PT 20- 07 TAX TYPE: PROPERTY TAX TAX ISSUE: RAILROAD ASSESSMENT

STATE OF ILLINOIS DEPARTMENT OF REVENUE OFFICE OF ADMINISTRATIVE HEARINGS CHICAGO, ILLINOIS

In re 2018 Property Tax Assessments of ) Docket Nos. THE BLOOMER LINE RAILROAD CO., ) 19-PT-055 CHESSIE LOGISTICS CO., ) 19-PT-059 CHICAGO, PEORIA & WESTERN RAILWAY, ) 19-PT-061 CHICAGO RAIL LINK RAILWAY CO., ) 19-PT-063 CICERO CENTRAL RAILROAD LLC, ) 19-PT-066 EAST ST. LOUIS RAILROAD CO., ) 19-PT-068 ILLINOIS RAILWAY, INC., ) 19-PT-073 IOWA INTERSTATE RAILROAD LTD., ) 19-PT-075 KANKAKEE BEAVERVILLE & SOUTHERN RAILROAD CO., ) 19-PT-076 KEOKUK JUNCTION RAILWAY CO., ) 19-PT-077 KM RAILWAYS LLC, ) 19-PT-079 MANUFACTURERS JUNCTION RAIL. CO., ) 19-PT-080 MANUFACTURERS RAILWAY CO., ) 19-PT-081 SHAWNEE TERMINAL RAILWAY CO., ) 19-PT-083 TERMINAL RAILROAD ASSOC. ST. LOUIS, ) 19-PT-085 VANDALIA RAILROAD CO., & ) 19-PT-088 WISCONSIN & SOUTHERN RAILROAD CO. ) 19-PT-089 ) John E. White, ) Administrative Law Judge

RECOMMENDATION FOR DISPOSITION

Appearances: Michael Barron, Fletcher & Sippel LLC, appeared for Chicago Rail Link Railway Co., Illinois Railway, Inc. and Manufacturers Junction Railway Co.; David Schneidewind, Boyle Brasher LLC, appeared for Terminal Railroad Association of St. Louis; Chelsea Anderson and Susan Buffington, Watco Companies, LLC, appeared for Cicero Central Railroad and Wisconsin & Southern Railroad Co.; Kristin Bevil, of Pioneer Railcorp, appeared for Vandalia Railroad Co. & Keokuk Junction Railway Co.; David Locke, Stuart & Branigin LLP, appeared for Kankakee Beaverville & Southern Railroad Co.; Thomas Sarikas, of Counsel, Bryce Downy & Lenkov, LLC, appeared for The Bloomer Line Rail Co.; Theodore Bots, Baker & McKenzie LLP, appeared for KM Railways LLC; Onna Houck appeared for Iowa Interstate Railroad, Ltd.; Kenneth Spector appeared on his own behalf; and Robin Gill, Special Assistant Attorney General, appeared for the Illinois Department of Revenue.

Synopsis:

This matter involves objections and requests for hearing filed by Kenneth Spector (Spector or Intervenor), challenging the Department’s assessments of Illinois property tax of the captioned railroads (Railroads) for the 2018 assessment year.

The parties had previously agreed that the captioned matters should be stayed, to permit them to consider the Department’s resolution regarding a motion to dismiss filed in two other consolidated contested cases pending at the Department’s Office of Administrative Hearings, involving the Department’s assessment of other railroad’s operating property for 2018, and which cases had similar facts and issues as those present in these captioned matters. The Department’s final administrative decisions in those other two consolidated cases (hereafter, the Resolved Cases) granted the railroads’ motions to dismiss Intervenor’s objections to the Department’s assessment determinations. Intervenor did not seek administrative review in those matters.

After Department counsel distributed copies of the Department’s final decisions in the

Resolved Cases to the parties, some of the captioned Railroads filed two separate Motions to

Dismiss regarding the Department’s assessments of their own property (one by counsel for

Chicago Rail Link LLC, Illinois Railway, LLC, and Manufacturers Junction Railway, LLC, and the other by counsel for Terminal Railroad Association of St. Louis), and the Department filed its own Motion to Dismiss Intervenor’s Objections regarding its assessments of all of the captioned

Railroads’ property. Intervenor filed a single responsive brief. Response, by Objector Kenneth L.

