. For this court to determine that appraisals are required in order for the Department to exercise its considered judgment would ignore that the legislature has granted the Department discretion in setting the multiplier. It could not be simply a mechanical calculation. Too, appraisals are intended to estimate the fair cash value of a particular property if it were to be sold. Appraisals, as the plaintiffs note, typically value property from the income approach, which considers the amount of ongoing revenue the property may generate for the buyer or seller, and the cost approach, which considers the cost of reproducing a comparable new property. The Cook County assessor uses all three methods to calculate assessments. The best indication of the fair cash value of the property is the actual sales price obtained rather than an appraisal of its worth. The plaintiffs presented no evidence that the transfers were not representative of sales of the different classes of property. While the plaintiffs presented expert testimony at the hearing recommending the appraisal method, this court held in Airey that the Department was free to reject such recommendations. Nothing in the plaintiffs' evidence that a majority of States use appraisals in establishing property values suggests that the Department's sales ratio method is not a proper and reasonable means of determining assessed valuation. As was stated in Airey, the statute requires only that the Department `use such means as it deems proper and reasonable' to make its studies in assessed valuations. ( Airey, 116 Ill.2d at 540, quoting People ex rel. Wenzel v. Chicago & North Western Ry. Co. (1963), 28 Ill.2d 205, 216.) We judge the Department's use of property transfers alone was proper and reasonable in calculating the 1985 Cook County multiplier. The plaintiffs also contend that the Department failed to stratify Class 5 property, thereby distorting the sales ratio for that class and artificially inflating the multiplier. The Department subdivides property in Class 5 and computes a median sales ratio for Class 5-93 (industrial property) and a separate median sales ratio for the remaining Class 5 properties. The plaintiffs argue that the Department, to exercise its considered judgment, should have computed ratios separately and weighted them according to the total subgroup valuation. This court rejected the plaintiff's argument in Airey that the Department's failure to stratify its samples adequately rendered the studies unrepresentative and statistically invalid. The hearing officer had noted here that one reason the Department does not stratify beyond the major classes of property and the one subclass is that the sample sizes would be very small and this over-stratification would likely yield less statistically reliable results. The testimony of the plaintiffs' own expert supported the hearing officer's theory. This court stated in Airey: We believe that the decision on how to stratify its sales ratio studies is properly committed to the Department's discretion. We are not persuaded that the Department's calculations resulted in statistically invalid sales ratio studies. ( Airey, 116 Ill.2d at 544.) We consider that the same must be said here. The plaintiffs' next challenge to the Department's methodology focuses on how the personal property valuations on the green sheets are used in the assessment process. The plaintiffs say the Department failed to exercise considered judgment because it did not adjust assessment values of Class 2 (single-family residential) property and Class 5-17 (single-story commercial property) and similar Class 5 properties, despite the plaintiffs' expert testimony that personal property and goodwill are regularly included in such transfers but are not recorded on the green sheets. To exercise considered judgment in this area, the plaintiffs say the Department must investigate beyond the green sheets to determine whether the transfer of personal property is accurately reported. The Department responds that the plaintiffs presented no evidence at the hearing regarding improper reporting of personal property on the green sheets used in the Department's sales ratio study. As the trial court observed, the identical arguments were rejected by this court in Airey. It is a misdemeanor to falsify information required to be reported on the green sheets under the Real Estate Transfer Tax Act. (Ill. Rev. Stat. 1985, ch. 120, par. 1005.) As we stated in Airey, while verification of this information might be preferable, the statutes do not require it. Further confirmation could also be extremely burdensome on the Department. ( Airey, 116 Ill.2d at 542.) The plaintiffs have presented no arguments or evidence that persuade us that the decision in Airey is incorrect or should be different here based on the plaintiffs' arguments concerning the exercise of the Department's considered judgment. The plaintiffs next contend that the Department rejected numerous categories of property from its sales ratio studies, creating unrepresentative samples of properties sold. The Department's samples are comprised of parcels sold within the county during the three years preceding the assessment year. The Department removes or edits transactions that are not made at arm's length or do not convey all the rights to the property. The plaintiffs say the Department makes a blanket exclusion of 27 different types of property transfers rather than exercising considered judgment to determine whether a sale is acceptable. In a related argument, the plaintiffs contend the Department has failed to evaluate the effects of the exclusion of these properties on the sales ratio studies. The Department responds that it follows editing procedures accepted by professional statisticians and the professional assessing associations. Among the types of property sales edited out are those in which the full interests in the property are not transferred, such as through limited warranty deeds and quitclaim deeds. The Department edits out property transfers in which it appears the sales were not made at arm's length, but rather some compulsion was involved, such as transfers resulting from judicial orders and transfers to government agencies and public utilities. The hearing officer, in her lengthy report, detailed reasons for each type of property transfer that is excluded. She reports that the criteria for exclusion are based on the Department's experience and in accordance with generally accepted principles in the sales ratio field. The Department has shown good reason to reject these types of sales that occur under special circumstances as not indicative of the true market value of the properties. Its practice of strictly adhering to these editing procedures is consistent with standard practices in assessment-ratio studies and cannot be considered a failure to exercise considered judgment in the equalization process. The plaintiffs contend too that the 1985 multiplier is improperly inflated because the Department adjusted sales prices for creative financing in 1983 and 1984, but not for 1982. Again, this question was raised and rejected in Airey because information on creative financing was not required by the Real Estate Transfer Tax Act to be reported on the green sheets, and thus was not available prior to January 1, 1983. 116 Ill.2d at 541. The plaintiffs also say the Department failed to time-trend its property sales figures so that property sold later in the year appears to be underassessed, compared to the same property sold earlier in the year, simply as a result of inflation. The Department responds that it follows the legislature's definition of 33 1/3% of assessed valuation set out in section 1(20) of the Act (Ill. Rev. Stat. 1985, ch. 120, par. 482(20)), which does not call for time-trending of property sales used in the sales ratio studies. The statute defines 33 1/3% of actual value as the Department's assessment to the sales ratio studies for the three years preceding the assessment year, with specified adjustments and exclusions. That definition clearly does not require the time-trending approach advocated by the plaintiffs, nor do we consider that such calculations are required in order for the Department to exercise its considered judgment. Such calculations, involving each and every sale in the three-year samples, would obviously impose a major burden on the Department, which is required to equalize assessments in all 102 counties within our State before taxes are extended. The final argument challenging the Department's methodology concerns the measure of central tendency used by the Department in its sales ratio studies. The plaintiffs say the Department should use a weighted mean, in which the transfers are weighted according to sales price, as the appropriate measure of central tendency in its sales ratio studies. The Department uses an array median as the measure of central tendency, which is the middle value in the whole ranking of the ratios. The hearing officer noted that the International Association of Assessing Officers regards the median assessment ratio as the generally preferred measure of central tendency in a stratum. She reported that the array median will be consistently closer to the typical level of assessment than the weighted mean, which is more strongly influenced by a single large transaction or by other extremes. We consider that the Department's use of the array median to measure central tendency is a proper and reasonable exercise of its discretion.