Audit sought on Winnebago County delinquent tax program

Mar. 1--ROCKFORD -- The Region 1 Planning Council has asked Winnebago County to conduct a three-year audit of its delinquent tax program to ensure that cities, schools and other taxing bodies in the county are receiving all the tax revenue they're owed.

The amount of delinquent property taxes in Winnebago County stands at approximately $16.6 million. Cities, villages, school districts and other taxing bodies aren't missing all of that cash, though, because the county oversees an elaborate system of foreclosures, tax sales and surplus property auctions that ensures local governments recoup at least some of the back taxes they're owed.

Since the late 1990s, the county has employed a Decatur real estate broker, Mike Ballinger, to oversee its delinquent tax program and put these properties back on the tax rolls. However, perverse incentives baked into the program often keep these delinquent tax properties trapped in blight.

Last fall, the county overhauled the program and hired a new agent to manage it -- the Region 1 Planning Council. Ballinger still has a role in the program, though he no longer manages it. He has asked the county for a $1.2 million settlement in exchange for severing ties with the county program, according to an email from County Board Chairman Frank Haney to interim county Administrator Steve Chapman that was obtained by the Register Star. Haney calls Ballinger's demand "absurd."

Haney said the county aims to break a cycle of neighborhood blight that the program has perpetuated under Ballinger's management. The program has been overhauled and placed under the planning council's watch, Haney said, to maximize tax revenue that for years has been slow to find its way to local government coffers as hundreds of properties wallow in tax delinquency. Planning council officials want to make sure the program has a clean bill of health, from an accounting perspective, before they get to work.

"We are assuming there are no past liabilities from the old agent that turn into future liabilities," said Eric Setter, land bank coordinator for the planning council. "But this is the question that we want to make sure we have the right answer for: What was Ballinger's exit vs. what's our start?"

Other concerns have arisen since the county terminated its contract with Ballinger last year, said Chapman, and the break hasn't been a clean one for several reasons.

Delinquent tax properties may take a year, or two or three, to cycle through the county's program, which means Ballinger will maintain a role in the program for some time, even though he's no longer managing the program. To that end, Ballinger wants the county to pay him in return for severing his connection to the program.

Lastly, Ballinger has records belonging to the county that are related to the delinquent tax program. Planning council officials say they need those records to pick up where Ballinger left off and properly manage the program to ensure all taxing bodies in the county receive the revenue they're owed.

"We have not asked for those records yet," Chapman said. "Right now, we're trying to negotiate a transition, if you want to call it that, because there's somewhat of a dispute about what monies would flow to (Ballinger) and what monies would flow to the new agent of the trustee program. That's still in process."

Haney said there's no evidence that tax revenue in the county program hasn't gone where it's supposed to go. The planning council's request for an audit is "standard practice" for a management transition of this sort, he said. Chapman said he agrees an audit makes sense, but he hasn't yet talked with R1 officials about the scope of such an audit, how soon an audit could be done or how it would be paid for.

Another 'needless lawsuit?'

Ballinger did not respond to the Register Star's request for comment for this story. However, emails among Winnebago County leaders obtained by the Register Star indicate that Ballinger has asked the county for a $1.2 million settlement.

Haney said the county terminated Ballinger's contract last year partly because he didn't conduct two surplus property auctions every year as required by his contract.

"Ballinger's transition demand of $1.2 million is absurd, without merit, and an insult to the county, taxing bodies, and taxpayers," Haney said in a Jan. 14 email to Chapman. "He has made hundreds of thousands of dollars off our communities' tax delinquent properties all while violating the terms of his contract with us."

Haney said in the email to Chapman that he would prefer to give Ballinger nothing.

"The only alternative to $0 I can see us responsibly giving Ballinger is a small amount of money for prior work completed, not to exceed $20K," he said. "I am confident $20K, preferably less, would work just fine if taken from the Trustee Program account. That said, if the amount exceeds $20K, then I start to become less comfortable as I am sure other partners would be concerned as well."

Assistant State's Attorney Bill Emmert has "attempted to hijack" talks with Ballinger "and drive a strategy that likely would have violated the new contract with R-1," according to a Jan. 17 email that Haney sent to State's Attorney Marilyn Hite Ross.

Hite Ross defended Emmert in a response she emailed to Haney on Jan. 24.

"Let me be clear -- Mr. Emmert has suggested a number of ways to dispose of the Ballinger situation, but make no mistake, a situation with him exists and it is not going away," Hite Ross said in her email.

"...Unless we continue negotiations with Mr. Ballinger to finally conclude his relationship with the county, we will likely have another needless lawsuit that may cost the county more money that it critically needs."

The bottom line

Haney said he has asked Chapman to proceed with the audit that the planning council has called for because Winnebago County taxing bodies and taxpayers need to know that property tax revenue is going where it's supposed to go -- to government coffers.

Although delinquent property taxes in Winnebago County amount to approximately $16.6 million, investors have stepped forward and effectively paid owners' tax bills thanks to the county's delinquent tax program. But there are hundreds more delinquent tax properties in Winnebago County that fail to attract investors.

Such orphan properties are, by default, held in trust by Winnebago County when enough time passes and no one steps forward to either purchase tax certificates for them or redeem the taxes owed.

Today, property in the county trustee program represents $7.2 million in taxes that are not flowing to government coffers. Auditing the delinquent tax program is necessary, Setter said, to ensure that taxing bodies have received and continue to receive the money they are due.

"That $7.2 million is real dollars that, if property owners were paying their taxes on time, would be going ... into your general fund," Setter told Rockford aldermen during a presentation at City Hall on Monday.

"The delinquent tax issue we're facing is a real issue," Setter said. "It affects every department of the city. ... On the public safety side, we know that once a property becomes vacant and abandoned and tax delinquent, there's a likelihood of criminal activity, arson activity and all sorts of public dollars and resources being spent on those properties."

Isaac Guerrero: 815-987-1361; [email protected]; @rrstar.com

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