Spector, to Department’s Motion to Dismiss and to accompanying Memorandum (Intervenor’s

Response). Each of the instant Motions was predicated on the parties’ claim that the facts and law applicable to the Resolved Cases are equally applicable to the captioned matters. Chicago Rail

Link LLC et al’s Motion to Dismiss (Chicago’s Motion), p. 2 (para. 4); Terminal Railroad

Association of St. Louis’ Motion to Dismiss (Terminal’s Motion), p. 4 (paras. 9-10); Department’s

Motion to Dismiss the Proceedings (Department’s Motion), p. 2. All three Motions incorporated the facts and conclusions set forth in the Department’s final administrative decisions in the

Resolved Cases. Chicago’s Motion, pp. 1-2 (paras. 3-4); Terminal’s Motion, pp. 3-4 (para. 8);

Department’s Motion, p. 2. Since all parties repeatedly refer to the Department’s final administrative decisions in the Resolved Cases as the bases for the Motions, and for Spector’s arguments in his Response, I am including the Recommendation For Disposition, and the subsequent Denial of Rehearing, which were issued in one of the Resolved Cases (i.e., the one having the initial docket number 19-PT-018), as an Appendix to this recommendation.

Statement of Facts Not in Dispute:

1. Spector filed objections (hereafter, Objections) to the 2018 property assessments which the

Department made for each of the Railroads. Appendix, p. 2 (finding of fact no. 1).

2. Spector’s December 10, 2018 Objection provided, in pertinent part, as follows:

*** SUMMARY: On Friday December 7, 2018, the Department published its 2018 railroad assessments. (copy below) On behalf of my clients, and pursuant to Property Tax Code § 8-35(a), I hereby request review of each of those assessments, and further request a hearing on those assessments. I contend that the Department’s assessments are far too low, by well more than a billion dollars each year. LAW: Illinois property tax assessments on railroad property are set by the state’s Department of Revenue (rather than by local officials); may be contested by “any person feeling aggrieved”; and are supposed to be 1/3 of the value of the property assessed. Property Tax Code § 9-70, § 8-35(a), § 11-80. RAILROAD FACTS: The country’s seven major railroads provide extensive data in annual “R-1” reports to the Surface Transportation Board (“STB”), a federal agency.[footnote 1] They reveal that in the aggregate, these companies (and their consolidated subsidiaries) owned railroad-realty which • cost them $194½ billion, and has 40½ billion depreciation (thus, $154 billion net book value); • runs for 90,984 miles of rail corridor, 5,637 of which are in Illinois (that is, 6.2% in Illinois. = Using those numbers: 6.2% of $154 billion = $9.6 billion indicated Illinois value, times 1/3 assessment ratio, equals $3.2 billion assessment. (see spreadsheet below[footnote 2]) DEPARTMENT’S ACTS: But the Department assessed only $1.5 billion for these railroads, that is, about $1.7 billion to[o] low. [footnote 3] The cost in taxes will be about 10% of this, based on the Department’s historical data and trends. Bottom line, the Department is making a $170 annual gift to railroads, at taxpayers’ cost. ***

Appendix, pp. 2-3 (finding of fact no. 2).

3. In the spreadsheet Spector included in his Objection, he asserted that the Department should

have measured each Railroads’ assessment using the following calculation:

Real estate book value * % of track miles in Illinois * 1/3 = Assessment value

Appendix, p. 3 (finding of fact no. 3).

4. In his Objection, Spector calculates book value as the difference between the cost of a

Railroad’s system wide real estate (as reported by the Railroad to the STB on Schedule

352B@In31) less depreciation (as reported by the Railroad to the STB on Schedule 335@30g);

Appendix, p. 3; but see 35 ILCS 200/11-75 (“The assessment of the property of any railroad

company shall be based upon the value of property defined in Section 11-70, less the

percentage of the total value which consists of operating or non-operating personal property”)

and 35 ILCS 200/11-80 (“Assessment procedure for railroad companies.”). Appendix, p. 3

(finding of fact no. 4). 5. On December 21, 2018, the Department issued Spector a document titled, Railroad Property

Tax After Review Notice (hereafter, Notice), which informed him that no correction would be

made to the Department’s published assessments. Appendix, p. 3 (finding of fact no. 5).

