Just beyond a nondescript tollway ramp 90 miles northwest of Chicago, a fast-food restaurant sign atop a tall white pole advertises for $6-an-hour workers. Unchanged for months, the billboard tells passers-by that jobs these days are plentiful in Rockford, a blue-collar town that straddles the Rock River.
Residents of the state’s second largest city, regularly stung by industrial downturns, seem to savor the current economic expansion that so far has lasted a blessed six years. Local laborers know all too well from experience that when business sours, they’ll probably get pink slips instead of overtime. So for now, at least, they’re in a spending mood.
On weekend afternoons East State Street, the city’s main commercial artery, is clogged with cars as shoppers drive from store to store. But amid the conspicuous consumer spree, Rockford residents aren’t putting much money into housing. Existing homes, especially those in the upper price range, aren’t selling all that well in the town of about 150,000.
“Prices have been dropping on existing homes,” said Bob Nieman of Nieman Realtors. “We have an excess supply of houses. It’s a buyer’s market.”
Owners tell horror stories of waiting 18 months to two years to sell their homes. Some say the only way they could unload their property was to drop the price by tens of thousands of dollars.
“The people who sold us this house took a real hit,” said Susie Derry, who snatched up a four-bedroom, 4,100-square-foot house for much less than its appraised value.
Many homeowners blame the poor resale market on high property taxes and a local school system in flux. They say Rockford residents are moving out of town, buying big new houses in outlying areas where taxes are lower and schools more dependable. Also, local real estate agents say the new, but relatively inexpensive, houses being built in Rockford have slowed the sale of existing homes.
Rockford’s housing market illustrates how schools and taxes can intertwine to affect property values and relocation patterns. In general, high property taxes and public school problems drive away buyers, experts say.
But even as Illinois lawmakers consider ways other than property taxes to support public schools, local residents are getting fed up. As one frustrated home seller put it: “Rockford could be the poster child for school funding reform.”
Money for the city’s schools has become a basic problem for Rockford homeowners. In 1989, a lawsuit was filed against the Rockford Board of Education alleging that it had intentionally discriminated for 30 years against minority children.
After several years of legal wrangling, a federal court order stipulated that the school district spend $44 million in three years to improve education for African-American and Hispanic students. The schools also were to be desegregated.
So far, lawsuit costs have totaled about $100 million, according to Jim Jennings, spokesperson for Rockford Public School District 205. The cost, Jennings says, not only includes changes to the school system, but also money for consultants and lawyers.
Primarily because of the education lawsuit, Rockford property owners for the last three years have seen hefty increases in their tax bills. Rockford ranked as the Illinois city with the third highest effective tax rate (defined as the percentage of home value paid in property taxes), according to a March study by the Taxpayers’ Federation of Illinois, based in Springfield. By comparison, Chicago’s effective tax rate ranked 57.
In May, Rockford property taxes went up about 5 percent from last year’s rate. Taxes on a Rockford house worth $250,000, for example, are now about $9,200.
“This is not fair to property owners,” said the school board’s Jennings. “But the cost (for schools) is there, and we have to pay for it.”
Last October, Mike White Sr. bought a new house in Boone County, just 300 yards outside the Rockford city border. White decided to move beyond the city limits because he could get more house for the money. He paid $289,000 for the 4,700-square-foot house on almost two acres of land.
White figures the taxes on the house are only about one-third of what he would have paid if the house were in Rockford.
“You don’t mind paying a lot when you are getting a lot for it. But when you are paying a lot and getting nothing, that’s a double-edged sword,” said White, worried that people in Rockford won’t like what he has to say.
Taxes have a strong link to housing, experts say. Generally, as property taxes increase, property values decrease.
“People are sensitive to the tax rate,” said G. Donald Jud, a finance professor who specializes in real estate at the University of North Carolina, Greensboro. “If you don’t change the quality of the (municipal) service, but you raise the taxes, then you will have lower housing values. It also drives people to outlying counties.”
