The saga of the property tax relief bill known as the 7 percent cap took a twist last week with the release of a letter from House Speaker Michael Madigan to dozens of aggrieved home owners.

Writing on November 17, Madigan rather cleverly reaffirmed his support for the cap, pointing out that even though it had died in the house he controls, he’d voted for it and calling on protesters to put the heat on Cook County assessor James Houlihan and Mayor Daley if they want tax reforms passed.

Daley too has said he favors the cap. If that’s true, if two of the state’s most powerful politicians support it, why hasn’t it passed?

To understand the answer you need to know a little about how property taxes are figured. Essentially, they’re calculated by multiplying a property’s assessable value–determined every three years by the Cook County assessor–by the tax rate. If your assessed value rises high enough, your property taxes will increase even if the tax rate falls. That’s what’s been happening over the last several years, allowing Daley and county officials to brag that they’re holding the line on taxes even as people continue to pay more.

To provide relief–and to get people to stop calling his office with complaints–in 2003 Houlihan proposed a cap that would have limited the hike in assessments to no more than 7 percent a year. The General Assembly passed a watered-down reform bill in 2004, providing some relief for taxpayers not by capping reassessments but by increasing the home owner’s exemption (a standard deduction from the assessable value) from $4,500 to $20,000 for a period of three years. Oddly, the legislation is still commonly referred to as the 7 percent cap.

But it expires next year, setting up the current dilemma. If the cap’s not extended, home owners in Chicago will face hikes as high as 70 percent when tax bills come out next August, Houlihan warns. This time around he expects west- and south-side communities like Englewood, Woodlawn, and North Lawndale to get hit particularly hard. “The general word I would use for these communities is catastrophic,” says Houlihan.

Last spring the state senate passed a variation on the so-called cap that would have increased the home owner’s exemption again, to $65,000 for three years. A weakened version of that bill died in the house, raising only 37 of the 60 votes it needed to pass.

In the ensuing months Daley and Madigan have been passing the buck on the issue. At budget hearings over the last several months, Daley reaffirmed his support for the cap (even though he did next to nothing to push for the bill in last spring’s session) and called on voters to pressure Madigan.

On November 13 Chicago property owners affiliated with the Tax Reform Action Coalition marched on Madigan’s downtown law office, where they left hundreds of letters calling on the speaker to use his influence to pass the bill. A few days later Madigan responded with the following form letter:

“I voted Yes for the renewal of the 7% cap. I encourage you to get Jim Houlihan and Mayor Daley to do a better job of persuading legislators to vote for the 7% cap.”

Touche. Of course Madigan voted for the bill. After working against it behind the scenes–several sources tell me he put pressure on key legislators to vote against it–and saying nothing to support it when it came before the house, he voted for it to appease his southwest-side constituents and give himself plausible deniability when the protesters showed up at his door.

So now what? It’s not clear. Houlihan doesn’t have the clout to pass the bill on his own. Daley’s reluctant to push hard for the cap until he’s convinced it won’t impede the flow of tax dollars he needs to pay off the city’s swelling debt. And Madigan, well, it’s always a little more complicated with him.

I’ve heard several kooky explanations from Springfield watchers trying to figure out why the speaker helped kill a bill he ostensibly supported: he doesn’t want to to hurt his law firm, which does a highly lucrative business in property tax appeals; he’s carrying water for the Chicagoland Chamber of Commerce, which opposes the cap; he wants his daughter, attorney general Lisa Madigan, to be in a position to save the day if she’s elected governor in 2010. On another level the jousting’s personal. Daley doesn’t trust Madigan, Madigan doesn’t trust Daley, and neither fully trusts Houlihan, who they figure is trying to parlay the property tax issue into a run for higher office.

Madigan’s chief spokesman, Steve Brown, scoffs at these theories and says that people have greatly exaggerated the control the speaker has over the house. “Not every bill he supports becomes law,” says Brown. “I know that saying this destroys the myth we took so long to build, but it’s the truth.”

If the stalemate continues the cap will expire, though that might not be so bad–it’s hardly without flaws. It has failed to provide relief across the board, shifting the tax burden for home owners in some neighborhoods to home owners whose high assessments offset the increased exemption–roughly 20 percent saw their taxes go up in spite of it. And being confined to households, it does nothing to improve the lot of commercial property owners. It might be best just to let it die and force Daley and County Board president Todd Stroger to confront the issue of tax rates truthfully.

Instead look for Houlihan to broker some behind-the-scenes accord between Daley and Madigan that will enable all parties to come together next May and ratify a compromise that will probably only make the system even more complicated and inequitable.

Milton Friedman Is Rolling in His Grave

On November 17 the Tribune eulogized the late economist Milton Friedman, contending that his laissez-faire libertarian ideology had won the battle against its interventionist adversaries.

“Friedman takes with him the satisfaction of the iconoclast who lives to see his once-revolutionary ideas prevail–and his enemies surrender,” the Tribune editorialized. “Friedman spent his career nudging the world of economics toward the realization that the free choices each of us makes daily have more power to deliver prosperity than the elaborate plans and infernal tinkering of government officials.”

Well, if free-market policies have triumphed, the news hasn’t hit here, where Friedman developed many of his ideas as a professor at the University of Chicago. In Chicago the city’s forever tinkering with the local economy, using subsidies from its burgeoning tax increment financing funds to hand out money to the benefit of one person over another.

A recent example is the latest chapter in the Canal-Congress TIF, which includes 550 W. Adams, where USG Corporation will move its headquarters in January. In 2004 USG, a manufacturer of building materials, was threatening to move from its present building at 125 S. Franklin to the suburbs. In order to keep the company in town, the city gave it $6.5 million in TIF funds to move into the 18-story commercial tower developer Steven Fifield was building in the West Loop. The deal enabled USG to a sign a 15-year, $88 million lease with Fifield to rent 479,000 square feet of space.

Talk about screwing with the market. As a member of the city’s Community Development Commission, which oversees TIFs, pointed out back in 2004, USG, which began Chapter 11 bankruptcy proceedings in 2001, could have found less expensive commercial space in the Loop. In effect the city gave USG an incentive to pay higher rents to move to Fifield’s building, in the process enabling Fifield to fill up more than half of his development. It also made Fifield’s property more attractive to out-of-town investors looking to buy buildings with guaranteed rents.

Not surprisingly, Fifield recently sold 550 W. Adams for at least $168 million to SEB, a German company, according to a November 20 article by Thomas Corfman in Crain’s Chicago Business. As Corfman points out, it cost Fifield around $123 million to construct the building. Thanks to the TIF deal Fifield makes $45 million, SEB gets a building whose leases are largely filled, and USG gets a break on its rent.

It’s somewhat harder to quantify what we, the taxpayers, get for subsidizing this deal. Property taxes on 550 W. Adams will be funneled into the Canal-Congress TIF until 2021. By keeping USG in town we do keep the monthly head tax of $4 per employee it pays the city. If USG makes good on its promise to keep at least 500 employees in its headquarters, we’ll make at least $24,000 a year in head taxes. In just over 270 years we’ll have recouped the $6.5 million the city paid to subsidize the deal. I hope your great-great-grandchildren are around to enjoy it.

There’s still one little problem. The building at 125 S. Franklin is looking for tenants to replace USG. As Corfman points out, it’s in the newly created LaSalle Central TIF district. Don’t be surprised if the owners come to the city looking for TIF help.

Art accompanying story in printed newspaper (not available in this archive): photosTim Boyle/Getty Images, AP Photo/Seth Perlman.