6. On January 9, 2019, Spector filed a request for hearing (hereafter, Protest) with the

Department, regarding the Department’s December 21, 2018 Notice. Appendix, p. 4 (finding

of fact no. 6).

7. Spector asserts that he is a “person feeling aggrieved” by the 2018 assessments of the

Railroads, as that phrase is used in § 8-35(a) of the Property Tax Code (PTC), 35 ILCS 200/8-

35. Appendix, p. 4 (finding of fact no. 9).

8. Spector resides in Winnetka, Illinois and pays Illinois property tax on his residential property.

Appendix, p. 4 (finding of fact no. 10).

9. Spector is a private citizen, and is not an official, employee or agent of any taxing body,

governmental agency or governmental entity of any kind. Appendix, p. 4 (finding of fact no.

11).

Conclusions of Law:

Intervenor has challenged each of Department’s assessment decisions regarding the captioned Railroads’ operating properties, which are situated in Illinois. The Railroads’ and the

Department’s Motions are based on § 2-619 of Illinois’ Code of Civil Procedure (“Code”). 735

ILCS 5/2-619(a)(1)-(2), (5) and (9). Chicago’s Motion, pp. 1-2 (paras. 3-4); Terminal’s Motion, pp. 3-4 (para. 8); Department’s Motion, p. 2. The movants have all adopted the argument that one of the affirmative matters which act as a complete bar to Spector’s Objections here is that he lacks standing under PTC § 8-35(a) to challenge the Department’s determination of the value of the

Railroads’ properties, because he is not a “person feeling aggrieved” by such action. Chicago’s Motion, pp. 1-2 (paras. 3-4); Terminal’s Motion, pp. 3-4 (para. 8); Department’s Motion, p. 2;

Department’s Memorandum of Law in Support of Department’s Motion to Dismiss the

Proceedings (Department’s Brief), pp. 2, 5.

Lack of standing is an affirmative matter that is properly raised under Code § 2-619(a)(9).

Glisson v. City of Marion, 188 Ill. 2d 211, 220, 720 N.E.2d 1034, 1039 (1999). The doctrine of standing is designed to prevent those with no interest in a controversy from bringing suit. Standing assures that issues are raised only by parties with a real interest in the outcome of the controversy.

Id. at 221, 720 N.E.2d at 1039. In Illinois, standing requires some injury in fact to a legally cognizable interest. Greer v. Illinois Housing Development Authority, 122 Ill. 2d 462, 492, 524

N.E.2d 561, 574-75 (1988). The claimed injury, whether actual or threatened, must be: (1) distinct and palpable; (2) fairly traceable to the defendant’s actions; and (3) substantially likely to be prevented or redressed by the grant of the requested relief. Id. at 492-93, 524 N.E.2d at 575.

Summary of the Department’s Conclusions in Resolved Cases:

As the Department’s Brief describes, there were three fundamental conclusions reached in the Resolved Cases. Department’s Brief, pp. 4-6. The first was that Spector was the only person who timely performed the acts which notified the Department, and the railroad/taxpayers, that he intended to challenge the Department’s valuation and assessment of the railroad/taxpayers’ operating property. Spector had claimed, in the Resolved Cases, that he also represented two other individuals, who were also claiming an interest in challenging the Department’s initial assessment decisions. Here, however, Spector concedes that he is the only person challenging the

Department’s assessments. Intervenor’s Response, p. 1.

Next, the Director adopted the ALJ’s recommendation that he “not accept Spector’s invitation to read ‘[a]ny person feeling aggrieved by any such assessment …,’ as used in PTC § 8- 35(a), to include ‘any Illinois taxpayer who feels that … [the Department’s initial assessment decision] is ‘not fair[.]’ ” [citations omitted] ….” Appendix, pp. 8-17 (quoted text found on p. 17).

Finally, the Director adopted the ALJ’s recommendation that Spector’s Objections must be dismissed because they asked the Department to value the railroads/taxpayers’ operating property using a formula that is other than the formula required by statute for valuing railroad operating property. Appendix, pp. 17-20; 35 ILCS 200/11-75; 35 ILCS 200/11-80. In short, the

Director agreed that Spector’s Objections must be denied because they ask the Department to act beyond its statutory authority. Appendix, p. 19 (citing to and quoting Parliament Insurance Co. v.