Rockford area builders say they pick development locations based on how they think new houses constructed there will sell. For the last several years, most new housing has been built outside of Rockford’s school district.
From 1988 to 1990, the population of Machesney Park, a suburb with its own schools just north of Rockford, increased from 1,388 to 19,033.
Since 1990, approximately 60 percent of the permits for single-family homes in the area have been issued to areas outside the city, according to the Home Builders Association of Rockford.
“We are seeing tax avoidance,” said Dennis Sweeney, the group’s executive vice president.
Local real estate agents contend most building takes place outside the city because that’s where vacant land is available. But empty parcels in the city are being used by builders for houses that sell for $70,000 to $90,000, meaning tax bills that buyers can stomach.
A number of first-time buyers who would have been purchasing existing homes are opting for these new, low-end houses, says Jon Krause, president of the Rockford Area Association of Realtors and vice president of Gambino Realtors Homebuilders Inc., Rockford. “This slows down existing home sales.”
Luis and Maria Duran bought a three-bedroom house with a three-car garage for $82,400 in Jefferson Ridge, a housing development on the city’s southeast side. The young couple wanted a new house for their 5-year-old twin sons.
As a Rockford firefighter, Luis Duran is required to live in the city. He plans to send his kids to the public school.
Under the court’s desegregation ruling, parents can choose a school for their child, but spots are not guaranteed, a fact that has pushed some homeowners to move outside the city, or send their children to private schools. Duran says he was lucky that his sons got into the nearby grade school he selected.
Susie Derry, who got the expensive Rockford house at a bargain price–$100,000 less than what was originally asked 18 months ago–says schools weren’t an issue for her family because her kids go to a Catholic school.
She prefers living in the city because she has to drive her four children to numerous after-school activities, like soccer. But, she admits, the taxes on the big house the family just bought were a “hard pill to swallow.”
“We plan to be in this house for 30 years. The taxes don’t look like they will get much better in the next couple of years. We hope the school situation resolves itself down the road,” she said, looking toward the time when the house has to be sold.
Rockford isn’t the only city to grapple with tax and school problems.
Finance professor Jud has studied similar instances of school systems operating under court orders in various towns around Los Angeles and San Francisco. In general, Jud found that people tend to move away from bad school districts and toward good ones.
“School represents the biggest public service block that people buy when they come into a community. People pay more for houses in towns with better schools,” he said.
Notwithstanding court rulings, Rockford residents debate whether local schools make the grade. Some say the school district gets a bad rap, although the quality of education is good. Others contend instruction has suffered.
Either way, home sellers face a tough market. Don Ozburn recently sold a house in the Rockford school district.
“It was difficult to sell,” he said. “It was on the market three-and-a-half months and there was little traffic.”
In order to find a buyer, Ozburn explains that he had to reduce the price to the “minimum.” The house finally sold for around $100,000, about average in the greater Rockford area. (The average sale price of a house in the Rockford School District is now $85,226, according to the Rockford Area Association of Realtors.)
Motivated sellers have the best luck. Home seller White, who moved to neighboring Boone County, says he just wanted to get rid of his Rockford house.
The house three years ago was appraised at $157,900. White asked his real estate agent how low a price he would have to put on the house to sell really fast. The agent said about $115,000. White listed the house for $114,900 and it was sold in less than a week.
“People don’t want to pay high taxes and send their kids to a subpar school. If you want to sell a house, you’d better sell cheap,” White said.
Rockford homeowners hope school and tax problems will soon abate. It’s hard to predict exactly when that might happen, but, in all likelihood, the situation eventually will stabilize.
Jud, the finance professor, compares the Rockford housing market to that of Charlotte, N.C., which was in similar turmoil during the early 1970s when its schools were run under court order.
“The counties adjacent to Charlotte had big booms,” he said. “But now people are coming back.”