Department of Revenue, 50 Ill. App. 3d 341, 347, 365 N.E.2d 667, 671 (1st Dist. 1977)).

Spector’s Response to the Department’s Motion:

In his Response, Spector acknowledges that the Department’s Motion relies on the

Department’s final administrative decisions in the Resolved Cases. Intervenor’s Response, p. 2.

He then makes two general charges against those agency decisions. He first claims that he was never given an opportunity to challenge the reasoning set forth in them. He next contends that those agency decisions ignored his arguments regarding standing.

Notwithstanding Spector’s first claim, each of the Notices attached to the final administrative decisions in the Resolved Cases provided, in pertinent part, as follows: “This is a final administrative decision, and you may pursue your rights to administrative review by filing a complaint in the circuit court, within 35 days, under the requirements of 735 ILCS 5/3-101 et seq.”

See Appendix, p. 29. Section 8-40 of the PTC provides, in part, that “The Administrative Review

Law and the rules adopted under it apply to and govern all proceedings for the judicial review of final administrative decisions of the Department under Section 8-35.” 35 ILCS 200/8-40. Contrary to Spector’s claim, Illinois law provided him with the statutory means to challenge the reasoning set forth in the Department’s final decisions in the Resolved Cases— he just did not avail himself of that process. See Appendix, pp. 25, 29.

Another part of Spector’s first claim is that the railroads which filed motions to dismiss in the Resolved Cases did not assert that Spector’s Objections should be dismissed because they asked the Department to value the Railroads’ operating property using a formula which is other than the formula set by statute. Intervenor’s Response, p. 2. Spector again asserts that he had no opportunity to respond to this conclusion. Id. Regarding this point, Spector remarkably claims that he “did not ask that assessments be changed. Rather he sought a hearing at which to consider such a change.” Intervenor’s Response, p. 1; but see supra, pp. 2-3 (finding of fact number 2) (Spector’s objection provides, in part: “I hereby request review of each of those assessments, and further request a hearing on those assessments. I contend that the Department’s assessments are far too low, by well more than a billion dollars each year.”) (emphasis original). Notwithstanding this puzzling argument, nowhere in his Response did Spector explain why he is entitled to a hearing to ask the Department to consider acting beyond its statutory authority, by substituting the formula presented in Spector’s Objections for the formula set by statute. See Intervenor’s Response, passim.

Regarding the claim that the Department’s final decisions in the Resolved Cases ignored his arguments about standing, Spector asserts that:

*** “Legal standing” was by far the most-discussed issue in this case. It filled ten pages of Spector’s Response [in the Resolved Cases] and ten pages of White Opinion. And in all those pages, how many times did White cite Spector and argue against it? Precisely once — and then only on a very minor point.[footnote 3] The rest, White ignored. ***

Intervenor’s Response, p. 3. Footnote three provides: “Opinion p.16: error by Spector invalidates one line (20 words) of Spector’s text. Two other White citations merely note what was said, with no argument. Opinion at p.8 (noting that Spector has common law standing, but then goes off to another subject, never to return); at p.9.”

With regard to Spector’s contention that, on page 8 of the Appendix, the Director noted that Spector has common law standing in these cases, he is mistaken. The last full paragraph on page 8 provides, in part: “Spector asserts that he has standing under Illinois common law and under the plain text of PTC § 8-35(a), as a person feeling aggrieved by the Department’s assessments here. ….” Appendix, p. 8. What was being “noted” was Spector’s assertion that he had common law standing; there was never any conclusion that this assertion was correct, or supported by law.

Finally, Spector’s acknowledgement that the Department’s final decisions contained ten pages in which the issue of standing was discussed dashes his claim that the Department ignored his arguments regarding standing. Spector’s assertions, and his arguments regarding standing, were considered (carefully, I respectfully submit) and found to be unsupported by the plain text of

PTC § 8-35, and Illinois cases interpreting it. Appendix, pp. 8-17.

For all of the reasons more fully set forth in the Appendix, I recommend as follows:

WHEREFORE, IT IS HEREBY RECOMMENDED THAT:

• The Department’s Motion, Chicago’s Motion, and Terminal’s Motion be granted.

• All of Spector’ 2018 Objections be dismissed, with prejudice.

Date: September 21, 2020 John E. White, Administrative Law Judge